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Markets Plunge Over Coronavirus and Oil, Setting a Bleak Stage for Wall Street Stocks Dive as Oil Collapse Adds to Investors’ Problems: Live Updates
(about 1 hour later)
Global financial markets on Monday began a perilous week, as the relentless spread of the coronavirus and a clash among the world’s biggest oil producers rattled investors. Oil markets crashed and stocks plunged on Monday as a sudden clash among the world’s biggest oil producers gave already rattled investors another reason to worry about the global economy.
European stocks plunged early on Monday, with London and Frankfurt stock markets opening 8 percent lower. Paris and other European exchanges were close behind, echoing sentiment in the Asia-Pacific region, where markets ended sharply lower. Financial markets have whipped around for weeks as investors struggled to quantify the economic impact of the spreading coronavirus: stocks have tumbled, oil prices cratered, and yields on government bonds reflected a sense among investors that there was worse still to come.
Wall Street looked set to follow, according to futures markets. But over the weekend, two of the world’s major oil producers, Saudi Arabia and Russia, added a new element to the mix by setting off a price war for crude. While low oil prices can be beneficial, they can also disrupt economies that depend heavily on petroleum dollars. The fall in oil prices since the start of the coronavirus also signals a global economic slowdown.
Government bonds signaled that investors wanted the security of a safe harbor, as yields on U.S. government debt fell to new lows. Gold, the tried-and-true indicator of investor skittishness, rose. Oil lost nearly a quarter of its value in futures markets on Monday, dragging shares of energy companies lower. It was what one analyst called “another acute shock to markets.”
Oil prices lost nearly a quarter of their value in futures markets, as two major producers, Saudi Arabia and Russia, set off a price war while the world’s thirst for crude is already ebbing. While low oil prices can give consumers a boost, they can also disrupt countries that depend heavily on petroleum dollars to keep their economies running. In Europe, major stock benchmarks were down more than 6 percent. Shares ended sharply lower in Asia also, and futures markets indicated Wall Street would open with a large decline.
World markets were already shaken by the near-shutdown of China in January, as the new coronavirus began spreading beyond the center of the city of Wuhan. Even before the weekend’s developments, stocks in the United States had fallen by more than 10 percent over the past month, as measured by the S&P 500 stock index. As stocks fell, investors seeking a safe harbor pushed yields on government bonds to historic lows. The yield on the closely watched 10 year U.S. Treasury bond, which falls as the price of the bonds rise, dropped below 0.5 percent, about half the level of just a week ago.
Even before the weekend’s developments, stocks in the United States and other major financial markets had fallen by more than 10 percent in a sudden downdraft that began as the coronavirus began to spread outside of China.
The problem globally is growing worse.The problem globally is growing worse.
On Sunday, Italy took the dramatic step of locking down a large chunk of its industrial northern region. In the United States, a top government disease expert warned that regional lockdowns there might become necessary, though he played down the idea of tight quarantines like the kind China has enacted.On Sunday, Italy took the dramatic step of locking down a large chunk of its industrial northern region. In the United States, a top government disease expert warned that regional lockdowns there might become necessary, though he played down the idea of tight quarantines like the kind China has enacted.
Bruno Le Maire, the French finance minister, on Monday called for a big economic stimulus plan for Europe to counter the impact of the outbreak.
Investors in Europe and the Asia-Pacific region showed on Monday that they see the problems getting worse before they get better. To keep cash flowing smoothly through the financial system, the Federal Reserve Bank of New York on Monday said it will ramp up the amount of short-term loans it offers banks.
The Frankfurt and London exchanges made up some modest ground from their difficult opening. The FTSE 100 index in London was 6.3 percent lower later in the morning. while Germany’s DAX was down 5.8 percent. Starting Monday and lasting through Thursday, the New York Fed will increase its daily offering of overnight repurchase agreements — essentially short-term loans to eligible banks — to at least $150 billion from $100 billion. It is also increasing its offering of two-week loans starting Tuesday, to at least $45 billion from at least $20 billion.
Paris stocks were trading more than 6 percent lower. An index of Europe’s 50 biggest companies was down more than 6 percent.
