Virus fears send stocks tumbling on ‘Black Monday’
GLOBAL stock markets have tumbled wiping around £125 billion off the value of the FTSE 100 index of leading shares as concern about the coronavirus and the plunge in the crude price following a spat between Saudi Arabia and Russia caused panic.
The FTSE 100 closed the day down 7.7 per cent following the biggest singleday fall since the financial crisis of
2008, as traders reacted to alarming developments over the weekend.
News that Italy had decided to quarantine 16 million citizens in the north of the country to try to slow the rapid spread of the coronavirus heightened fears it could trigger a global recession.
Nerves were also rattled by ructions in oil markets. Talks between Saudi Arabia and Russia about a deal to help offset the impact of the coronavirus virus on demand for crude fell apart on Friday.
The Brent crude price fell around 20 per cent yesterday morning leaving oil trading at close to a four-year low, with grim implications for firms in the
North Sea.
Industry champion Oil & Gas UK said companies would be “immensely cautious” about their spending plans as they watched the situation unfold.
The scale of the fears rippling round the world was underlined by the situation on Wall Street where shares fell so fast initially that trading was halted temporarily.
The S&P 500 fell more than 7% triggering an automatic breaker designed to stop shares spiralling out of control. It regained a little ground after trading resumed.
Yesterday’s developments reflect deepening concern about the outlook for the global economy.
The coronavirus outbreak has already had a devastating impact on China, where it began, the effects of which have been reverberating around the world.
Firms in sectors such as aviation saw their share prices come under renewed pressure yesterday after falling sharply in recent weeks.
Neil Wilson, chief market analyst at Markets.com, said yesterday would be remembered as Black Monday warning: “If you thought it couldn’t get any worse than the last fortnight, think again. The blood really is running in the streets, it’s utter carnage out there.”
The FTSE 100 closed down 496.78 at 5,965.77, its lowest level in almost four years. The index has fallen more than 20% since its January peak taking it into bear market territory.
The price of a barrel of Brent Crude fell 30% initially, before settling at around 20% down on a day earlier, at $36.10 per barrel. It has fallen by almost 50% this year.
The fall reflects concern that global supplies of crude are set to run well ahead of demand, which the International Energy Agency said could drop for the first time since 2009 this year. Experts warned the oil price could fall much further unless Saudi Arabia and Russia patched up their differences. Saudi Arabia wants major exporters to agree to cut production by more than Russia is prepared to accept.
“Brent could even drop into the teens,” said Bank of America Merrill Lynch (Bofa).
The fall in the crude price could benefit consumers and other businesses if it feeds through to energy prices.
But the prospect will cause deep concern in the North Sea oil and gas industry, which is emerging only slowly from a slump that caused devastation across the supply chain.
Thousands of jobs were lost in the North Sea as firms slashed activity in response to the fall in the crude price from $115/bbl in June 2014 to less than $30/bbl early in 2016.
The fall was partially reversed after Opec members and Russia agreed late in 2016 to a programme of production cuts which was subsequently intensified.
Saudi Arabia and Russia seem to have given up on it for now. Russia may be happy to see US shale producers come under pressure.