European Stocks Close 2.3% Lower as UK Tax Cuts, Weak Euro Zone Data Roil Markets

Brendan McDermid | Reuters

This is CNBC's live blog covering European markets.

European stocks closed sharply lower on Friday, as investors digested a raft of central bank decisions and a new economic plan from the U.K.

The Stoxx 600 fell 2.3%, with all sectors and major bourses trading in the red.

Oil and gas stocks and basic resources were the biggest fallers, both down more than 5%.

The market moves come after the U.K. government announced a raft of tax cuts as the country prepares for a recession. Sterling plunged 3% against the dollar to $1.0919 in the hours following the news.

The Bank of England hiked rates by 50 basis points Thursday — its seventh consecutive increase — and said it believed the U.K. economy was already in a recession.

Also Thursday, the Swiss National Bank hiked its benchmark rate to 0.5%, a shift that brings an end to an era of negative rates in Europe.

The U.S. Federal Reserve, meanwhile, hiked by another three-quarters of a percentage point Wednesday, and indicated that the hikes will keep on coming.

U.S. stocks closed lower Thursday, their third consecutive daily decline, and futures were also lower on Friday.

Asia markets, meanwhile, were in the red, with Australian stocks down 2%.

British pound drops 2.8% against dollar

The British pound continued to fall into Friday afternoon, dropping as much as 2.8% against the dollar.

It was trading at $1.0941 at 3:45 p.m. in London, as analysts said the prospect of reaching dollar parity was certainly on the table.

Investors appear to have been "spooked" by the huge program of tax cuts announced by the British government coming at a time of much higher spending on an energy price support package and rising interest rates.

— Jenni Reid

Short-term German bond yields hit 14-year high

The two-year yield on German government bonds hit 2.0009%, its highest level since December 2008.

It followed a lower euro zone Purchasing Managers' Index reading, which led to renewed recession warnings, and the announcement of a program of tax cuts in the U.K., which triggered a sell-off in U.K. government bonds.

The German 10-year bond yield topped 2% for the first time since December 2011.

Last month, German bonds suffered their worst month since 1981 amid high inflation and volatility in energy and stock markets.

— Jenni Reid

Italian election: A likely victory for the far-right?

Italy's voters will elect the country's next prime minister on Sunday, with polls suggesting a shift to the right.

The snap election is likely to mark the country's biggest political shift for decades, as the nation continues to wrestle with economic instability.

Read CNBC's look-ahead to the election in full here.

— Hannah Ward-Glenton

Pound hits fresh 37-year low, down to $1.11

The British pound hit a new 37-year low against the dollar to $1.11, down 1.41%, following an economic announcement from U.K. Finance Minister Kwasi Kwarteng.

— Hannah Ward-Glenton

UK stocks fall, sterling rises on new economic plan

British shares fell and UK gilt yields surged following an announcement from the U.K.'s Finance Minister Kwasi Kwarteng.

The FTSE 100 was down 1.27% by 10:20 a.m., falling after Kwarteng started talking.

Sterling pulled back from a 37-year low to trade down 0.5% at $1.1190, and government gilt yields reversed their earlier fall. The 10-year yield hit at 3.602%, its highest rate since 2011.

Read the full story here.

— Hannah Ward-Glenton

UK scraps plans for corporation tax rise

British Finance Minister Kwasi Kwarteng confirmed the U.K. government would not increase corporation tax to 25% as planned.

The rate will stay at 19% in an attempt to jumpstart economic growth.

— Hannah Ward-Glenton

UK government announces $67 billion energy package and tax cuts

Britain's Finance Minister has announced a raft of measures to help with the increasing cost of living and boost the country's economy, including a £60 billion ($67 billion) energy package.

The package will subsidize gas and electricity bills for households and businesses over the next six months.

The government also announced tax cuts for businesses in designated sites, financial services reforms and scrapping bankers' bonus caps.

