Markets – the Monday Massacre

Take your pick for the best nickname for today’s stock markets crash: the Monday Massacre, Mayhem on Monday, Monday Mayhem Massacre or the Monday Blues are all hot favourites.

The simpler Black Monday might top the lot. There was hardly a stock market in the world – from wealthy Norway to even richer Saudi Arabia – which did not register some of the biggest falls in share prices witnessed since the financial crash.

Share selling on Wall Street was so sharp at the opening of trading that the so-called circuit breaker was triggered and trading halted for 15 minutes.

Ironically, today marked the anniversary of the longest bull market in US history. Yet the US indices are now close to bear market territory with the Dow Jones off by 6% while the S&P 500 was down 6%.

Shares have now fallen by over 10% since the start of the month and investors are predicting that it will not be long before the bull turns into bear: a bear market is defined as one in which shares are down 20% from their peak.

In the UK the FTSE 100 index of companies closed down just below 8%, its fourth biggest one day fall in its history. More than £124bn was wiped off the value of London’s top listed companies with shares in the big oil producers BP and Shell suffering big falls. It fell 8.7% soon after trading opened, putting the index back to levels last seen before the EU referendum. These falls are not far off the 10.8% crashes seen on 19 October, 1987, and the 8.8% drop on 10 October 2008, the day the extent of the financial crash started to unfold.

Confidence is being shattered from every corner of the globe as fears deepen that the coronavirus is now spreading exponentially into every country. But the trigger for the latest rout was the overnight collapse in the oil price to its lowest level since the Gulf War in 1991. This was prompted by Saudi Arabia’s decision to cut prices as part of its cut-throat war with Russia in a bid to capture lost market share.

The Saudi’s decision to slash prices by up to $8 a barrel for its April official selling price was enough to send US oil prices down by as much as a third. Brent crude, used as the global benchmark, fell by 26% overnight to $33.49. Goldman Sachs forecast the price could collapse to the mid $20s.

The price war follows the breakdown of talks on Friday between Saudi Arabia and Russia over whether OPEC countries should step in to support the oil market being hit by the coronavirus scares by cutting production. Russia refused to do so, prompting analysts to suggest that the country’s leaders and hoping to hurt US shale oil producers in the process. US shale producers need a high price to support output.

Instead, the Saudi kingdom ramped up the turmoil by deciding to slash forward prices and recapture some of the market share it has lost recently to Russia.

While the drop in oil prices is positive news for consumers as the price of petrol and other commodities will fall, it’s not a good sign for the health of the global economy.

The oil price collapse was enough to send already fragile financial markets haywire on fears that the spread of the Covid-19 virus combined with a price war will cripple the world economy.

Overnight, the Asian markets were all trading lower on the oil price collapse. It fell 8.7% soon after trading opened, putting the index back to levels last seen before the EU referendum. These falls are not far off the 10.8% crashes seen on 19 October, 1987, and the 8.8% drop on 10 October 2008, the day the extent of the financial crash started to unfold.

In Britain, all eyes now are on Rishi Sunak, the Chancellor, who will be delivering the government’s first Budget on Wednesday. Sunak has promised to do what it takes to support the economy during this troubling period, with particular help for small businesses which will be the most vulnerable to any economic downturn. NatWest has already announced that it will be providing an extra £5bn of lending support to small companies.

European stock markets were equally despondent, as investors soak up the prospect that several countries including Italy and Germany will be tipped into recession. France’s CAC index was down 7%, so was Germany’s Dax and Spain’s Ibex. Italian shares suffered the most, with the FTSE Mib down by 10%. Oil rich Norway, whose wealth is tied up in its sovereign fund, saw share prices crash by up to 12%.

The monthly Sentix survey of investor morale in the eurozone dived to minus 17 for March after plus 5 in February.

Indeed, every index of global corporate health is in the dumps: the Bloomberg commodity index is at its lowest level since July 1986, and close to its all-time low since being created. Elsewhere, bond yields fell to historic lows.

For now, there are no signs that this global stock market downtrend is running out of steam.