By Geoffrey Smith
Investing.com -- Crude oil prices surge on reports that OPEC and its allies will cut output sharply when they meet this week. The pound gains after the U.K. government makes an embarrassing U-turn on its tax cuts for high earners. Credit Suisse stock falls to a record low as its CEO fails to reassure markets of its financial stability. Tesla slumps in premarket after weak delivery numbers, and the IEA warns of major fears over gas supplies this winter, as Russian troops retreat from areas annexed by Moscow on Friday. Here's what you need to know in financial markets on Monday, 3rd October.
1. Crude rallies as OPEC+ flags output cut
Crude oil prices rallied, along with oil and gas stocks, after reports suggesting that the Organization of Petroleum Exporting Countries and its allies will cut output by 1 million barrels a day when they meet in Vienna on Wednesday. It will be the group's first in-person meeting of the year.
The bloc has been unnerved by the sharp drop in prices during the last quarter, which left U.S. crude futures down 23% and Brent down 25% from their levels at the end of June. Higher U.S. interest rates, a more expensive dollar and the accompanying prospect of a worldwide economic slowdown have all weighed on prices in recent weeks.
By 06:40 ET (10:40 GMT), U.S. crude futures were up 4.0% at $82.84 a barrel, while Brent was up 3.9% at $88.47 a barrel. In the stock market, BP (LON:BP) stock rose 2.1% and TotalEnergies (EPA:TTEF) stock rose by 2.2%, while in the U.S. premarket, Exxon Mobil (NYSE:XOM) stock rose by 2.7% and Chevron (NYSE:CVX) stock rose by 2.6%.
2. U.K. U-turn
The U.K. government executed an embarrassing about-face, dropping its plans to cut taxes for the country's highest earners after a furious political backlash from both the public and from Conservative lawmakers fearing the loss of their own seats at the next election.
"We get it," the Chancellor of the Exchequer tweeted, in a statement acknowledging that the scrapping of the top 45% rate of income tax had become a "distraction".
The pound and short-term government bonds strengthened a little on the news, on perceptions that the Bank of England may not have to raise interest rates quite as aggressively to temper the inflationary impact of Kwasi Kwarteng's 'mini-budget'. However, longer-dated Gilts weakened on the realization that the bulk of the £45 billion ($48 billion) tax cuts promised two weeks ago are still in place - and are still set to be funded exclusively through borrowing.
3. U.S. stock to open with modest bounce; Tesla update weighs
U.S. stock markets are set to open modestly higher after slumping to their lowest close of 2022 on Friday on continuing fears about a growth slowdown and its effects on corporate profits. The extent of that is likely to be only too visible in the upcoming earnings season.
By 06:25 ET, Dow Jones futures were up 135 points, or 0.5%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were down 0.1%.
Nasdaq was underperforming due largely to disappointing third-quarter delivery numbers from Tesla (NASDAQ:TSLA). It shipped only 343,830 vehicles in the three months through September, some 4% short of consensus expectations.
Tesla warned that “it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost” at the end of the quarter, when it typically increases deliveries.
4. Credit Suisse slumps as CEO sets alarm bells ringing
Credit Suisse (SIX:CSGN) stock slumped and the cost of insuring its debt against default exploded, as fears for its stability continued to swirl.
Chief executive Ulrich Koerner, who is set to announce a major restructuring of the fallen Swiss giant later this month, had told staff on Friday that the bank is looking at “a number of strategic initiatives including potential divestitures and asset sales," with the aim of creating “a more focused, agile group with a significantly lower absolute cost base."
Credit Suisse’s recent high-profile failures in risk management – embodied by the blow-ups of Greensill Capital and Archegos Capital Management – have led markets to speculate that it may also be on the wrong end of big bets on interest rate derivatives, something that could prove highly expensive in the current environment, if true.
5. IEA warns on gas supplies; Russian forces retreat from 'annexed' territory
Russia's troops abandoned more territory in eastern Ukraine at the weekend, only hours after President Vladimir Putin formally annexed them, as Ukrainian forces continued to make advances on the battlefield.
Russian troops withdrew from the town of Lyman, surrendering a rail junction that is key to supplying troops further to the south and west of the country. That includes troops stationed west of the Dnieper river in the province of Kherson, where Ukrainian forces recaptured a string of settlements in a 25-kilometer advance on Sunday.
The reverses have accentuated Russia's use of its gas supplies as an economic weapon: it cut off supplies to its second-largest European country, Italy, at the weekend, after election winner Giorgia Meloni failed to signal any weakening in Italy's support for Ukraine.
Elsewhere, the International Energy Agency warned that gas markets face "unprecedented" uncertainty this winter and into 2023 as dwindling levels of key Russian supplies drive up prices and disrupt trade flows, especially if the European Union does not take steps to curb demand.