TOKYO -- Plunging oil prices reverberated across Asian markets on Monday, sending Japanese, Hong Kong and other stock indexes plummeting while the yen rose to multiyear highs.
Oil prices were on course for their biggest one-day drop since the 1991 Gulf war after Saudi Arabia, the world's largest oil exporter, ended failed talks with Russia over cutting supply and embarked on a fierce price war. New York crude oil futures were trading at around $32 in Japanese markets on Monday morning, down about $10 from Friday.
Investors rushed to the relative safety of the Japanese currency as the spread of the new coronavirus in Europe and the U.S. raised fears about the global economy. The yen reached its highest level since November 2016, breaking the 104 mark to as high as 101.55 per dollar in morning trade.
The dollar also plunged against the euro while U.S. Treasury futures signaled 10-year yields below 0.5%, a record low.
For stock markets already reeling from the impact of the coronavirus, the oil price drop sparked further turmoil. Tokyo's benchmark Nikkei average fell 6% to below 20,000 for the first time in 14 months, dropping at one time more than 1,200 points from the previous close.
Saudi Arabia is the de facto leader of the OPEC alliance of producers, which had been negotiating with Russia to limit output. The failed talks now have markets bracing for an increase in supply at the same time the coronavirus is dampening global demand.
"A worst-case scenario appears to be unfolding for oil markets," said Fidelity International, the investment manager.
Tatsufumi Okoshi, a senior economist at Nomura Securities, said oil "will stay around $30 for the time being," comparing the impact to the drop after the Lehman Brothers collapse in 2008. "We'll have to see how long the economic impact from the coronavirus continues," Okoshi said. If the virus spreads further, "there is a possibility of another price drop," he added.
According to the International Energy Agency, Saudi Arabian oil output hit 9.8 million barrels per day, about 10% of global share, making it the third-largest producer after the U.S. and Russia. Saudi Arabia now plans to push daily production to over 10 million barrels from April.
Makoto Noji, a strategist at SMBC Nikko Securities, said: "The impact of the oil drop on the yen is significant. Many had expected the spread of coronavirus in the U.S., but nobody was expecting the action taken by Saudi Arabia. This surprise is affecting the yen's appreciation. An oil price crash is huge damage to the U.S economy as it is an exporter now."
Other regional markets also opened sharply lower, with Hong Kong's Hang Seng index down almost 4% in the worst intraday drop for two years. Australia's resource-heavy ASX 200 index closed 7.3% lower.
Stocks in oil producers also plunged, with CNOOC down more than 17% in afternoon trading and PetroChina down 7.6%. In Thailand PTT, the state-owned oil company, was down 24% to a 4-year low.
According to Tai Hui, chief market strategist for Asia at J.P. Morgan Asset Management: "Further downside risks in oil prices will hit energy stocks, which in most cases are already trading at steep discounts due to fear of weaker oil demand growth. Energy companies are also the largest component of the U.S. high-yield corporate bond index, and a further drop in oil prices could prompt the credit spread widening further."
Singapore's benchmark Straits Times Index fell about 4%. Among the big companies hit hardest were offshore oil rig builders Keppel Corp., down 8%, and Sembcorp Marine, down 7%. The viral outbreak has also hit Singapore's banking sector, with the largest lender, DBS Group Holdings, down more than 6%.
In Japan Yasuo Sakuma, chief investment officer at Libra Investments, said equity investors were taking fright over the coronavirus and its impact on the global economy, as well as the sudden plunge in oil prices. "It is difficult to think about the long-term outlook for Japanese stocks," Sakuma added. "I don't think there is much willingness in the market right now to buy stocks."
https://news.google.com/__i/rss/rd/articles/CBMiY2h0dHBzOi8vYXNpYS5uaWtrZWkuY29tL0J1c2luZXNzL01hcmtldHMvWWVuLXN1cmdlcy1hbmQtQXNpYS1zdG9ja3MtcGx1bmdlLWFmdGVyLW9pbC1wcmljZS1wbHVtbWV0c9IBAA?oc=5
2020-03-09 06:53:00Z
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