By Lorcan Roche Kelly
On what is shaping up to be a day for the history books in markets, some of the biggest moves are in the oil market. Following a meeting between OPEC and its allies in Vienna that ended without an agreement on cuts, Saudi Aramco offered unprecedented discounts to customers in Asia and Europe and is planning to boost production. With the market seemingly set to be flooded with crude, Brent prices plunged more than 30%. Goldman Sachs Group Inc. warned that a price war could push oil as low as $20 a barrel. For markets, already reeling from the effects of the coronavirus, the huge moves are looking like another headache nobody needed right now.
There is a long list of benchmark equity indexes entering bear markets this morning. Across Asia, the plunge in oil combined with the coronavirus selloff is looking like a perfect storm. Japan’s Topix index closed 5.6% lower, with the surging yen causing even more problems. The Stoxx 600 Index in Europe plunged the most since 2016 at the open, as the outsize moves delayed the opening of some stocks. Investors in U.S. markets are flying blind after circuit breakers halted trading in index futures after losses reached 5%.
The stampede to safety has seen Treasury yields move at breakneck speed. The entire curve is now under 1%, with the yield on the 30-year bond trading at 0.88% by 5:40 a.m. Eastern Time. The 10-year yield was at 0.49%. In Europe, traders are pulling out their crisis-era playbooks, buying German debt as bonds of Spain, Portugal, Greece and Italy are all sold. Gold briefly rallied past $1,700 an ounce in a volatile session.
Italy’s government is clamping down on travel as the country tries to gain control over the virus outbreak that has led to the deaths of 366 people. France has banned gatherings of more than 1,000 people. In the U.S., Columbia University has suspended classes and school closures are increasing, with New York City Mayor Bill de Blasio warning the number of cases are expected to increase. Corporate disruption is also increasing, with Apple Inc. Chief Executive Officer Tim Cook offering employees at most of its global offices the ability to work from home. The airline industry is coming under extreme pressure from the travel disruptions, with Deutsche Lufthansa AG saying it is looking for government support.
Governments are starting to step up their fiscal response to the outbreak. Australia’s package could be as large as A$10 billion ($6.6 billion). New British finance minister Rishi Sunak promised a huge spending package in Wednesday’s budget. In the U.S., the Trump administration is drafting measures to protect the economy from the worst of the effects of the virus, with the package said to include expansion of paid sick leave and possible help for the hardest hit companies.