Irish market losses top €22.7bn as coronavirus fears spread

The Irish stock market slumped on Monday – bringing its losses over 11 days of trading to €22.7 billion – with share prices tumbling globally as a stand-off between Saudi Arabia and Russia triggered a 30 per cent oil price crash and recession fears went into overdrive over the coronavirus spread.

Dublin’s Iseq dropped 6.4 per cent in an international markets session that is being described as ‘Black Monday’.

The benchmark index has declined by 19 per cent since February 21st, leaving it on the brink of entering a bear market – a phenomenon when overwhelming pessimism leads to a 20 per cent decline over a short period of time. It touched briefly on bear territory during trading on Monday.

The wider European market, measured by the Stoxx 600 index, dropped 7.4 per cent, leaving it down 22 per cent from its February highs.

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Iseq dips into bear market as ‘Black Monday’ slump grips markets

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The main driver of sentiment on Monday was Saudi Arabia’s plans to increase crude oil production and slash its official selling price after Russia baulked at steep production cuts proposed by the Organization of the Petroleum Exporting Countries (OPEC) to stabilise prices hit by economic fallout from the coronavirus. Russia said its companies were free to pump as much as they could.

As the number of coronavirus cases globally reached 110,000, investors also got their first chance to react to news that the Italian government had put Lombardy and surrounding regions into lockdown. The markets were closed when Italy’s prime minister Giuseppe Conte announced the restrictions on movement and public gatherings were being extended to the entire country.

Worldwide sell-off

European companies have lost €2.6 trillion in value since fears of economic damage from the epidemic sparked a worldwide sell-off last month.

“[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.”

Europe faces a period of 'seven to eight weeks before things start returning to normal'

Goodbody Stockbrokers' chief investment officer Bernard Swords said that lower oil prices will weigh on the US, which became the largest oil exporter last year on the back of booming shale production.

With Chinese factories only beginning to return to normal, two months after concerns about the spread of Covid-19 around the city of Wuhan went into overdrive, Europe faces a period of “seven to eight weeks before things start returning to normal”, Mr Swords said.

Bank of Ireland dropped 15.7 per cent and AIB declined by 14.1 per cent in Dublin amid concerns over the economy and what efforts central banks may take to support financial markets.

Dalata fell almost 10 per cent after the country’s largest hotel operator said it had been hit with significant reductions in bookings and significant increases in cancellations since the spread of Covid-19 to Europe.

Yields

Recession fears among investors drove the market 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 0.5 percentage points last week in its first emergency reduction since the 2008 financial crisis, will reduce rates by a further 0.75 points at a scheduled meeting later this month, according to traders.

Rates could reach a record zero per cent within the coming months, they said.

Meanwhile, economists at Deutsche Bank expect the European Central Bank to lower its deposit rate by 0.1 percentage point to minus 0.6 per cent – as well as announcing some other small monetary policy measures – when its governing council meets on Thursday.

"We fear it will be difficult to impress the market with a package of several small measures," said the economists, led by Mark Wall. "A sense of monetary-fiscal policy co-ordination would be the best way to inject market confidence."