can do it near a train yard, then it would--ding, ding, ding, ding, ding, ding, ding, you could do that. or long beach. we're waiting out here! that--that's right. good morning welcome to "street signs." i'm joumanna bercetche >> i'm tjulianna tatelbaum these are your headlines >> following market chaos and pressure from within the ruling party. the finance minister says the u-turn allows them to move on from drowning out the rest of

the plan european markets kick off poor on the back foot with stock falling and the dow at the lowest level since november of 2020 credit suisse is reported calling for reassurance fail to win over investors as shares plunge amid rising concerns over the capital position and restructuring program. crude prices higher amid opec and allies will consider cutting output to put a floor under prices good morning welcome to "street signs." we have a packed show for you today. before we can talk about what is happening in the uk, i want to bring you the manufacturing pmi numbers we got moments ago of

the numbers. this is the flashes estimate of 48.5 versus 49.6 for suggest the trend is on a downward spiral below the 50 line and we are in contraction territory. the cost of living crisis weighs on spending. i think we have been talking about that a lot the numbers confirmed at the lower level than back in august. you can see the reaction in euro is not very much today the theme has been one on dollar strength for the last couple weeks. all right. let's get on to the top story this morning the uk government has u-turned on the tax policy. in the announcement this morning, chancellor said plans

to abolish the tax rate had become a quote distraction from the government's mission to tackle issues facing the country. uk prime minister liz truss reiterated the claim saying this was a distraction. the focus is now building a high growth economy to boost wages and create opportunities let's get to the market reaction to the announcement. a major u-turn sterling triading higher against the dollar in the gilt market action, this was a source of tremendous action triggering the intervention from the bank of england to shore up bond markets here is how gilts are trading. yields moving lower across the curve. 10-year gilt 0.3%. yields moving lower across the board. in terms of equity markets, the

ftse is down 1.4%. we seeing a pull back in european stocks after the bounce back on friday ftse trading with europe overall. arabile is in birmingham what a morning the first conservative party conference and it is one with plenty of action i think the big question for ma markets, arabile, if the country was to listen and cut back to the 45% tax rate what more changes could be in the queue? >> reporter: joumanna, straight out of the frying pan and straight into the fire that has been the case you are quite right. if this is one of the elements

they could renege on, they could renege on others he said in one of the inn tervis here, kwarteng, there was admissions and he is willing to own it that gives you the sense remorse in the decisions put forward and so what else is going to change at a time like this we are expecting the uk chancellor to actually deliver conferenc conference speeches to come through at 4:15. that will offer what's next. the distraction that he is continuously noted as the 45% tax cut abolishment being is one he will have to explain a little further. why is that a distraction to what he believes is certainly a big part of the growth plan they put forward if it clearly seems

it was the main agenda piece as part of the tax plan that growth plan for the government they are focused on it and firmly believe the conversations of how to grow the economy are about making taxes simpler that is still the sentiment here we will find out from the mps whether continuing to get the support from those mps will be critical for liz truss and try to get word from them if they support liz truss and, of course, the uk finance minister as they continue to offer up that mandate of where to go from here and what to do next as we head to the fiscal plan on november 23rd. they could offer a sense of what the markets could be looking forward to in some ways. any major changes, he said, there will be no further tax cuts particularly until the phyfiscal

plans come in november there are changes and how that filters into tax savings a good question for the market we will look for a few more answers -- rather than sitting back with more questions than answers. that will be key right now to offer up a sense to the markets that things are going to be stable and where the boe will go from here. it will be interesting to get a word from the imf. >> that is shaping up to be an important date for the markets unless there are other announcements at the conference. let's bring in the investment partner from aon let's bring in your thoughts on the tax reversal or change in stance from the government this morning and particularly the chancellor himself saying they listened and they are now reversing that decision.

