Markets: FTSE falls 8%
Wall Street halts trading as oil falls by a third in price war
Biggest fall in prices since Gulf War
Trading on the New York Stock Exchange was halted briefly after stocks crashed by 2,000 points as global coronavirus fears and an oil price war spread panic through the market.
The Dow Jones fell more than 7%, following similar steep falls in Europe and a 30% tumble in oil prices. The fall on the Dow was the worst day since Lehman Brothers collapsed in 2008.
Circuit breakers, which exist to stop prices tumbling further when a downward spiral shows no sign of slowing, were triggered on Sunday night to stop some futures trading at markedly lower prices.
They were triggered again on Monday morning as the world woke to plummeting equity prices around the world and an oil price war between Saudi Arabia and Russia. The FSTE 100 opened 8.34% lower. Trading on Wall Street later resumed with traders hoping the market will stabilise.
Oil prices plunged by a third this morning, the largest one-day decline for Brent crude since the first Gulf war in 1991.
Following the 10% plunge in oil prices on Friday, West Texas Intermediate and Brent are down a further 30.01% and 27.55% respectively to $28.80/bbl and $32.73/bbl.
This is the largest absolute one-day decline for Brent crude ever while in percentage terms the decline is the highest since 17 January 1991 when it dropped by 34.8%.
The FTSE-100 index plummeted 8.4% in early trading, crashing through 6,000 to trade at a day’s low of 5,891.56 and pulling back slightly to close 7.69% or 496.78 points lower at 5965.77.
UK energy company Tullow Oil slumped 57% to its lowest level since 2004. Other oil companies suffered big falls and all constituents but one – Tesco – were in the red.
In the eurozone, Frankfurt’s DAX30 opened 8.1% lower to 10,607.80. The Paris CAC40 dived 4.2% to 4,921.91.
Last week, Russia refused to agree to the terms of a deal that would slash the world’s oil production rates.
In retaliation, Saudi Arabia vowed to boost production and slash prices, a move which threatens to saturate the world’s market with cheap oil as demand for it plummets thanks to the virus.
It led to huge declines in Middle Eastern markets yesterday with bourses in Abu Dhabi, Dubai, Saudi Arabia and Kuwait down between 5% and 10%. The main Kuwait index actually suspended trading in the biggest shares after falling 10% while Saudi Aramco fell below its IPO price for the first time.
Deutsche Bank’s Michael Hsueh published a note suggesting that oil should fall below $20.
The plunge in oil has led to complete capitulation in other markets this morning. Losses are being led by the Nikkei (down 5.82%) with further big legs lower for the Hang Seng (3.50%), Shanghai Comp (2.14%) and Kospi (4.14%). Australia’s ASX index – typically a perceived defensive market in Asia Pacific – is down 7.33%. S&P 500 futures are down 5% and have hit circuit breakers.
The Australian newspaper reported that the Australian government will announce a fiscal stimulus package of A$10bn while SKY news was reporting that the plan would likely include cash handouts.
The US is also drafting measures to blunt the economic fallout from coronavirus and help slow its spread in the US, including a temporary expansion of paid sick leave and possible help for companies facing disruption from the outbreak as New York became 2nd state to declare a state of emergency after cases in the state reached 106.
Further, the G20 also made a similar statement to that of G7 over the weekend saying they would use “fiscal and monetary measures, as appropriate, to aid in the response to the virus, support the economy during this phase and maintain the resilience of the financial system.”
On Saturday, China released import and export figures for the first two months of the year. Exports fell by 17.2% while imports dropped by 4%. This gave the Chinese economy a trade deficit of $7.1 billion as it struggles with the economic impact of the coronavirus outbreak.
Nigel Green, chief executive and founder of deVere Group said: “The ultimate impact that the oil price war will have on an already vulnerable world economy that’s struggling to cope with the spread of coronavirus remains unknown.
“However, the risk of a short but severe global recession in 2020 has now been heightened dramatically.”