Plunging Oil Shares Drag European Stocks into Bear Market Territory; Japan’s Economy Contracts

European and Asia-Pacific stock markets nose-dived on Monday as global investors dumped shares in response to a plunge in oil markets following a collapse of OPEC talks on Friday. The declines were worsened by growing fears of a global recession due to the coronavirus spread.

In Europe, the broad-based pan-European Stoxx 600 dropped 6.2%, putting it down over 20% from its top in February, and into bear market territory. Shares in the Asia-Pacific region also saw significant losses, led by steep breaks in Japan and Australia, which saw their benchmark indexes plunge 5.07% and 7.33% respectively.

The catalyst behind the sell-off was a steep drop in crude oil prices, set off by fears of a price war after OPEC failed to strike a deal with its allies on production cuts.

Saudi Arabia Fires First Shot in Start of Price War

Saudi Arabia said it plans to boost crude output above 10 million barrels per day (bpd) in April after the current deal to curb production between OPEC and Russia – known as OPEC+ – expires at the end of March, two sources told Reuters on Sunday. The kingdom currently pumps 9.7 million barrels per day, but has the capacity to ramp up to 12.5 million barrels per day.

The Saudi’s also cut its OSP for April for all crude grades to all destinations by anywhere from $6 to $8 a barrel, sending oil into a tailspin.

European Oil Stocks Hammered

Energy giant BP plunged 18.7% and Royal Dutch Shell 14% by mid-morning as oil stocks took a hammering, CNBC reported. Britain’s Tullow Oil fell 31.6%. TGS-NOPEC, Aker BP, Lundin Petroleum and Subsea 7 shares all fell by more than 20%.

Oil Stocks in Asia-Pacific Region Saw Sharp Losses

Australia’s Santos plunged 27.01% while Beach Energy dropped 19.39%. In Japan, Japan Petroleum Exploration fell 12.69%. Hong-Kong-listed stocks of PetroChina and CNOOC plummeted 9.63% and 17.23%, respectively, according to CNBC.

Chinese Overseas Shipments Fall

Chinese data released over the weekend showed the country’s January-February overseas shipments contracting 17.2% from the same period a year before, marking the steepest fall since February 2019, according to Reuters. Analysts had projected a 14% drop as the coronavirus outbreak disrupted supply chains and dampened demand.

Reuters also reported that China reported a trade deficit of $7.09 billion for the period, versus an expected surplus of $24.6 billion.

Japan’s Economy Shrank

Japan’s Cabinet Office reported that Japan’s economy shrank an annualized 7.1% in October-December. That was a larger decline than the first preliminary estimate of a 6.3% annualized shrinkage. It was also worse than economists’ median forecast of a 6.6% contraction and the biggest fall since April-June 2014, according to Reuters.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.