Caution returns to markets as oil prices tank again

European stocks remain edgy while analysts take optimistic view of virus numbers

Traders work on the floor of the Dow Industrial Average at the New York Stock Exchange.

Traders work on the floor of the Dow Industrial Average at the New York Stock Exchange.

 

Caution recaptured world markets on Monday as a near 30 per cent drubbing for US crude oil kicked off a busy week of data and earnings that will drive home the damage being inflicted by global coronavirus lockdowns.

Europe’s stock markets made a groggy start, with the pan-regional Euro-Stoxx 600 flopping back into the red as London’s FTSE, Germany’s Dax and Paris, Milan and Madrid all fell more than 1 per cent.

Dublin’s Iseq was down almost 1 per cent. Ryanair, Smurfit Kappa and Kingspan, bellwethers of the Irish market, were down between 1 and 2 per cent.

With some global storage facilities nearly full to capacity, the “front-month” May benchmark US crude contract was down $5.40, or 29.5 per cent, to just under $13 a barrel - the lowest since March 1999.

European benchmark Brent was down a more manageable 5 per cent at $26.60 a barrel, but it all pointed to the same problem - too much supply, not enough demand. “For oil there is a bit of a technical story (with storage), but still, if energy consumption is down 30 per cent and OPEC reduces supply by 10%, there is still a large gap,” said Rabobank’s head of macro strategy, Elwin de Groot. Equity and other major markets however were still trading relatively robustly and largely on the newsflow of the European virus numbers gradually coming down, he added.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2 per cent in slow trade, pausing after five straight weeks of gains. Japan’s Nikkei fell 1.15 per cent, but Chinese shares edged up 0.4 per cent as a benchmark lending rate was lowered to shore up the coronavirus-hit economy after it contracted for the first time in decades. US president Donald Trump said on Sunday that Republicans were “close” to getting a deal with Democrats on a support package for small business. The United States has by far the world’s largest number of confirmed coronavirus cases, with more than 750,000 infections and over 40,500 deaths, according to a Reuters tally.

The S&P 500 has still rallied 30 per cent from its March low, thanks in part to the extreme easing steps taken by the Federal Reserve. The Fed has bought nearly $1.3 trillion of Treasuries alone, and many billions of non-sovereign debt it would historically have never gone near.

“The question is, are markets underestimating this (virus) in terms of the long-term impact on the economy. – Reuters