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.”
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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