What’s happening: US stocks plummeted on Monday, with the Dow posting its biggest single-day point decline in history, following a slump in oil prices due to the Saudi-Russia price war and worries of the spreading coronavirus.
What happened: The plunge in oil prices sparked the sell-off in markets, triggering a circuit breaker shortly after the opening bell. Trading in the market was halted for 15 minutes due to the shocking pace of the downturn. Dow had dropped more than 1,000 points for the fifth time during Donald Trump’s presidency.
Why it matters: Investors moved to safer assets, following heightened fears of coronavirus disrupting global supply chains and propelling the US economy into a recession. The yield on the 10-year Treasury note fell below the 0.5% mark for the first time ever and was down to 0.318% at one point during early trading on Monday. The Dow lost a whopping 2,013 points to close at 23,851, while the S&P 500 shed 7.6% to 2,746. The Nasdaq 100 plunged 7.29% to settle at 7,950.
Most of the decline was triggered by Saudi Arabia’s unexpected move to cut its official crude selling prices for April, despite earlier attempts to support the crude market. The move was a result of OPEC talks collapsing on Friday, with Russia resisting the production cut. Crude oil suffered its worst day since the 1991 Gulf War following Saudi’s decision.
Markets are expecting another rate cut by the Federal Reserve at its meeting later this month. The New York Federal Reserve also announced plans to raise the amount of money offered to banks for meeting their short-term funding requirements. Banking stocks tumbled again amid concerns of the oil crash resulting in defaults among energy companies. Shares of Citigroup, JPMorgan and Bank of America tumbled more than 13% each.
The coronavirus situation outside China is worsening. In the US, New York, California and Oregon have declared a “state of emergency,” with the country reporting over 700 cases and 27 deaths so far. Italy has expanded quarantine restrictions to all 60 million of its citizens as the country recorded the highest number of coronavirus cases after China. Italy has confirmed over 9,100 infection cases with 463 deaths. Although the situation in China seems to be getting under control, with the country reporting only 19 cases today, this didn’t do much to improve investor sentiment.
Gold, one of the world’s favourite safe-haven assets, reached its highest level since December 2012, rising over $1,700 an ounce on Monday.
Crude oil settled around 25% lower, after dropping more than 30% at one point of time. WTI crude recovered slightly today, with the oil futures rising 6.6% to $33.19 per barrel.
What to watch: The market is eagerly awaiting positive news related to coronavirus being controlled. The economic calendar is light today, with the US scheduled to release the NFIB business optimism index and Redbook index, which may not do much to provide relief to investors. The NFIB business optimism index is expected to fall to 103.7 points in February, versus a reading of 104.3 in January.