Bloodbath: Worst Day For Global Money Markets Since GFC
Global stock markets and oil prices plunged Monday after a price war among crude producers jolted investors who already were on edge about the surging costs of a coronavirus outbreak.
Wall Street futures prices were following suit, pointing to declines of about five per cent when US markets open.
The main stock indexes in London and Frankfurt dropped by more than eight per cent. Tokyo closed down 5.1 per cent while Sydney lost 7.3 per cent and Shanghai was off three per cent.
US crude price fell as much as 30 per cent, deepening a rout that began when Saudi Arabia, Russia, and other major producers failed to agree on how much to cut production to prop up prices amid slowing global demand.
Investors usually welcome lower energy costs. But the abrupt plunge, amid anxiety over the coronavirus, rattled markets.
"Investors should brace for volatility," James Trafford of Fidelity International said in a report.
A recovery in oil and stock prices "will require some stabilisation in the coronavirus data points" or signs of agreement among crude producers, Trafford said.
In Saudi Arabia, the Riyadh stock exchange suspended trading of state-owned oil giant Saudi Aramco after its share price sank by the daily 10 per cent limit at the opening.
Investors already were on edge about the mounting costs of the coronavirus outbreak that began in China and has disrupted world travel and trade.
Anxiety rose after Italy revealed it was isolating cities and towns with some 16 million people, or more than one quarter of its population.
And just this morning the entire nation was placed in lockdown with people only allowed to leave their homes to go to work.
The number of infections from the virus that causes COVID-19 has topped 100,000 worldwide.
Airlines could lose more than $100 billion
Companies have been hit by sweeping measures to combat coronavirus.
Apple says slowdowns in manufacturing iPhones in China will hurt sales, while an airline industry group says carriers across the globe could lose as much as US$113 billion in potential ticket sales.
Cruise lines were also being hit hard.
China reported Saturday its exports fell 17 per cent and imports were off 4 per cent in January and February after Beijing shut factories, offices and shops in the most severe anti-disease measures ever imposed.
Central banks worldwide have cut interest rates, including the US Federal Reserve. While that might help to encourage consumer and corporate spending, economists warn it cannot reopen factories or offices.
Investors are looking ahead to a meeting Thursday of the European Central Bank, which is widely expected to announce new stimulus measures.
Chinese factories that make the world's smartphones, toys and other consumer goods are gradually reopening but aren't expected to return to normal production until at least April.
That weighs on demand for imports of components and raw materials from China's Asian neighbors.
'Global recession risks have risen'
Already last week, global stocks were sinking as the spread of the coronavirus prompted governments to follow China's lead by imposing travel controls and canceling public events.
The yield on the 10-year Treasury, already at record lows, has dropped to 0.51 per cent from 0.7 per cent late Friday.
The yield is an indicator of the market's outlook on the economy. Rising market prices that cause the yield to narrow indicate investors are shifting money into bonds as a safe haven.
"Global recession risks have risen," said Moody's Investors Service in a report.
"A sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment."