Five Things You Need to Know to Start Your Day
Five Things You Need to Know to Start Your Day
(Bloomberg) --
Good morning. Oil prices are crashing, stocks are plunging and anxiety over the coronavirus is mounting. Here’s what’s moving markets.
Oil Shock
Markets are in chaos to start the week. First up, oil. The failure of crude-producing nations to agree late Friday on production cutbacks has kicked off a price war and sent Brent futures into freefall, down more than 30% to about $32 a barrel (they started the year near $65). That’s a direct hit to the economy of the Middle East, and investors in the region’s stock markets reacted appropriately yesterday. Kuwait led the sell-off, suspending trading of the biggest and most liquid shares after its index tumbled 10%, while every gauge in the region retreated. Oil giant Saudi Aramco fell below its IPO price for the first time. Look for European oil stocks to be among the biggest decliners when markets open today.
Market Mayhem
And that open is going to be ugly. This is starting to look like it could be one of those turning points that marks a generation of investors, like the bursting of the internet bubble in 2000 or the financial crisis in 2008-2009. Less than a month from a record high in the S&P 500 and young traders who have never seen a bear market are getting a lesson in how quickly things can go south. Stock-index futures in the U.S. plunged the 5% limit overnight, contracts on the Euro Stoxx 50 Index are down about 6%, Japan’s Nikkei 225 tumbled more than 6% and Italy is on the edge of a bear market. In the U.S., the longest-running bull market in history looks more endangered than ever. Investors rushed to buy Treasury bonds, sending yields on all maturities below 1% for the first time, with investors pricing for the Federal Reserve to cut rates to 0% in coming months.
Coronavirus
The anxiety surrounding the coronavirus outbreak intensified over the weekend as the number of cases and deaths increased. Italy introduced far-reaching measures, in place until April 3, in the nation’s economically powerful north to contain the spread, including a near-total travel ban for about a quarter of the Italian population. Milan’s business community sought to reassure Italians that economic activity would continue as usual despite the lockdown. In the U.S., people familiar with the matter say President Donald Trump’s aides are drafting measures to blunt the economic fallout and slow the spread, including a temporary expansion of paid sick leave and possible help for companies facing disruption.
Credit Markets
If you can tear your eyes away from the chaos in equities, have a look at the corporate credit markets. It’s not an encouraging picture. On Friday they suffered their worst day in a decade on concern that the outbreak will hurt corporate income and stymie some companies’ ability to repay their debt. Supply-chain disruptions and demand shock from the virus fallout could already be causing cash-flow problems for businesses, JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou wrote in a note Friday. European Central Bank policy makers meet this week and could announce Thursday that they’re cutting their benchmark interest rate further to calm investors, though President Christine Lagarde has to worry about whether it’s too soon to fire one of the few monetary-policy bullets she has left. The ECB also may consider options such as incentives for banks to keep funding virus-hit firms.
Coming Up…
There’s nothing of note on the company earnings calendar today so we’ll be glued to the newsflow on the coronavirus. Oh, and if you’re trading the U.S. market, do note that clocks in the U.S. sprang forward by an hour yesterday, while in Europe we won’t do the same until March 29. So for the next three weeks, the time difference between continental Europe and the east coast of the U.S. is five hours instead of six.
What We’ve Been Reading
This is what’s caught our eye over the weekend.
- From ancient Syracuse to Trump golf course, Europe is shrinking.
- Europe’s longest-serving leader now wants his own church.
- Saudi prince tests grip on power with desert raid, oil price war.
- Coronavirus nears fatal “tipping point’’ when lungs are inflamed.
- Wine flowed from the faucets in this Italian town.
- Another essay on why daylight savings time should be abolished.
- The Irish photographer who won a Pulitzer, then quit “ the best job in the world.’’
To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net
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