European markets have plunged sharply this morning, in a manner reminiscent of the dark days of 2008, after Saudi Arabia fired the starting gun on an oil price war with Russia, after the failure of OPEC+ talks at the end of last week, sending Brent crude oil prices down over 25%.

Having just spent most of last year trying to get Aramco out of the blocks, at a $2trn valuation this seems rather a strange move on the part of the Saudi authorities, sending stocks in the oil and gas sector sharply lower.

The rationale must surely be that in sending oil prices to their lowest levels since 2016, and their biggest one day fall since the days of the 1991 Gulf War, the action might prompt the Russians back to the table to agree a production cut. This seems a high stakes gamble given how high the Saudi breakeven price is, when you price in all of their welfare spending. The one upside for Saudi Arabia is that this will be even more painful for Iran, already suffering as a result of a coronavirus outbreak.

The slide in the oil price, along with further outbreaks of coronavirus across Europe, and the Italian government imposing a lock down across Northern Italy and in around the Milan region, has accelerated the rush for the exits in stock markets sending US bond yields to new record lows.

In Europe we’ve seen diverging performance in European bonds with German bunds acting as a safe haven, and moving into even more negative territory, while Italian bonds have sold off, sending yields higher.

The volatility seen in the last 12 hours almost feels like a capitulation with US futures markets currently closed limit down shy of 5%, which means when they open we could see even larger falls.

This suggests that when US markets open later today we’ll see much bigger falls as US investors bail out from their own hyped up valuations.

The US dollar has sunk sharply on expectations that the US central bank is likely to cut rates further in the coming weeks.

Tesco is in the news this morning after the company finalised the disposal of its Thailand and Malaysia business for $10.3bn. The company has said it will return £5bn of that to shareholders, while injecting £2.5bn into its pension fund. This hasn’t been enough to save its share price from this morning’s carnage.

The biggest fallers have not surprisingly been amongst the oil majors, and banks given the collapse in oil prices and yields. BP shares fell over 25% and Royal Dutch Shell have fallen over 19% on the open. The slide in BP’s share price is a particular concern, given their breakeven price is just under $50 a barrel, and their acquisition of BHP’s shale assets a few years ago. As a result of recent falls in the share price BP’s dividend yield is now 10%, and given their high debt levels there is chance that this could be at risk of a cut.

Oil field services shares have also taken a hit with John Wood Group down over 20%, as concerns rise about the oil industry and the US shale industry in particular, given how leveraged US producers are.

The banks are also coming under pressure as yields collapse, while the airlines have also continued to fall, despite expectations that they will take further steps to cut routes in the face of more travel restrictions and quarantines.

Gold prices briefly pushed above the $1,700 level in early Asia, however have since slipped back on selling pressure as a result of margin calls, as investors free up cash to cover losses on their stock positions.