'Carnage' in Europe's markets as oil and banks feel COVID-19 pressure
Juliet Mann and Patrick Atack
A trader reacts to a downturn in fortunes. /David Dee Delgado/Getty/AFP

A trader reacts to a downturn in fortunes. /David Dee Delgado/Getty/AFP

Oil price war?

While COVID-19, and the fear of it, has prompted consumers to strip supermarket shelves bare, panic-buying essentials, investors and policy makers are also trying to get to grips with its rapid and unpredictable spread and the impact it is having on global growth.

Stock markets across the world have suffered enormous losses and oil prices tanked after the collapse of OPEC talks. But it wasn't the disagreement between two oil giants that came as a surprise – it was what happened next. After Russia canceled its cooperation with OPEC, Saudi Arabia became confrontational and lowered its oil price in a bold move that has caused chaos on the markets. It has led to fears of an all-out oil price war.

"Where do you begin on a day like today? It's absolute carnage out there and it's going to take a huge response from policy makers to restore order," said Craig Erlam, Senior Market Analyst at OANDA Europe.

Brent Crude was trading at around $50 a barrel on Friday but plummeted to $33 this morning – the sharpest one-day fall since the Gulf War in 1991.

Saudi Aramco's share price fell 9 percent in trading in Riyadh – closing at 29.95 Riyals, below its 32.0 Riyal IPO price. Stocks in the oil and gas sector were trading sharply lower.


Markets on the edge…

All major European bourses fell sharply on Monday morning with oil and gas stocks dipping 13.9 percent to lead losses. In London, the FTSE 100 opened down more than 8 percnt. BP shares fell more than 25 percent, while Royal Dutch Shell dived more than 19 percent at the opening.

In Italy, where up to 16 million people are under quarantine as the country battles to contain the spread of coronavirus, the only stock that even started the day trading was pharmaceutical group Recordati. The Italian blue-chip index fell by more than 10 percent in early deals.

"The slide in the oil price, along with further outbreaks of coronavirus across Europe and the Italian government imposing a lockdown across Northern Italy, has accelerated the rush for the exits in stock markets sending US bond yields to new record lows," said Michael Hewson, chief market analyst at CMC Markets UK.

Where next for investors? All the volatility has stoked unpredictability, even for so-called safe-havens such as bonds. German bonds are acting as a refuge, moving into even more negative territory, but Italian bonds have sold off, sending yields higher.

Fears of far-reaching economic fallout from the coronavirus outbreak pushed gold, albeit briefly, above the $1,700 per ounce level for the first time in more than seven years. However, early gains reversed with the metal trading a little lower on selling pressures.


Across the continent

The pan-European Stoxx 600 dipped by 7 percent this morning and was on course for its biggest drop since June 2016, when it balked at the news the UK had voted to leave the EU. 

This was mirrored across Europe today, with oil-heavy markets such as Norway suffering significant losses. It's major market lost 12 percent in early trading. 

Banks have led losses across European capitals, with Deutsche Bank falling 12 percent and both Crédit Agricole and Société Générale falling around 10 percent in early trading in Paris. 

European firms have now lost nearly $3 trillion in value since the rapid spread of the coronavirus sparked a worldwide sell-off in February.