The prospect of an energy glut ratcheted up turmoil across markets world-wide on Monday, with oil plunging 20% and the yield on long-term U.S. government bonds dropping to below 0.5%, sending stocks tumbling and currencies swinging.
Futures tied to the Dow Jones Industrial Average index retreated 4.9%, pointing to a decline of over 1,200 points in the blue-chips gauge after trading opens in New York. The futures contracts earlier hit the 5% maximum allowed in a single session, breaching the limit for the first time since shortly after President Trump’s 2016 election victory.
Saudi Arabia’s decision over the weekend to instigate a price war as it escalates a clash with Russia sent oil prices to their lowest levels since 2016 and raised fresh concerns about the risks tied to heavily indebted energy companies in the high-yield credit market. The kingdom cut most of its oil prices and plans to boost output, despite existing threats to demand from the coronavirus epidemic.
The move added to two weeks of turmoil in equity and credit markets as investors have grown increasingly concerned about economic growth stalling as public-health authorities escalate efforts to contain the coronavirus outbreak, leading to a drop in business activity and curtailing global trade.
The number of confirmed coronavirus cases exceeded 105,000 on Sunday, as infections spread to new parts of the U.S. and Italy quarantined some 17 million people. At least eight American states including New York have declared states of emergency.
“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.
U.S. government bonds, which have already rallied to unprecedented highs, extended gains. The yield on the 10-year Treasury, which moves inversely to bond prices, dropped to 0.481%. The 30-year yield fell below 1%, reaching 0.881%.
If Russia doesn’t come back to the negotiation table soon, investors worry that companies will default, making banks less willing to lend, and causing the economy to stutter, he said. Stocks in the European energy sector led markets lower Monday, with BP plummeting over 17% in London, while Norway’s Equinor, Italy’s Eni and the U.K.’s BHP Group dropped over 14%. Anglo-Dutch giant Royal Dutch Shell and France’s Total were also among the big decliners.
The price war between major oil producers is “throwing petrol on the fire” at a time when investors are struggling to understand how deeply the outbreak will impact global supply chains and consumer spending, according to Lyn Graham-Taylor, a rates strategist at Rabobank.
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“We have got a massive demand decline brought about by the virus and now you’ve got headline inflation going through the floor: all combinations that say we need to do more easing,” Mr. Graham-Taylor said.
Over in Europe, the pan-continental Stoxx Europe 600 index dropped almost 5% with key equity benchmarks in the U.K. and France entering bear-market territory.
Foreign-exchange markets also faced renewed volatility on Monday, as steep drops in oil sparked a flight from commodity-linked currencies. The Russian ruble lost 7.3%, while the Norwegian Krone dropped 2.6%.
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. That puts the gauge close to bear-market territory, which is typically defined as a peak-to-trough decline of more than 20%. Japan’s Nikkei 225 index closed down 5.1%, its biggest daily drop since 2016, while the benchmark stock index in Shanghai dropped more than 3%.
The Japanese yen, which often rallies in times of market stress, surged to trade below 103 to the dollar, at its strongest levels since 2016. Gold, which is also normally considered a haven asset during times of turmoil, edged down 0.3%.
“We are in uncharted territory now,” according to Hubert de Barochez, markets economist at Capital Economics. “Up until last week, what we were seeing was bond yields lower, stocks hurt and riskier currencies getting hit, but the idea was that if good news were to come all these moves would revert.”
The prospect of an energy glut has ratcheted up turmoil in markets world-wide.
Photo: edgard garrido/Reuters—Akane Otani in New York contributed to this article.
Write to David Winning at david.winning@wsj.com, Avantika Chilkoti at Avantika.Chilkoti@wsj.com and Xie Yu at Yu.Xie@wsj.com
Corrections & Amplifications
The Australian dollar fell during Monday’s trading to about 65.35 U.S. cents. Earlier versions of this article incorrectly gave this figure as 0.6535 cent. (March 9)
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https://www.wsj.com/articles/asian-stock-markets-in-early-monday-sell-off-after-saudi-arabias-decision-to-cut-most-of-its-oil-prices-11583713399
2020-03-09 10:12:51Z
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