European stocks sink on Credit Suisse fears; oil rises

LONDON: European stocks sank on Monday on fears over the health of Swiss bank Credit Suisse, while oil jumped on expectations of an Opec output cut.

Investors are already on edge over worries that rising interest rates, aimed at fighting sky-high inflation, could spark recessions.

The British pound bounced above $1.12 ater the UK scrapped plans to axe its top income tax rate, ater a debt-fuelled budget had sent sterling spiralling to a record dollar low one week ago.

“Sentiment is still prety dicey and Credit Suisse is definitely weighing heavily on European equities,” Markets.com analyst Neil Wilson told AFP.

“A globally systemic bank requiring to raise capital would be a major event and could certainly undermine confidence in the banking system.”

Shares in Credit Suisse plunged to a new low in Zurich on Monday as the scandal-plagued lender sought to ease concerns about its financial health.

Stocks tumbled almost 10 percent to 3.58 Swiss francs ($3.61) before clawing back ground to 3.65 francs, down more than eight percent.

The Financial Times reported that senior executives sought over the weekend to reassure big clients and investors about the bank’s liquidity and capital position due to concerns raised about its financial strength.

“The sad reality is that if there is something wrong with Credit Suisse, then we have a major issue as this is a gigantic institute, and the domino effect will be unbearable,” said Avatrade analyst Naseem Aslam.

Oil briefly leapt by more than four percent as reports said Opec and its allies are considering a major output cut to stem a price plunge caused by demand worries.

That stoked stubborn concerns about soaring inflation, which has been fuelled this year by skyhigh energy prices ater key producer Russia’s invasion of Ukraine.

“The rumours of a potential Opec production cut won’t do anything to calm worries about inflation and a recession,” said IG analyst Chris Beauchamp.

The 13 members of the Organization of the Petroleum Exporting Countries (Opec), led by Riyadh, and their 10 partners led by Moscow will physically meet on Wednesday for the first time since March 2020.

The pound rallied briefly ater UK finance minister Kwasi Kwarteng made a major U-turn with the scrapping of a controversial plan to axe the top income tax rate.

The cut was part of a controversial mini-budget unveiled by Kwarteng 10 days ago, which had sent sterling spinning to a record low of $1.0350.

Uk gil ts, or government bonds, remain supported by an emergency Bank of England intervention ater yields rocketed following the debt-fuelled budget late last month.

Asian equities mainly fell Monday, with Hong Kong tumbling to its lowest point in more than a decade as fears for China’s economy deepens this year’s investor rout.

The Hang Seng Index shed 0.83 percent, or 143.32 points, to close at 17,079.51.

But crucially it crossed below the 17,000 level in the aternoon, touching a nadir not seen since October 2011 and the atermath of the global financial crash and during the eurozone debt crisis.

US stocks rose broadly in morning trading on Monday and Treasury yields eased off their multiyear highs as Wall Street leaves behind the worst month since the virus pandemic crashed global markets.

The S&P 500 rose 1.8% as of 10:23 a.m. Eastern. The Dow Jones Industrial Average rose 576 points, or 2%, to 29,305 and the Nasdaq rose 1.3%.

Energy stocks made the biggest gains as US crude oil prices jumped 5.4%. Exxon Mobil rose 4%. The oil cartel OPEC is expected to announce production cuts this week. Technology stocks also made strong gains. Microsot rose 1.5%.

Treasury yields fell significantly and relieved pressure on stocks. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.63% from 3.83% late Friday. The two-year yield, which more closely tracks expectations for Federal Reserve action on interest rates, fell to 4.08% from 4.27%.

The British pound strengthened and borrowing costs for the UK government fell ater the new, embatled government of Prime Minister Liz Truss abandoned plans to cut income tax rates for top earners, part of a package of unfunded cuts that had set off turmoil in financial markets and sent the pound to record lows. The gains to kick off October follow a dismal September for the broader market, when stocks put in their worst monthly performance since March 2020. Every major index is in a bear market, which is a drop of 20% or more from its latest record high. The benchmark S&P 500 is down more than 23% for the year.