Stocks take a beating on double trouble Oil plunges in worst fall since Gulf War
A 7% slide in the S&P 500 at open triggered a circuit-breaker, which halted trading for 15 minutes
NEW YORK/LONDON: Global stock markets plunged on Monday and crude oil prices tumbled by as much as a third after Saudi Arabia launched a price war with Russia, sending investors already spooked by the coronavirus outbreak fleeing for the safety of bonds and the Japanese yen.
European stocks suffered hefty losses and a 7% slide in the S&P 500 at the open on Wall Street triggered a circuit-breaker put in place after the financial crisis a decade ago, halting US stock trading for 15 minutes.
The 10-year US Treasury note’s yield slid as low as 0.318% a level unthinkable just a week ago—as investors rushed to cut risk assets and snap up safe-havens.
The rout’s depth, sparked after Saudi Arabia stunned markets with plans to hike oil production sharply following the collapse of The Organization of the Petroleum Exporting Countries’ (Opec) supply-cut agreement with Russia, unnerved investors.
“The oil price plunge adds a huge disruptive dynamic to markets that are already very fragile,” said Paul O’connor, head of multi-asset at Janus Henderson.
“We are seeing this week, finally, a full-scale liquidation and signs of capitulation, fullscale panic - we see this in every asset,” O’connor said.
Jim Vogel, interest rate strategist at FHN Financial in Memphis, Tennessee, said that “nobody thought that Saudi Arabia would start a price war. Suddenly you have to re-evaluate what else could impact this.”
Saudi Arabia’s grab for market share was reminiscent of a drive in 2014 that sent prices down by about two-thirds, while the renewed plunge on Wall Street came exactly 11 years after US stocks touched bottom during the financial crisis.
The Dow Jones Industrial Average fell 1,280.4 points, or 4.95%, to 24,584.38. The S&P 500 lost 143.44 points, or 4.83%, to 2,828.93 and the Nasdaq Composite dropped 372.11 points, or 4.34%, to 8,203.51.
Equity markets in Frankfurt and Paris tumbled about 8.5% and London tanked 12%. Italy’s main index slumped almost 15% after the government over the weekend ordered a lockdown of large parts of the north of the country, including the financial capital, Milan.
The pan-regional STOXX 600 fell into bear market territory—a drop of more than 20%—from an all-time high in February. Oil stocks sank, with Premier Oil down 54% and energy giant BP 20% lower.
The losses in Europe followed sharp declines in Asia. MSCI’S broadest index of Asia-pacific shares ex-japan lost 4.4% in its worst day since August 2015 and Japan’s Nikkei dropped 5.1%. Australia’s commodity-heavy market closed down 7.3%, its biggest daily fall since the 2008 global financial crisis.
‘DO SOMETHING!’
Investors piled into safe-haven debt, driving the 30-year US Treasury yield below 1% on bets that the Federal Reserve will cut interest rates by at least 75 basis points when policy-makers meet next week.
The Fed last week cut rates by half a percentage point after an emergency meeting.
Katie Nixon, chief investment officer (CIO) at Northern Trust Wealth Management in Chicago, said people know the turbulence will pass as in past crises and that ultimately, markets recover, but emotions can overcome rational behaviour.
“Our hearts, however, tell us to, ‘Do something!’ The sense of market chaos feeds into our most damaging behavioural biases,” Nixon said in a note to high networth clients.
The number of people worldwide infected with the coronavirus rose above 110,000, and 3,800 have died from the virus.
There were mounting worries that US oil producers carrying a lot of debt would be made uneconomic by the price drop.
The fall in US yields and Fed rate expectations pushed the dollar to its largest weekly loss in four years before it recovered some ground. The dollar extended its slide to 101.20 yen, depths not seen since late 2016. It was last down nearly 3% at 102.34.
Gold initially cleared $1,700 per ounce to a seven-year peak, only to fall back to $1,669.02 amid talk some investors were selling to raise cash to cover margin calls in stocks.
SINGAPORE/LONDON: Oil plunged as both Russia and Saudi Arabia stood poised to flood the market with cheap crude in an all-out price war just as the coronavirus is spurring the first contraction in demand since 2009.
The former allies pledged swift retribution for the collapse of the Opec+ alliance meeting last week. The Gulf kingdom has slashed its official crude prices and is threatening record output. Russia’s largest producer, meanwhile, said it will ramp up production next month. Oil futures fell by about one-third in New York and London on Monday, the biggest drop since the Gulf War in 1991, before pulling back to a 20% decline.
The free-fall ricocheted across financial markets.
All of the annual growth the International Energy Agency (IEA) had anticipated last month—just over 800,000 barrels a day—has been wiped out and oil demand is now expected to contract by 90,000 barrels a day.
“The situation we are witnessing today seems to have no equal in oil market history,” said IEA executive director Fatih Birol. “A combination of a massive supply overhang and a significant demand shock at the same time.”
The cataclysmic price collapse resonated through the energy industry, from giants like Exxon Mobil Corp., which saw its stock drop the most in 11 years, to smaller shale drillers in West Texas. Shares of Hess Corp., Occidental Petroleum, and Chevron all suffered double-digit losses.
“There will be almost no place to hide,” Stewart Glickman, energy analyst at CFRA Research said in a note. “Exploration and production, of course, will be worst off since their fortunes wax and wane with crude oil prices.”
Brent for May settlement tumbled as much as $14.25 a barrel to $31.02 on the London-based ICE Futures Europe Exchange. West Texas Intermediate crude for April slumped as much as 34% to $27.34 a barrel on the New York Mercantile Exchange. The US benchmark traded at $33.08 at 12.45pm. The shocks in supply and demand have reverberated across time-spreads, options and volatility.
People know the turbulence will pass as in past crises and that ultimately, markets recover, but emotions can overcome rational behaviour. Our hearts, however, tell us to, ‘Do something!’ The sense of market chaos feeds into our most damaging behavioural biases. KATIE NIXON, CIO at Northern Trust Wealth Management