28-4-2020 11:50:4528-4-2020 11:45:4928-4-2020 11:41:0028-4-2020 10:14:0128-4-2020 10:08:5028-4-2020 10:03:36A 30% plunge in crude oil price is unprecedented and is sending huge shock-waves across financial markets. The 10-year US treasury yield dived to below 0.5% for the first time and its 30-year yield is under 1%.
US and European futures plunged over 4% during Asia’s trading hours suggesting that a deeper correction is perhaps ahead of us amid Covid-19 fears and the oil crisis.
In the past two decades, we have been through two major oil downturns; the 2008 subprime crisis and the 2016 global slowdown. In both scenarios, crude oil prices had fallen from their peak by over 70%. If we are at the midst of a third major oil downturn, it suggests that oil price could go as far as US$ 18 per barrel should OPEC+ continue with this price war in a time where global demand is badly dampened by Covid-19.
With the market in this freefall, capital preservation will be on top of investors’ minds. Large gap-downs in oil and futures markets may trigger stop-loss orders which reinforces the selloff. We are not yet in a financial crisis but if markets continue to behave in this way, we may end up with one.
The US non-farm payroll in February smashed market forecasts with strong readings. Investors, however, are perhaps looking ahead into March’s reading for clues of Covid-19’s impact. US dollar index extended its losses into 95.66 area, reflecting both a dovish Fed outlook and a weaker fundamental picture of the US.
In Singapore, the Straits Times Index fell 3% at open to 2,868 points. Offshore (Sembcorp Marine -6.7%) banking (DBS -4.6%) and real estate (HK Land -4.28%) were among the worst performing sectors, dragged by oil’s plummet and a rapid spread of coronavirus around the globe.
Crude Oil Brent – Cash (2006-2020)
Margaret Yang Yan