The Irish stock market dipped briefly into bear market territory on Monday as shares tumbled globally as stand-off between Saudi Arabia and Russia triggered a 30 per cent oil price crash and fears of a global recession went into overdrive as the coronavirus continued to spread.
Dublin’s Iseq index slumped as much as 6.7 per cent in early trading, bringing its decline in the past three weeks to 20 per cent. A bear market is an environment when overwhelming pessimism leads to a 20 per cent decline over a short period of time.
The pan-European Stoxx 600 index plunged by up to 8.3 per cent, taking its slide in less than a month to 22 per cent. European companies have lost about $3 trillion in value since fears of the economic damage from the epidemic sparked a worldwide sell-off last month.
Trading
Meanwhile, trading on Wall Street was halted for 15 minutes in early traidng after the main stock indices slumped by a circuit-breaking 7 per cent. Still, the market rallied off its lows as trading resumed, with the S&P 500 down 4.8 per cent in early afternoon trading.
"[A] blend of exogenous shocks have sent the markets into a frenzy on what may only be described as 'Black Monday'," said Sebastien Clements, a currency analyst with international payments company OFX. "A combination of a Russia vs Saudi Arabia oil price war, a crash in equities, and escalations in Coronavirus woes have created a killer cocktail to worsen last week's hangover."
Bank of Ireland dropped as much as 15 per cent and AIB declined by almost 14 per cent in Dublin amid concerns over the economy and what efforts central banks may take to support financial markets. Banks across Europe are already struggling as ultra-low European Central Bank interest rates squeeze their lending margins and incomes.
Bonds
Fear in the markets drove the interest rates – or yields – on US government bonds that mature within 30 years below 1 per cent for the first time in history. The market is betting that the US Federal Reserve, which cut rates by half a percentage point last week in its first emergency reduction since the 2008 financial crisis, will reduce rates by a further 0.75 point at a scheduled meeting later this month, according to traders.
Meanwhile, Ireland’s National Treasury Management Agency said it will seek to seek to sell between €750 million and €1 billion of benchmark 2029 bonds on Thursday. The 2029 bond is currently priced in the market with a negative rate of 0.19 per cent. This means that investors are paying the State to hold their money.
A sharp sell-off in European stocks since last month’s peak, prompted by the escalating virus outbreak outside of China, is sending several of the region’s sector indicesand market benchmarks into bear territory.
Oil production
The main driver of sentiment on Monday was Saudi Arabia’s plans to hike crude oil production and slash its official selling price after Russia baulked at steep production cuts proposed by the Organisation of the Petroleum Exporting Countries (Opec) to stabilise prices hit by economic fallout from the coronavirus.
London’s FTSE 100 plunged to a three-year low after oil group slumped because of the price war between Saudi Arabia and Russia.
Oil majors BP and Royal Dutch Shell were on track to record their worst trading day, while London-listed shares of Irish-founded Tullow Oil slumped by as much as 57 per cent to 10p, its lowest level since 1993.
“It’s been several days since the coronavirus really took hold of markets and this feels like almost a different thing entirely just because of how severe it is – once again, raising the spectre of the financial crisis,” said Connor Campbell, analyst at financial spread better Spreadex.
Benchmark
The Italian stocks benchmark, the FTSE MIB, tumbled over 11 per cent after the government there ordered a lockdown of large parts of the north of the country, including the financial capital Milan.
Gold initially cleared $1,700 per ounce to a fresh seven-year peak, only to fall back to $1,669.93 amid talk some investors were having to sell to raise cash to cover calls from their brokers to deposit more money to back up leveraged stock market bets in what are known as margin calls.
Wall Street shares are also set for a pounding with futures tied to the Dow Jones Industrial Average index down almost 5 per cent, triggering an automatic shut off and pointing to a decline of over 1,200 points in the benchmark index. – Additional reporting, Reuters