fiscally, it isn't that impactful. if you look at the numbers, it is worth 2 billion pounds the next couple years. politically, it is impactful what is your take on what we discovered this morning? >> thank you for having me this morning. in our world and pension and gilt world, the finances are not really moving the needle if you compare this to the energy cap where we have expected to load 150 billion pounds of gilt into the gilt market or the 70 billion pounds of tax cuts into the market. that actual number at the 45% level is pretty small. what it does show is it is sym

symbolic if i look at markets in the last week, markets were eclectic. when the markets saw that on sunday, there is more to come. that's what was starting to really, really scare the markets. from my clients' perspective as gilt holders, they are saying is anyone watching this is anyone watching what is happening in the market? it is carnage. the bank's gentlesture was symbc they are using any breathing space they can get to stock up or replenish portfolios from the damage that happened over the last week. >> talk more about the damage that occurred last week which prompted the bank of england to

respond. many people reported that pension funds were on the brink. again, if you look at the detail, it seems to me this was more of a liquidity issue than solvency issue because of the rates being higher and the value dropped. a lot of the pension funds were in decent shape. the issue is the major selloff in gilts and pension funds were not able to meet the margin calls quickly enough can you describe what went down with the pension fund community monday and tuesday last week and how bad it was >> great question. you hit the nail on the head this was a liquidity crisis. it was a gilt market crisis leading to liquidity crisis for pension funds. it wasn't a solvency crisis. they are holding the gilts as a hedge against their liabilities. all of last week, you had gilt yields going up and up and

liabilities going down as of friday, you had this almost dream scenario for pension funds for liabilities coming down uickly and really quickly that dream turned into a nightmare for the pension funds. it was becoming clear this market is designed for money to be moved over days, weeks. the typical collateral call for the funds is due to take five days pension funds, literally, could not get the money from where it was to where it needed to be quickly enough all the time, the market was effectively eating itself. you had some people calling it the doom loop or death spiral where pension funds are effectively to meet collateral calls, they are selling more

gilts. you have spiraling effect where effectively it was hard to see where the floor was until the bank of england stepped in that was the event you are looking for event risk here what's going to stop this and risk to the pension fund the clients get the hedge caught in the back of my mind, i have mario draghi saying i'll do whatever it takes in his eurozone speech. that is what the bank of england did. they will do whatever it takes and put a floor under the market as the conversations are unfolding with the pension fund, you are saying how can we get money to where it needs to be quicker? you have massive hundreds of pounds going on. you have corporate discussions saying we've got balance sheet can we put money to the pension fund can we land it can we get term liquidity funding going through?

the challenge was a race against time in the past week. >> callum, incredible. the market eating itself last week it makes it easy for us to understand the pain felt in the pension funds. the bank of england will agree to the funds until next week >> the pension funds have gone from critical to stable. they are still in icu. they are still on ventilation. that is where we are right now next two weeks are particular. first off, it is repair and it is really get the money to where it needs to be quickly and not leaving that until the last minute. not leaving that until the 14th of october pension funds are repairing

positions and getting to where they need to be as quickly as they can we are a third of the way through this breathing space period already these are decisions around, you know, what is the interest rate inflation hedge and what it will do to the overall return target and recovery plan. these discussions normally take six months this is all happening in a two-week window. pension funds have to make tough deci decisions. they have to sell investment from the other holdings to prop up the holdings. they will take bigger transactions costs there is not liquidity in markets right now. all the while, they are keeping an eye and making sure the hedges get maintained. the event risk if you were to close out the day that the bank of england made the intervention and had a 70

basis points change, that's a big funding hit. they are working in overdrive to make sure the positions are shored up. >> callum, thank you for the insight and joining us this morning. appreciate it. callum mckenzie. investment partner at aon. >> interesting to see what happens after the 14th date once the bank of england support is no tlonger there. you see a lot of red behind me on the first day of the new trading month. the stoxx 600 is down 1.4% we had the pmi manufacturing numbers and flash numbers confirmed below 50 at 48.5 that doesn'tperspective. we have a lot of stories we are focused on uk and the government decision to reverse the income tax cuts for the top levels of high income earners.

there are other stories that we are focused on namely in the banking sector with credit situation down we will talk about that. the breakdown for the markets. the ftse down 1% it is is taking the cue from the announcement from the government this morning on the tax cut. cac 40 down as well. dax is down as well. we will talk about the germany borrowing plans going forward given the chancellor announced a 200 billion euro stabilization fund to deal with the energy crisis julianna was at the summit on friday no widespread agreement on gas caps this is an interesting development as to how each national government will have to deal with the energy crisis on the stand alone basis given they cannot come to agreement at the eu wide level.

