The world woke up to a blue Monday as stocks move lower form increased fears surrounding the coronavirus and the Oil markets worst day since the Gulf War in 1991.
Here is why:
Safe havens have been in higher demand to try and hedge the economic fallout from the coronavirus which might continue for some time. The S&P500 futures were lower on Monday by 4.9%, DAX futures dropped 5.6% and the FTSE futures fell 6.5%. The U.S 30-year Treasury Bond Yields has also moved below 1%.
Crude Oil plummeted more than 30% as the global market prepares for a full-blown price war between Saudi Arabia and Russia. Brent crude futures were lower this morning by $12 to $33.20/ barrel, while U.S. crude (WTI) lost $11.80 to $29.48/ barrel.
Reuters reported that “Saudi Arabia had stunned markets with 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 sent prices down by about two thirds. The shock in oil was seismic as Brent crude futures slid $12 to $33.20 a barrel in chaotic trade, while U.S. crude shed $11.80 to $29.48.”
Market Outlook
As panic sets in we might see oil push lower but for how long? Saudi Arabia has the lowest production costs but needs the price of crude at around $80/ barrel to satisfy its fiscal needs. The global ripple effect from a prolonged sell-off in oil might influence central bankers trying to avoid a recession.
The lower Oil price might be great for consumers but with the coronavirus spreading faster than a wildfire, which will see those consumers firmly trapped in their living rooms. The confirmed cases Globally have now exceeded 110 000 with Italy now firmly in lockdown.
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