NEW YORK/LONDON (Reuters) – 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 U.S. stock trading for 15 minutes.
The 10-year U.S. 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’ 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, full-scale 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 U.S. stocks touched bottom during the financial crisis. [O/R]
Brent LCOc1 and U.S. crude CLc1 futures slid $14 a barrel to as low as $31.02 and $27.34 in volatile trade.
Both crude benchmarks recouped some losses but were still off almost 20% – on track for their biggest daily fall since 1991, the start of the first Gulf War. [O/R]
The Dow Jones Industrial Average .DJI fell 1,280.4 points, or 4.95 percent, to 24,584.38. The S&P 500 .SPX lost 143.44 points, or 4.83 percent, to 2,828.93 and the Nasdaq Composite .IXIC dropped 372.11 points, or 4.34 percent, to 8,203.51.
Equity markets in Frankfurt .GDAXI and Paris .FCHI tumbled about 8.5% and London .FTSE tanked 12%. Italy’s main index .FTMIB 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 (PMO.L) down 54% and energy giant BP (BP.L) 20% lower.
- Analyst View: Oil price plunge, coronavirus fears unleash market chaos
The losses in Europe followed sharp declines in Asia. MSCI’s broadest index of Asia-Pacific shares ex-Japan .MIAPJ0000PUS lost 4.4% in its worst day since August 2015 and Japan’s Nikkei .N225 dropped 5.1%. Australia’s commodity-heavy market closed down 7.3%, its biggest daily fall since the 2008 global financial crisis.
Investors piled into safe-haven debt, driving the 30-year U.S. Treasury yield US30YT=RR 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 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 behavior.”Our hearts, however, tell us to, ‘Do something!’ The sense of market chaos feeds into our most damaging behavioral biases,” Nixon said in a note to high net-worth 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 U.S. oil producers carrying a lot of debt would be made uneconomic by the price drop.
The mood was also hit by North Korea’s firing three projectiles off its eastern coast.
The European Central Bank meets on Thursday and will be under intense pressure to act, but rates are already deeply negative.
The 10-year Bund yield DE10YT=RR – the euro zone’s leading safe asset – fell to a record low of -0.863%, while inflation expectations for the euro zone sank below 1% for the first time.
Data suggested the global economy toppled into recession this quarter. Figures from China over the weekend showed exports fell 17.2% in January-February from a year earlier.
The fall in U.S. yields and Fed rate expectations pushed the dollar to its largest weekly loss in four years before it recovered some ground. =USD. [USD/]
The dollar extended its slide to 101.20 yen JPY=, depths not seen since late 2016. It was last down nearly 3% at 102.34.
The euro shot to the highest in over 13 months at $1.1492 EUR= and was last at $1.1431.
Gold initially cleared $1,700 per ounce XAU= 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. [GOL/]
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