Those holding money in Asia had already voted with their feet, fleeing stocks across the region. In Japan, the Nikkei 225 index fell more than 5 percent, after economic data released Monday morning suggested the country’s economic slump at the end of last year was worse than expected.
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Hong Kong’s Hang Seng Index tumbled 4.2 percent. In China, the Shanghai Composite Index lost 3.1 percent. South Korea’s Kospi fell 4.2 percent. The biggest drop in the Asia-Pacific region was in Australia, where the S&P/ASX 200 index dropped more than 7 percent. The Fed had already been active in the market for short-lived loans between banks and financial institutions — called the repurchase or “repo” market — for months. Those operations started after rates in that obscure but important corner of the financial system’s plumbing spiked in September. It had recently been shrinking the size of its injections as markets calmed.
Futures markets suggested Wall Street would open 5 percent lower. The moves on Monday “are intended to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures,” the New York Fed said in a statement.
In bonds, yields on the closely watched 10 year U.S. Treasury bond fell below 0.5 percent, about half the level of just a week ago.
In oil markets, futures tracking West Texas Intermediate crude fell to about $32 a barrel, down more than 20 percent after Saudi Arabia declared it would cut prices.
Analysts warned that if Saudi Arabia failed to reach an agreement with Russia on oil prices soon, it could trigger not only a further spiraling in oil prices but also prompt contagion across financial markets.
“Another acute shock to markets in the midst of a prior air pocket,” said Bhanu Baweja, a UBS strategist, in a note to investors. He predicted the volatility in the markets could pull the S&P 500 index down as low as 2650 points, a more than one-year low. The index is currently trading around 2819 points.
A fear gauge known as the Vix index jumped to a multiyear high. It last reached similar levels in August 2015, when a sudden devaluation of China’s currency sparked a global markets rout.
Shares in oil companies fell sharply Monday, reflecting the loss of billions of dollars in value, as the price of crude nose-dived.Shares in oil companies fell sharply Monday, reflecting the loss of billions of dollars in value, as the price of crude nose-dived.
Saudi Aramco, the national oil company of Saudi Arabia, fell much as 10 percent, to 27 riyals, the maximum amount allowed on the Riyadh stock exchange.Saudi Aramco, the national oil company of Saudi Arabia, fell much as 10 percent, to 27 riyals, the maximum amount allowed on the Riyadh stock exchange.
Combined with Sunday’s 9 percent fall in share price, Aramco’s stock has fallen below its December initial public offering price of 32 riyals.Combined with Sunday’s 9 percent fall in share price, Aramco’s stock has fallen below its December initial public offering price of 32 riyals.
For the second consecutive day, the Kuwait stock market’s premier market index fell 10 percent early in the trading session, triggering a safety valve that suspended trading for the rest of the day.For the second consecutive day, the Kuwait stock market’s premier market index fell 10 percent early in the trading session, triggering a safety valve that suspended trading for the rest of the day.
Other oil producers were having a rough time on Monday. Royal Dutch Shell fell as much as 22 percent after trading started in Europe, but then shed about half of those losses, to about 13 percent lower in midmorning trading. Overall, Shell shares have lost about one-quarter of their value since Thursday.Other oil producers were having a rough time on Monday. Royal Dutch Shell fell as much as 22 percent after trading started in Europe, but then shed about half of those losses, to about 13 percent lower in midmorning trading. Overall, Shell shares have lost about one-quarter of their value since Thursday.
Shares in BP, based in Britain, and France-based Total were lower by about the same amount.Shares in BP, based in Britain, and France-based Total were lower by about the same amount.
In U.S. trading, premarket trades were driving down oil shares. Exxon Mobil was trading 10 percent lower, and Chevron was down 12 percent.In U.S. trading, premarket trades were driving down oil shares. Exxon Mobil was trading 10 percent lower, and Chevron was down 12 percent.
Some of the world’s most important financial markets crossed into, or flirted with, bear market territory on Monday. That could augur an ugly week for those holding the world’s wealth.Some of the world’s most important financial markets crossed into, or flirted with, bear market territory on Monday. That could augur an ugly week for those holding the world’s wealth.