— Hannah Ward-Glenton

Euro zone likely entering recession as price rises hit demand

The euro zone will likely enter a recession as the downturn in business activity across the region deepened this month, according to S&P Global.

S&P Global's Purchasing Managers' Index (PMI) fell to 48.2 in September, down from 48.9 in August.

High energy costs hit manufacturers hard after Russia's invasion of Ukraine, and soaring prices have contributed to worsening business conditions.

September is the third consecutive month that the PMI has fallen below 50 —the benchmark separating growth and contraction.

— Hannah Ward-Glenton

FTSE muted ahead of the U.K.'s mini-budget

The U.K.'s FTSE 100 is fairly flat this morning as investors await a mini-budget from the country's Finance Minister Kwasi Kwarteng.

Measures laid out in the fiscal announcement are expected to boost the slowing British economy.

Tax cuts, energy subsidies and planning reforms are expected to make up the £200 billion ($225 billion) package.

— Hannah Ward-Glenton

HSBC warns investors to avoid European stocks

Investors should avoid allocating to Europe in the hunt for value stocks, as the continent's energy crisis means the risk-reward is still not there, according to Willem Sels, global CIO at HSBC Private Banking and Wealth Management.

"I would caution against buying Europe because of the cheaper valuations and interest rate movements," said Willem Sels from HSBC Private Banking.

Read more here.

Here's how the pan-European Stoxx 600 has traded year-to-date:

— Elliot Smith

Credit Suisse shares hit record low

Credit Suisse leads the market downturn early morning after a report of a possible capital raise.

Shares of the investment bank hit a record low of 4.335 francs in early trade.

— Hannah Ward-Glenton

European markets: Here are the opening calls

European stocks are expected to open in positive territory on Friday, as investors react to central bank rate hikes and U.S. recession signals.

The U.K.'s FTSE 100 index is expected to open around 25 points higher at 7,172, Germany's DAX is seen 38 points higher at 12,581, France's CAC 40 is expected to open up 13 points and Italy's FTSE MIB is seen 42 points higher, according to data from IG.

CNBC Pro: Is it time to buy Treasurys? Here's how to allocate your portfolio, according to the pros

The latest threat to stocks now isn't any macro risk — it's rising 2-year Treasury yields, according to some fund managers and strategists.

Short-term, relatively risk-free Treasury bonds and funds are back in the spotlight as the yield on the 2-year Treasury continues to surge.

So should investors be fleeing equities and piling into bonds?

Pro subscribers can read what the pros say about how to allocate your portfolio right now.

— Weizhen Tan

CNBC Pro: Back hedge funds to outperform equities and bonds this year, UBS says

As both stocks and bond prices fall simultaneously, hedge funds have broadly outperformed and are "well placed to navigate current market volatility," according to a new report by UBS.

As market volatility persists, the Swiss bank shared the types of hedge funds it prefers.

Pro subscribers can read more here.{=null}

— Ganesh Rao

Nomura downgrades China's 2023 growth outlook

Nomura downgraded its forecast for China's 2023 annual growth to 4.3% from 5.1%.

Analysts cited a potentially prolonged Covid-zero policy or a spike in the nation's infections after a possible reopening in March.

The latest downgrade comes after Goldman Sachs lowered its outlook earlier this week to 4.5% from 5.3%.

William Ma of Grow Investment Group told CNBC's "Street Signs Asia" he's optimistic on policy changes he sees coming after the People's Party Congress in mid-October.

—Jihye Lee

Futures start flat in post-market trading

Stock futures were flat after another tumultuous day, as investors continue grappling with the Federal Reserve's decision to up rates and worries about the health of the economy.

Dow Jones Futures went up 41 points, or .14%, to 30,190. The S&P 500 was up 4 points, which translates to .11%, at 3,776. The Nasdaq 100 rose 10 points, .09%, to 11,575,50.

— Alex Harring

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