• Top exporter Saudi Arabia slashes prices following a row with Russia over crude production cuts
• After brief trading halt, US stocks join global rout
LONDON: World oil prices crashed on Monday, fuelling a vicious selloff on stock markets which were already buckling under from the spreading coronavirus outbreak.
Stocks tanked as the global oil market nosedived 30 per cent at one stage after top exporter Saudi Arabia slashed the prices it charges customers following a bust-up with Russia over crude production cuts.
The dollar slid versus the yen, seen as a safe haven investment.
New York stocks tumbled with the blue-chip DJIA index more than 6pc, after trading had been halted for 15 minutes when losses hit 7pc shortly after the opening, triggering circuit breakers.
The Dow Jones Industrial Average fell 1,280.4 points, or 4.95 pc, to 24,584.38. The S&P 500 lost 143.44 points, or 4.83 pc, to 2,828.93 and the Nasdaq Composite dropped 372.11 points, or 4.34pc, to 8,203.51.
European stock markets slumped dramatically with London’s FTSE index down more than 7pc at the close.
In Paris, the CAC-40 index lost over eight per cent, its worst daily drop since the 2008 financial crisis, while the Dax blue-chip index in Frankfurt saw its sharpest single fall since 2001.
The losses in Europe followed sharp declines in Asia. MSCI’s broadest index of Asia-Pacific shares ex-Japan lost 4.4pc in its worst day since August 2015 and Japan’s Nikkei dropped 5.1pc. Australia’s commodity-heavy market closed down 7.3pc, its biggest daily fall since the 2008 global financial crisis.
Investors piled into safe-haven debt, driving the 30-year US Treasury yield below 1pc on bets that the Federal Reserve will cut interest rates by at least 75 basis points when policy-makers meet next week.
“The markets have passed from panic mode into pure hysteria,” said Ayush Ansal, chief investment officer at trading firm Crimson Black Capital.
“Markets were at breaking point before Saudi Arabia’s decision to launch an oil price war but this latest development has taken them beyond that.”
Opec kingpin Saudi Arabia last week wanted Russia to join the cartel in deep production cuts after world oil prices slumped on forecasts of plunging demand because of COVID-19.
However, Moscow declined, triggering Riyadh’s move to preserve market share and sideline its close competitor — thereby creating fresh market chaos.
“The war against the coronavirus is turning into a war for oil export markets,” said analyst Tamas Varga at oil broker PVM Associates.
The dizzying oil drop — the steepest since the 1991 Gulf War — sent investors fleeing for safety alongside mounting fears over the worsening coronavirus, which has seen Italy lock down a swathe of its north.
Brent and US crude 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 20pc.
“This will be remembered as Black Monday,” said analyst Neil Wilson at trading site Markets.com.
Italy’s stock market took the heaviest battering after a chunk of the county’s northern region was sealed off — including Milan and Venice — as authorities struggled to contain the spread and impact of coronavirus.
At the end of an exceptionally volatile trading day, Milan’s FTSE MIB index stood more than 11 percent lower.
As the disease claims more lives around the world, dealers are shedding riskier assets for safe haven investment, sending gold and the yen surging and pushing US Treasury yields to record lows.
While governments and central banks have unleashed, or are preparing to unleash, stimulus measures, the spread of COVID-19 is putting a huge strain on economies and stoking concerns of a worldwide recession.
Trading floors in Asia were also a sea of red, with Tokyo plunging more than five percent, Hong Kong more than four and Sydney by over seven percent.
Saudi equities also tanked, with oil titan Aramco’s shares leading the plunge. The Dubai, Kuwait and Abu Dhabi exchanges also suffered sharp drops.
Energy firms hammered
Oil majors bore the brunt of a fierce wave of selling while other commodities firms also nursed heavy losses.
Hong Kong-listed CNOOC tumbled 17pc and PetroChina more than 9pc, while in Tokyo, Inpex dived 13pc. In Sydney, Santos plummeted 27pc and Woodside Petroleum tanked 18.4pc.
In London, BP shares saw heavy losses as did Shell, while French energy major Total also slumped.
Among miners, Anglo American and BHP Billiton were particularly badly hit.
Analysts meanwhile warned of further gyrations as the outbreak shows no sign of abating, with more than 110,000 people infected in scores of countries -- including Italy, which is now the hardest-hit country outside China.
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 behaviour.
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 - 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..
The dollar extended its slide to 101.20 yen, depths not seen since late 2016. It was last down nearly 3pc at 102.34.
The euro shot to the highest in over 13 months at $1.1492 and was last at $1.1431.
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.
Published in Dawn, March 10th, 2020