Japanese and Australian stocks finished bruising trading days down 20 percent from their recent highs — the technical definition of a bear market, the flip side of the go-go bull market that has inspired memorials to surging capitalism. The drops represent billions of dollars in losses for some of the most valuable companies in both countries.Japanese and Australian stocks finished bruising trading days down 20 percent from their recent highs — the technical definition of a bear market, the flip side of the go-go bull market that has inspired memorials to surging capitalism. The drops represent billions of dollars in losses for some of the most valuable companies in both countries.
Europe’s largest stock markets also flirted with bear territory. Stocks in Germany, France and Britain plunged on Monday morning, putting all three well into bear market territory. Stocks in Germany, France and Britain plunged on Monday morning, putting all three well into bear market territory.
Bear markets are rare and are sometimes seen as a harbinger of tougher economic times to come. Some notable bear markets in the United States include the one that ushered in the global financial crisis in 2007 and the dot-com bust in 2000. (Don’t worry just yet, American investors: The S&P 500 is down about 12 percent from its recent high, meaning Wall Street is still some ways away from a bear market.) Bear markets are rare and are sometimes seen as a harbinger of tougher economic times to come. Some notable bear markets in the United States include the one that ushered in the global financial crisis in 2007 and the dot-com bust in 2000. (Wall Street is still some ways away from a bear market, with the S&P 500 down about 12 percent from its most recent high.)
In choppy markets like these, stocks can bounce back just as quickly as they have dived. A bear market by itself doesn’t signal financial devastation, and some experts say the label can be more damaging than the fall itself. In choppy markets like these, stocks can bounce back just as quickly as they have fallen. A bear market by itself doesn’t signal financial devastation, and some experts say the label can be more damaging than the fall itself.
On the other hand, the market is simply reflecting deeper concerns. Large corporations are already dealing with complications from a spreading coronavirus that left business operations suspended, their supply chains gummed up and restricted work travel.On the other hand, the market is simply reflecting deeper concerns. Large corporations are already dealing with complications from a spreading coronavirus that left business operations suspended, their supply chains gummed up and restricted work travel.
Before Monday’s dramatic moves, analysts at Bank of America had estimated that some $9 trillion had vanished from global markets over the past nine days.Before Monday’s dramatic moves, analysts at Bank of America had estimated that some $9 trillion had vanished from global markets over the past nine days.
European leaders took steps as the week began to blunt the economic impact of Italy’s shutdown and the spreading coronavirus. But it was doubtful whether the measures would be enough to keep the eurozone from slipping into recession. European leaders took steps on Monday to blunt the economic impact of Italy’s shutdown and the spreading coronavirus. But it was doubtful whether the measures would be enough to keep the eurozone from slipping into recession.
Citing the risk of an “economic crisis,” French Finance Minister Bruno Le Maire called on European countries to join forces to fight the economic effects of the epidemic.Citing the risk of an “economic crisis,” French Finance Minister Bruno Le Maire called on European countries to join forces to fight the economic effects of the epidemic.
“I will be looking for Europe to come together with a massive, coordinated response against the risk of an economic crisis that could follow the epidemic crisis,” Mr. Le Maire said Monday in an interview with France Inter radio.
In Germany, Angela Merkel’s governing coalition agreed late Sunday on measures to help businesses survive the shock, including expanding an existing program that encourages companies to cut the hours that employees work rather than lay people off.In Germany, Angela Merkel’s governing coalition agreed late Sunday on measures to help businesses survive the shock, including expanding an existing program that encourages companies to cut the hours that employees work rather than lay people off.
The German government will also increase spending on roads and other infrastructure, and discuss with industry groups ways that the government could help businesses suffering from short-term cash shortages.The German government will also increase spending on roads and other infrastructure, and discuss with industry groups ways that the government could help businesses suffering from short-term cash shortages.
The additional infrastructure spending amounts to only 0.1 percent of German economy, however. “The German government’s package is a good step in the right direction,” said Carsten Brzeski, chief eurozone economist at ING Bank. “But it will only tackle the impact from a short-lived economic shock.”The additional infrastructure spending amounts to only 0.1 percent of German economy, however. “The German government’s package is a good step in the right direction,” said Carsten Brzeski, chief eurozone economist at ING Bank. “But it will only tackle the impact from a short-lived economic shock.”
