Asian shares slammed in panicked trade, oil prices crash
Asian shares were set for a pounding on Monday as investors fled to bonds to hedge the economic shock of the coronavirus, and oil plunged more than 20% after Saudi Arabia slashed its official selling price, Trend reports citing Reuters.
The world’s top oil exporter plans to raise its production significantly after the collapse of OPEC’s supply cut agreement with Russia, a grab for market share reminiscent of a drive in 2014 that caused prices to slump around two thirds.
Brent crude futures sank $9.51 to $35.76 a barrel in chaotic trade, while U.S. crude shed $8.81 to $32.47.
The safe-haven yen surged against emerging market currencies with exposure to oil, including the Russian rouble and Mexican peso, as analysts saw danger ahead.
“Today’s price action puts at risk the fiscal health of the vast majority of sovereign producers and budget cuts and increased debt loads are now looming in the event of a prolonged period of low prices,” warned Helima Croft, head of global commodity strategy at RBC Capital Markets.
“For the most politically and economically fragile producer states, the reckoning could be severe.”
There were also worries that U.S. oil producers that had issued a lot of debt would be made uneconomic by the price drop.
Energy stocks were certain to the be slammed, with E-Mini futures for the S&P 500 already down 4.1%. Nikkei futures dived 4.4% and were trading 1,200 points below the cash close on Friday.
Futures for the U.S. 10-year Treasury note jumped more than a full point, pointing to record lows for yields.
The number of people infected with coronavirus topped 107,000 across the world as the outbreak reached more countries and caused more economic damage.
Italy’s markets could come under intense pressure after the government ordered a lockdown of large parts of the north of the country, including the financial capital Milan.
“After a week when the stockpiling of bonds, credit protection and toilet paper became a thing, let’s hope we start to see some more clarity on the reaction,” said Martin Whetton, head of bond & rates strategy at CBA.
“Dollar bloc central banks cut policy rates by 125 basis points, not as a way to stop a viral pandemic, but to stem a fear pandemic,” he added, while noting many had little scope to ease further.