ftse mib down 1% gazprom stopping flows those flows come down to zero. that will have an impact on russian gas through italy. as you have been reporting, the country has been successful at diversifying away from russian gas. still an impact there as well. this is what the sector board looks like tech stocks leading declines down 2%. financial services down the same at 2.4%. banks in focus down 3% we will get to that in a moment. off the top, oil and gas up. do not forget opec plus meeting this week. scheduled to happen in person in vienna the expectation is we might be looking at a further cut of supply which has been boosting the oil complex this morning

you mentioned credit suisse. it will release third quarter earnings the swiss lender shared a memo with cnbc which acknowledges uncertainty and speculation. the lender is on track the statement comes after reports the firm spend the weekend reaching out to clients to bolster confidence. credit suisse shares down 9% joumanna, there are reasons this story is causing concern to me, one, the massive pull back in shares is what we are seeing and we see default swaps which is worrying especially if the bank is going to come to market to raise capital. and two, this is something the reddit community picked up on. they talked about this over the weekend. we know what happens

>> if you look at the extent of the share fall price over the year, it is substantial. down 50% for the year as a whole. the banking sector down 20%. if you look at the price to book ra ratio, it is sitting at .2 one-third of the ratio of the other banks right now. it is under valued i would say the new ceo came in in july he seems to have a lot of plans to restructure the bank. they said they will make a big announcement come q3 earnings. that is the end of october the ft reporting a couple weeks ago, they were looking to break up the investment bank to three units. one is bad bank and one advisory and the rest staying as it is. at the same time, they also announced they will have to go through restructuring which will entail a lot of job cuts

i want to point out that deutsche bank analysts said they expect to amount $4 billion. that creates a hole in the finances this is one of the concerns from the investment community of how they finance the restructuring costs. >> it is remarkable after all that and the shares negatively and still sellers are involved it will be interesting to see if sellers come from the reddit forums. abb created the spin off of accelleron they listed offering one share for 20 abb shares. abb ceo said the spinoff is the important step in the growth strategy we will speak to the ceo daniel

bischofberger this morning. and coming up, fresh sanctions and the eu warns of the step up invasion of ukraine. hi. i'm wolfgang puck when i started my online store wolfgang puck home i knew there would be a lot of orders to fill and i wanted them to ship out fast that's why i chose shipstation shipstation helps manage orders reduce shipping costs and print out shipping labels

it's my secret ingredient shipstation the number 1 choice of online sellers and wolfgang puck go to shipstation.com/tv and get 2 months free

welcome back to the program. opec plus is reportedly considering an output cut of 1 million barrels a day. they will hold a meeting this week to discuss the potential cuts we are seeing reaction in oil markets. brent is up strong 4% at $88 wti trading higher on the back of the news. up 4.4%. oil majors also catching a strong bid in the bounce of oil. bp at 2.2% shell also trading higher. russia has held celebrations to mark the incorporation of four ukraine regions

this is after the series of referendum this prompted a fresh round of sanctions including the central bank the eu accused russia of violating international law and adding it will never recognize the illegal referendum and volodymyr zelenskyy expended responded by announcing they are taking the steps for the protection of the people and the country's army proven compatibility with the nato alliance and the town of lyman has been recaptured. an update from the defense ministry said troops withdrawn from the town. russia's military used lyman as

a logistics hub and this marks the latest setback for vladimir putin. also coming up on "street signs. we get the latest read on the manufacturing health with pmi data on tap. we'll be right back.

hi. i'm shannon storms bador. when we started selling my health products online our shipping process was painfully slow. then we found shipstation. now we're shipping out orders 5 times faster and thanks to shipstation's discounted rates we're saving a ton. honestly, we couldn't do it without shipstation join over 100,000 online sellers who get ship done with shipstation go to shipstation.com /tv and get 2 months free.

