Analysts talk about shaky investor confidence and suggest that the effects of coronavirus on markets can no longer be controlled
US stock futures fell 5 percent, reaching a daily limit for decline, which led to a halt in trading. This happened after the largest one-day drop in oil futures on Sunday, the biggest in almost 30 years, raised concerns about the credit crisis in financial markets.
Saudi Arabia announced plans to significantly increase production and lower its official oil selling price after Russia opposed a sharp reduction in production proposed by OPEC on Friday to stabilize prices, which fell as a result of economic shocks from coronavirus.
The decline in S&P 500 futures occurred amid fears that the influence of the rapidly spreading coronavirus will increase, which will lead to a recession in the United States and a sharp tightening of conditions on credit markets.
Recent sales of both stocks and high-yielding bonds reflect uncertainty about the impact of the virus, but also indicate confidence that markets will eventually stabilize and the uptrend will resume, said David Joy, chief strategic analyst at Boston Ameriprise Financial.
He says the decline in stock futures suggests shaky confidence and that coronavirus is no longer under control.
During the trading of futures on the S&P 500 benchmark stock index, which was conducted after the exchange closed, they decreased, reaching a permitted limit of 5 percent. The decline indicates how much the S&P 500 index can fall when trading begins on Monday.
The collapse in US Treasury yields indicates possible more serious negative economic consequences, Joy said.
“My experience is that the bond market is more insightful than the stock market,” the expert explains.
The expected income from a futures contract on US treasury bonds with a maturity of 10 years for the first time fell below 0.5 percent. The indicator reached a historic low of 0.469 percent, falling as a widow in just three sessions due to market reactions to coronavirus.
A 20 percent drop in oil prices, which in normal times would be considered a positive development for global economic growth, led to a panic sale in the stock markets, as the risks of losing oil positions reinforced the already growing fears of a US recession and freezing credit.
John Lekas, Leader Capital CEO and Senior Portfolio Manager in Vancouver, Washington, gave a very sharp assessment of the situation: “We are in the situation of Armageddon.”
Saudi Arabia announced plans to ramp up oil production to above 10 million barrels per day in April, after the current OPEC + Russia-led agreement to limit production, known as OPEC +, expires in late March. This was reported on Sunday by Reuters, two informed sources.
Earlier, investors were frightened by the decision of the authorities of Italy, the largest outbreak of the virus in Europe, to actually close a significant part of the rich north of the country, including the financial capital Milan. This move aims to contain the epidemic, which resulted in a sharp jump in deaths on Sunday.