Global Markets Are Rocked as Battle Over Crude Sends Oil Prices Plunging
March 09 2020 - 4:37AM
Dow Jones News
By David Winning and Xie Yu
Oil plunged more than 25%, 10-year Treasury yields dipped below
0.4%, stocks dropped, and currencies swung as the prospect of an
energy glut ratcheted up turmoil across markets world-wide.
Investors are responding to Saudi Arabia's decision over the
weekend to cut most of its oil prices and boost output, despite
existing threats to demand from the coronavirus epidemic. The move
escalates a clash with another major oil producer, Russia.
"The fear today is about a global recession," said Thomas Hayes,
chairman of Great Hill Capital, a hedge fund-management firm based
in New York. He said lower oil prices make it more likely some
companies would default on their debts.
"If Russia does not come back to the table soon, investors worry
the default risk and credit spreads widening will lead to tighter
credit and even a recession," Mr. Hayes said.
Trading in futures tied to the S&P 500 fell by the maximum
5% allowed in a single session. This meant trading was limited for
the first time since shortly after President Trump's 2016 election
victory. By early afternoon in Hong Kong on Monday, S&P 500
e-Mini contracts were 4.9% lower at 2,819.00, about 16.8% below a
recent high registered on Feb. 19.
U.S. government bonds, which have already rallied to
unprecedented highs, extended gains. The yield on the 10-year
Treasury tumbled to 0.387%. Yields move inversely to prices. In
Europe the pan-continental Stoxx Europe 600 index dropped 2.8% with
France's CAC 40 benchmark dropping 2.7% and the UK's FTSE100 off
1.7%.
In the Asia-Pacific region, the S&P/ASX 200 index in
Australia dropped 7.3%, suffering its worst day since October 2008,
during the depths of the global financial crisis. The Australian
dollar, which is sensitive to shifts in demands for commodities,
fell more than 1%, with one Australian dollar buying 0.6535 U.S.
cents.
Japan's Nikkei 225 declined 5.1%, its biggest daily drop since
2016. The yen, which often rallies in times of market stress,
surged to trade below 103 to the dollar, at its strongest levels
since 2016.
Benchmark stock indexes in Hong Kong and Shanghai dropped more
than 4% and 2%, respectively. China's onshore markets, in Shanghai
and Shenzhen, have been comparatively resilient in recent
weeks.
Saudi Arabian state oil giant Aramco said in a notice to buyers
sent Saturday that it was cutting most of its prices, while
preparing to boost crude output. Oil prices dropped after the
market reopened Sunday evening in New York. Brent crude, the global
gauge of oil prices, fell about 27.5% to $32.84 a barrel, and U.S.
crude futures fell by a similar amount.
Last week, Saudi Arabia was unable to persuade Russia to join
its plan for deeper crude production cuts at a gathering of the
Organization of the Petroleum Exporting Countries and its allies in
Vienna. The failure signaled the end of a four-year collaboration
between OPEC's member nations and 10 nonmembers led by Russia.
"The collapse of the talk between Russia and OPEC crushed
investors' confidence," said Alvin Ngan, a strategist with Zhongtai
International Holdings in Hong Kong, adding that sentiment was
already fragile given the uncertainties created by the novel
coronavirus.
In Australia, large energy stocks plunged by double-digit
percentages on fears of a prolonged period of low crude-oil prices.
Shares in Woodside Petroleum Ltd. fell by 18% while mining giant
BHP Group Ltd. dropped by 14%.
The ASX 200 has now fallen 19.6% since hitting an all-time high
on Feb. 20, putting it close to bear-market territory, which is
typically defined as a peak-to-trough decline of more than 20%. The
Nikkei 225 has fallen more than 18% from its highest closing level
this year.
Akane Otani in New York contributed to this article.
Write to David Winning at david.winning@wsj.com and Xie Yu at
Yu.Xie@wsj.com
(END) Dow Jones Newswires
March 09, 2020 04:22 ET (08:22 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
FTSE 100
Index Chart
From Aug 2024 to Sep 2024
FTSE 100
Index Chart
From Sep 2023 to Sep 2024