Today’s
stock market slump is attracting parallels with the crash of 1987.
Neil Wilson
of Markets.com writes:
This will
be remembered as Black Monday. If you thought it couldn’t get any worse than
the last fortnight, think again. The blood really is running in the streets,
it’s utter carnage out there.
The
astonishing 30% slump in the oil price today (thanks to the Saudi price war),
is having a serious impact on equities. That’s because anyone who bet on the
oil price going up is suffering massive losses, and may be forced to sell
shares to cover them.
As Wilson
puts it:
There’s a
risk of losses in oil positions needing to be covered by selling down elsewhere
- we’re in a vicious circle. Equity markets are hideous today and these kind of
moves are to be afraid of as they can lead to aggressive tightening in credit
that can spiral into real financial distress. We don’t know even know what kind
of impact the coronavirus will have on the economy yet bond and equity markets
are screaming recession.
 |
Coronavirus
'to drag Europe into recession'
Germany
bank Berenberg has forecast that the coronavirus will drag Europe’s economy
into recession this year.
It has
slashed its forecast for European growth, and sees a sharp downturn in Italy
and Germany during 2020. It also believes the UK will only grow by 0.9% this
year, even if the government boosts spending in Wednesday’s budget.
Berenberg’s
Holger Schmieding explains:
Italy: We
now expect GDP to decline by 1.0% instead of 0.3% in Q2. With a downward revision
to Q1 GDP from -0.1% to -0.8%, this takes our forecast for the full year 2020
to -1.2% from -0.3%.
Eurozone:
We now project that GDP will fall by 0.4% qoq in Q1 and 0.5% qoq in Q2 instead
of stagnating in Q1 and falling mildly by 0.2% qoq in Q2. For full-year 2020,
we look for a contraction of -0.1% instead of growth of 0.5%.
Germany: We
now look for declines in GDP by 0.2% and 0.6% qoq in Q1 and Q2 instead of falls
by just 0.1% and 0.2%, respectively. That brings our annual forecast 2020 as a
whole to -0.4% instead of 0%.
France: We
now expect GDP to rise merely by 0.1% instead of 0.2% qoq in Q1 and contract by
0.3% instead of advancing by 0.1% in Q2. For the full year 2020, we now look
for growth of just 0.3% instead of 0.8%.
UK: We
reduce our 2020 call to 0.9% from 1.3% previously after lowering Q1 to 0.3% qoq
from 0.4%, Q2 to 0.0% qoq from 0.3% and Q3 to 0.3% from 0.4%. We expect the UK
to announce a sizeable fiscal stimulus in response to the virus-related
disruptions on 11 March.
Panic hits global markets amid threat of coronavirus and oil price slump
FTSE100
expected to fall 6.3% on opening on Monday after Asian shares are battered by
growing fears of a worldwide recession
Martin
Farrer and Phillip Inman
Mon 9 Mar
2020 06.25 GMTFirst published on Mon 9 Mar 2020 06.00 GMT
Stock
markets in Europe and the United States are braced for their biggest falls
since the 2008 financial crisis after the start of the trading week saw panic
selling amid the double threat of a coronavirus-driven global recession and an
oil-price war.
The FTSE100
is projected to plunge by 6.3% when trading begins on Monday morning, while the
Dow Jones industrial average is on course to lose 4.9% in New York.
It follows
huge losses on Asian markets on Monday where fears about the worsening
worldwide economic slowdown were exacerbated by the shock decision by Saudi
Arabia over the weekend to increase oil production in an attempt to drive
competitors such as Russia and the US out of the market.
The price
of Brent crude oil fell nearly 30% to $21.14 on Monday, its biggest single fall
since the start of the first Gulf war in 1991. Some experts predicted that it
could fall even further unless the Saudis and Russians returned to the
bargaining table.
“I think
all forecasts are out the window,” said Jonathan Barratt, chief investment
officer at Probis Securities in Sydney. “It seems like a race to the bottom to
secure order(s).”