In an unusual video statement released Monday, François Villeroy de Galhau, the governor of the French central bank, sought to reassure the nation. Monetary authorities and the French government will take all action necessary to safeguard businesses from the “shock of uncertainty,” he said.
Japan’s economic performance at the end of last year was worse that initially thought, the country’s government said Monday, as it issued new economic data sure to increase concerns about the future of the country’s economy.Japan’s economic performance at the end of last year was worse that initially thought, the country’s government said Monday, as it issued new economic data sure to increase concerns about the future of the country’s economy.
Japan said its economy had shrunk at an annualized rate of 7.1 percent in the three months that ended in December, revised down from an initial estimate of 6.3 percent last month.Japan said its economy had shrunk at an annualized rate of 7.1 percent in the three months that ended in December, revised down from an initial estimate of 6.3 percent last month.
The contraction was largely driven by a pullback in consumer demand after an increase in Japan’s consumption tax to 10 percent from 8 percent in October, and the impact of Typhoon Hagibis, which hit the country in the same month. But Monday’s revised numbers showed that business spending, which has been a bright spot, was also worse than initial estimates.The contraction was largely driven by a pullback in consumer demand after an increase in Japan’s consumption tax to 10 percent from 8 percent in October, and the impact of Typhoon Hagibis, which hit the country in the same month. But Monday’s revised numbers showed that business spending, which has been a bright spot, was also worse than initial estimates.
Japan is already bracing for a serious economic hit from the coronavirus, which has put substantial pressure on the country’s tourist industry. The economic damage began this year when China, the leading source of tourists to Japan, went on virtual lockdown, with many visitors canceling travel plans. Spillover effects from the slowdown in tourism have been felt not just by hotels and restaurants, but also the retail sector, which had been buoyed by overseas spending. Japan is already bracing for a serious economic hit from the coronavirus, which has put substantial pressure on the country’s tourist industry. The economic damage began this year when China, the leading source of tourists to Japan, went on virtual lockdown, with many visitors canceling travel plans.
The added pressure on businesses — exacerbated by Japan’s own battle with the virus — could mean the economy will continue to shrink in the first quarter of 2020, pushing the country into recession, generally defined as two straight quarterly contractions Reporting and research were contributed by Jeanna Smialek, Alexandra Stevenson, Jack Ewing, Liz Alderman, Li Yuan, Ben Dooley, Kevin Granville and Carlos Tejada.
The outbreak, and China’s sweeping efforts to contain it, has affected just about all of China’s 1.4 billion people. Even the rich and the powerful have to follow quarantine rules, which often means staying home.
But the most vulnerable — the poor, the disabled, the very old and the very young — have been hit hardest. The coronavirus is exposing the breadth of China’s wealth gap and the holes in its social safety net.
China has expanded medical coverage and made poverty eradication a top priority. Yet it still lags behind some other emerging economies, let alone the world’s richest countries, in public spending on education, health care and social assistance. Social spending accounted for 8 percent of China’s economic output in 2016, compared with an average of 22 percent for nations in the Organization for Economic Cooperation and Development, the global club of developed countries.
In Wuhan, the Chinese city at the center of the outbreak, the government made no announcements about the epidemic in sign language, said Cui Jing, an organizer for a group supporting deaf people in the city. On Jan. 23, the day the city was locked down, some deaf residents didn’t find out about it until they had trouble taking public transportation, Ms. Cui said.
The stories recounted in Chinese media extend beyond Wuhan. A 16-year-old with cerebral palsy in a village in Hubei Province, where Wuhan is the capital, starved to death days after his father was taken to a hospital. A 6-year-old boy was found in an apartment in Shiyan, also in Hubei, alone with the body of his grandfather; he told community workers that he hadn’t gone out to ask for help because his grandfather told him the virus was outside.
Outside Hubei, in Henan Province, state media reported that a ninth-grade girl attempted suicide after her school shut down and she couldn’t take online classes, because her family had to share a single mobile phone.
Reporting and research were contributed by Alexandra Stevenson, Jack Ewing, Liz Alderman, Li Yuan, Ben Dooley, Kevin Granville and Carlos Tejada.