welcome back to "street signs. i'm julianna tatelbaum >> i'm joumanna bercetche. these are your headlines >> the lady is coming. market chaos and pressure from within the ruling tory party the u-turn allows them to move on from the turmoil drowning out the plan. and european markets kickoff q4 with banks stocks weighing heavily. a mixed point on wall street

with the dow at the lowest level since november of 2020. credit suisse fail to win over investors as shares plunge amid rising concerns of the capital position and restructuring program. and crude prices move higher opec and allies will consider cutting 1 billion barrels a day in a move to put a floor on prices we are getting the final manufacturing pmi numbers from the uk similar it tto the eurozone a hf hour ago final pmi at 48.4 versus the estimates of 48.5. still in the sub-50 territory. of course, pointing to further weakness

in august, it was 47.3 one other thing highlighted by the s&p is that they are seeing weak foreign demand. this is not just domestic issue over here in the uk with energy prices higher and beginning to bite output. we are seeing weakness as well of course, we talk about this in the contention of the british economy on the cusp of recession or the bank of england saying perhaps already in recession we keep a very close eye on how it impacts manufacturing and ser services julianna >> joumanna, thank you turning to broader markets we have red across the board starting off the final quarter of the year on the back foot ftse 100 down 1% cac 40 down 1.6%

d dax down 1.4% the down week and down month and down quarter for europe. turning to foreign exchange markets. we have the euro and sterling trading firmly versus the dollar sterling up .50% after the u-turn from the uk government this morning the question now is if the uk government is quote/unquote listening to the calls for a change in policy what further policy change is in store? so far all they have done is backtrack on the plan to scrap the highest tax rate of 45%. 112 is the trade for sterling. let's take a look at wall street and u.s. futures mixed picture. payrolls report due out. we saw the dow register its first close under that 29,000 mark since november of 2020. a mixed start after a down end

to the week on friday. let's dive into key energy corporate stories. rwe will pay $6.8 billion to buy u.s. firm con edison it will double the size of the renewables portfolio in the united states. rwe shares trading 1.2% higher and eni will not receive gas from gazprom today the disruption in the gas supply is likely to remain until october 4th at least eni shares trading 1% higher brothers of italy leader giorgia meloni said her government will take action to combat surging energy prices meloni is expected to be named prime minister after leading the

center-right coalition party to victory. she said she will defend italy's national interests a handful of eu member states are expected to draft legislation for gas cap. poland is among the countries calling for a top limit alongside belgium, italy and greece european energy ministers discussed this on friday, but failed to meet agreement a story which you have been following closely. >> for sure. it is an important one for all of us to follow. germany says it is against an eu price cap after announcing $200 billion support package from rising interest costs. berlin's trust is paying the difference to the market price it is not the saumme as agreeing to pay the fixed price

christian schultz is joining us from citi. christian, we read through the note you published on the back of the 200 billion euro support package from the german government i want to kickoff germany's view on the eu wide wholesale gas price cap. they are expense the gas price cap. i want to know why that is is this because germany is so desperate for lng that they don't want to risk compromising the critical supplies? >> indeed. i think that is exactly it, julianna the price cap on the eu gas imports would probably be enforceable in the global markets. they would be able to out bid and get enough gas on aggregate. the problem is within the eu afterwards we need price signals within the

eu to get to the right place otherwise we need a quota system where the gas that comes in is distributed to germany which will be complicated. germany needs the intra-eu pricing signal where it is most desperately needed >> i'm scurious in the germany package. it doesn't do anything to shore up energy supplies it is all about cushioning the blow for consumers and businesses within germany. at the same time, the problem is supply itself. if we end up in an incredibly cold winter, how is germany going to be positioned >> it is a very small supply component in the paper they agreed last week at the start, actually they want to extend nuclear for a little bit to generate electricity. as you say, that is not the main issue here

the main aim is clearly to help households and help firms with the big hit to profits and big hit to incomes that the high gas prices entail. we don't know the details of this yet, the german government is proposing something different from what other governments like the uk and other countries like france is doing. it is not a outright cap it will be a basic need of energy which will be cheap everything beyond that is expe expensive. there will be an incentive to save gas there will be money sent to households and firms which is going to boost demand and generate other problems as we have seen in the uk. >> christian, joumanna here. let talk about the size of the package. 200 billion euro how will germany fund it >> joumanna, first of all, that is a very interesting question from the point of view we had.

