Stocks and US government bond yields tumbled after oil prices crashed by almost a third, as the prospect of a crude price war hit global markets already reeling from the coronavirus outbreak.
Investors dumped stocks on Monday after the price of crude fell by more than 30 per cent to four-year lows, marking oil’s biggest one-day drop since the Gulf war in 1991.
The fall came after Opec members led by Saudi Arabia and Russia failed to agree on deeper production cuts in the face of plunging demand owing to the coronavirus outbreak, effectively launching a price war. Brent crude, the international benchmark, dropped from $45 a barrel to as low as $31.02.
The price crash ricocheted through markets. The 10-year US Treasury yield dived by more than a quarter of a percentage point to 0.4949 per cent, a record low. The 30-year US Treasury yield also dropped below 1 per cent for the first time ever, taking the entire US yield curve below that level for the first time. Yields fall as bond prices rise.
S&P 500 stock futures pointed to a drop of as much as 5 per cent when Wall Street begins trading later on Monday, tripping the Chicago Mercantile Exchange’s circuit breakers. Futures markets tipped the FTSE 100 to drop 6.4 per cent.
Japan’s benchmark Topix fell as much as 6.1 per cent, meeting the technical definition of a bear market, or a 20 per cent fall from its recent peak. The yen — seen as a haven during times of uncertainty — strengthened as much as 3.6 per cent against the dollar to ¥101.57, or a more than three-year high.
Sydney’s S&P/ASX 200 fell 5.6 per cent and was on track for its worst one-day fall since the global financial crisis, while China’s CSI 300 shed 2.8 per cent and Hong Kong’s Hang Seng dropped 3.8 per cent.
“No one is immune in this environment,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management.
Gold — another haven — jumped 1.1 per cent to $1,692 per ounce, a more than seven-year high. “Investors are willing to absorb the blow with no income if they can hedge themselves in Treasuries and other government bonds,” Mr Hui said of investors’ hunt for safer assets.
The US dollar lost ground against its international peers, with the dollar index dropping 0.7 per cent. The euro gained as much as 1.9 per cent to $1.1495, an eight-month high.
Oil benchmarks later pared losses but both Brent and US marker West Texas Intermediate were down more than 25 per cent at $33.38 and $29.80 a barrel, respectively.
The currencies of oil-producing countries fell. The Canadian dollar dropped 1.7 per cent against the greenback while Norway’s krone fell as much as 4.7 per cent to its lowest level against the greenback since 1985.