The turmoil
on international markets came as the outbreak continued to deepen around the
world and bring more restrictions on movements from governments:
Italy was
plunged into chaos as fatalities increased more than 50% to 366 and the
government plans to lockdown large parts of the country’s north, or about 25%
of the population, were leaked to the media.
The
stranded cruise ship Grand Princess was expected to finally dock in Oakland,
California on Monday as arrangements were made for its 3,500 crew and
passengers, some of whom have contracted the virus. Deaths in the US rose to 21
with more than 550 confirmed cases.
Saudi
Arabia cordoned off the oil-rich, predominantly Shia region ofQatif, suspended
air and sea travel to nine countries and closed schools and universities as the
number of cases in the kingdom continued to increase.
Organisers
of the Australian Grand prix, set to kick off the Formula One season in
Melbourne on Sunday, said there was “no chance” the race would be called off
despite rising concerns about the event’s large crowds facilitating the spread
of the disease.
As concern
grew over a possible recession in Australia as a result of the virus, a wave of
selling on stock markets in Asia Pacific was the worst since the collapse of
Lehman Brothers in 2008 heralded the onset of the global financial crisis.
The
Australian share market closed down 7.33% as energy companies saw double-digit
losses. The Nikkei in Japan was down 5% while shares in Hong Kong were off
3.5%.
US 10-year
government bond yields fell to fresh record lows and the Japanese yen and gold
spiked as investors piled into safe havens.
Futures
trading in Wall Street’s benchmark S&P500 index of leading companies was
suspended when losses reached the so-called “limit down” of 5%.
“There is
genuine panic in the price action …” said Chris Weston, head of research at the
web trading platform Pepperstone in Melbourne. “I haven’t seen anything like
this for years.”
David
Bassanese, chief economist at BetaShares Capital in Sydney, said the market
would not bottom out until the US situation was clearer.
“We need a
clear sign that the outbreak in the US is contained but we’re not there yet
because the number of cases and deaths is still on the rise. We have to see
what happens with containment measures there, such as travel restrictions and
shutdowns.
The ratings
agency Moody’s said on Monday that the risk of a global recession was rising as
the spread of the coronavirus causes a simultaneous supply and demand shock
throughout the world economy.
Joachim
Fels, the chief economist of the world’s biggest bond trader, Pimco, said in a
note to clients that a recession in the US and Europe was a “distinct
possibility”.
“The worst
for the economy is yet to come over the next several months,” he said,
according to Bloomberg, citing the impact of the virus on demand and supply,
weaker Chinese manufacturing and a hit on the global tourism industry.
The OECD
said last week that a severe outbreak of the coronavirus could cut global
growth by 0.5 to 1.5%. The International Monetary Fund and the World Bank said
they were setting aside billions of pounds for developing world countries to
support ailing health systems and offset the worst of the impact from falling
commodity prices.
The
accountants BDO said a dramatic rebound in optimism among British businesses
since the beginning of the year could be jeopardised by a more severe outbreak
of the virus. It said the services sector enjoyed the biggest rise in optimism
last month following the end of the Brexit stalemate.
The report
said the rise in confidence reflected the underlying improvement in business
conditions as a result of a more certain political and economic outlook. It
follows three months of marginal increases in optimism, as businesses appeared
to be in wait-and-see mode in the immediately after the general election, the
firm said.
Kaley
Crossthwaite of BDO LLP said: “We have just witnessed the most significant
uplift in business optimism in 10 years, and the impact of greater political
and economic certainty brought by a new majority government should not be
underestimated.
“However,
businesses will now be spending the coming weeks focused on mitigating the
uncertainty caused by coronavirus.
“The next
month will be crucial in determining whether this optimism can remain, or if
the ‘Boris bounce’ will be brought back down to earth by the impact of the
coronavirus outbreak.”
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