huge announcements from germany in the past. 600 billion economic stabilization package and that got watered down a fraction has been used we have to be careful taking in announcements at face value you. th they need to be careful at spending their money they are good at announcing things and bad at delivering it afterwards they want to use an existing balance sheet fund with the economic stabilization fund which exists since the pandemic. whether that will lead to borrowing or whether it leads to guaranteed loans because this fund can do both, we shall see all we know is there will be an number of 200 billion euro we don't know what they will spend it on. there is political commitment to bring down gas and electricity

prices for households. >> i didn't mean to be a little bit irreleverent with me questi, but the question of how they are funding is super important we have seen what happened in the uk the last couple weeks and in the contention of germany, this country for so long has kept to the black zero policy now in a situation where they have no choice to come out with the fiscal packages. how does this change the mind set? is black zero going to be a remnant of the past? >> yes it is not irreleverent at all. we are talking 6% of german gdp. germany has a better starting point than other countries a lower debt-to-gdp ratio. a lower external funding need.

still running at surplus it can afford this the risk is more that others will follow that example and others will find constraints are bigger if they don't, germany is crowding out everybody else. that is some of the criticism coming germany's way there is a euro meeting for finance ministers today. that is problem atic for the countries. how is the ecb going to react when the uk government announced the bank of england which caused the turmoil. central bank and finance smin ministers. >> christian, on that note, how do you think of the inflation impact of the package? on the one hand, you are bringing down the cost of energy which is the key driver of inflation throughout the economies. on the other hand, you are

injecting the fiscal stimulus. >> i think it is an illusion to think of it as inflation break or price break in germany. yes, it lobs a few percentage points off the headlines in the next few months once it is implemented. it delays inflation into the future, julianna it may lead to borrowing or direct energy prices it may actually be repaid by higher energy prices in the future because it stimulates demand, mask for energy, actually, it will drive up wholesale prices and it will actually increase inflation, not decrease. it certainly is not an anti-inflation measure. >> that is all before what it does for demand for energy if you are sub yousidizing

christian schultz from citi. thank you. coming up on "street signs." turning the page the chancellor walking back the 'lha me tethbr wel veorafr e eak.

when we started selling my health products online our shipping process was painfully slow. then we found shipstation. now we're shipping out orders 5 times faster and we're saving a ton. go to shipstation.com /tv and get 2 months free. millions have made the switch from the big three to the best kept secret in wireless: xfinity mobile. that means millions are saving hundreds a year with the fastest mobile service. and now,

introducing, the best price for two lines of unlimited. just $30 per line. there are millions of happy campers out there. and this is the perfect time to join them... see how easy it is to save hundreds a year on your wireless bill over t-mobile, verizon, and at&t. talk to our switch squad at your local xfinity store today.

this morning's top story uk government u-turned on the tax policy in the announcement this morning, the chancellor said plans to abolish the 45% tax rate have become a distraction from the government's mission to tackle issues facing the country. arabile has more from the conservative party conference. arabile, this has been a focal point for investors. what is the mood on the ground in birmingham? >> reporter: it is boiling up now. we are getting busy this morning in what is officially the start where things could get a sense of more members of parliament coming to the floor.

more conservative party members making themselves present here as well. the key to look out for today is the uk chancellor kwarteng's address at 4:15. he has already been on interviews to local media sharing plans with regards to the tax cut proposal which has been scrapped and really saying there is contrition and humility he see what is people are saying he and liz truss, the prime minister, have had conversation around it and moving forward to find a better way to do this maybe looking at how to simplify the tax reform more. still a few more questions around what exactly they plan to do what is the office for budget responsibility putting out

the questions around the secretary in the treasury also being around when the budget was put forward. and it had nothing to do with the budget as well a few elements of the mini budget which has come to the floor and including the energy price cap which impacted the market we may get a sense of stability. the public address since the mini budget, the first will be later today. perhaps the key sentiment from that will be the need to ensure markets understand exactly where he plans to go when it comes to the budget requirements and what else is needed to get his party behind himself as well as liz truss and get a fresh mandate. he has only been here for a month on wednesday clearly, nervousness, but a lot

of words coming through that they are backing them and really how you set about the message and how you say what you say is just as important as what it is you are saying of course, warning to the markets will be critical heading off to the 23rd of november with the fiscal plan. a lot coming through we will be trying to get word from mps and if they feel more could be done and maybe we could get a sense of what is coming up next we will be here in birmingham with the latest. >> thank you, arabile. let's bring in the senior strategist at ravebank we are sitting at levels of pound versus dollar which was before the mini budget we have done a roller coaster and gone back to friday morning before the budget.

my question is whether or not you think the reversal is significant in the face of other more structure issues facing the pound. namely the largem amount of borrowing that is happening. >> i think you are quite right these are issues still outstanding. the tone of the u-turn is welcomed we see the markets reacting well this morning as you alluded to, the greatest part of the borrowing that came from the 23rd of september mini budget is still there. it is still unfunded we have had lots of whispers and speculation over last few sessions that the government will be looking at other side of the ledger looking at what they could cut in balancing the books. i think we understand that is not going to be easy it may not be popular. there is a lot of pressure here. we have to remember the gilt

market is supported by the i intervention from the bank of england. that is due to come to end at the 14th what the bank of england is doing by supporting the gilt market is opposed it is trying to fight inflation and hiking interest rates and on the other side we know it has to come to an end with the extraordinary measures. once it does, if the markets don't believe in the credibility of the government's policy, gilts will still be exposed and so will sterling far from out of the woods yet. >> on that note, i wonder whether this u-turn from the government helps or hinders the credibility. you can argue this is great or the government is quote/unquote listening. on the other hand, it did not take much to backtrack on the

massive plan they announced. >> i think you are right can liz truss ever fully win back credibility and trust with the markets and elections, too we see the polls suggesting l labour has a huge lead some fear if they allow liz truss to remain leadership going into the 2024 election, then she could be giving it away to labour those are the concerns right now, it will be very difficult job if not impossible job for liz truss to win back the trust and credibility from the point of view with the markets and probably also from the point of view of the elect tel electorate >> and talking about tough jobs. let's switch over and talk about the bank of england.

two parts of the bank trying to do two contradictory things. they have to sell gilts starting the end of october very distinct in approach of the monetary policy and financial stability. to what extent can the pound be supported by the bank of england next interest rate decision on november 3rd >> the bank of england finding it difficult with sterling since the may interest rate hike they hiked as expected in may it was 25 when sterling went down. interest rate hikes which have been coming at great increments have not necessarily been supportive of the currency that is largely, of course, because of the mighty dollar and interest rate hikes expected from the fed in terms of the uk, there is a little bit of a credibility issue here it comes backing to the original question the deficit. this is really important if international investors that

need to fund this account deficit don't like the lineup of the fundamentals they see, they will not want to fund that deficit unless uk is cheaper that is the dynamic we have seen for a while. most dramatically since the mini budget it is likely and also investors really do believe in the fiscal outlook of the government and unless they believe we have a government that is going to put in measures they want to see that will increase investment and productivity it is very likely that gilts and sterling will remain vulnerable. >> the uk is facing a number of challenging that other countries are facing we spoke with christian schultz at citi. we wonder if this will create a

canary in a coal mine. other european countries under pressure in the months ahead to provide more fiscal support to get through the energy crisis? >> i think there will be as you mentioned, the energy crisis is the common denominator. this is the element which is put in a huge amount of pressure on finances many other countries decided a windfall tax is the better option this really draws into question the thinking behind liz truss' policies she really is a free marketeer she believes in you were to put in a windfall tax on energy company, some have been making extraordinary profits, that's bad for investment that is her thinking that is what we have to get down to do the markets believe in that does the electorate believe in

that right now i think you could say that actually a windfall tax would be the easier option in terms of market reaction and in terms of the elelectorate too she may be rethinking her policy dynamic. >> i was out if italy covering the elections and the reason the outgoing mario draghi government has so much room is they are funding there. every national government is approaching the same problem with a different manner. jane, it is a please touure to you on senior strategist. a quick look before we head out. it is not a pretty day across european trading all of the majors are trading in negative territory dax is down.

cac 40 is down 1.3 a lot of focus on the ftse 100 in the uk down 1% after the government decision to scrap the decision to cut income tax for highest earners. that has been met well from a political standpoint a lot of the economic and funfund fun fundmental issues still stand. credit suisse is the story we will monitor in the coming days. that is it for the show. i'm joumanna bercetche >> i'm julianna tatelbaum. thank you for watching "street signs. "worldwide exchange" is coming your way next.

it is 5:00 a.m. at cnbc global headquarters. here is your top "five@5." under pressure the stocks do something for the first time since november of 2020. opec getting ready to slash output. a developing story in the united kingdom as liz truss' government pulls historic u-turn on the controversial new growth plan. plus, a major european