U.S. trading stops as stocks plunge into the world

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Trading in US stocks has been put on hold as sharp declines have resulted in an automatic halt in the sale and purchase of stocks.

The main US stock exchange, the S&P 500, fell 7% before being suspended.

The move follows dramatic declines globally, with stocks facing the worst day since the 2008 financial crisis.

A dispute between Russia and Saudi Arabia has seen oil prices plunge by more than a fifth, hitting markets already shocked by fear of the impact of the coronavirus as cases continue to increase.

The day was dubbed "Black Monday" by analysts who called the market reaction "total carnage".

Oil prices fell nearly 30% to $ 31.14 on Monday, its largest one-day drop since the start of the first Gulf War in 1991, before recovering slightly to trade 20% .

"It shows a level of nervousness in the market that I haven't seen in a long time," said Justin Urquhart-Stewart, co-founder of Seven Investment Management.

Investors are selling stocks at such a rate because they cannot quantify what Saudi Arabia and Russia could do, he said.

The UK's fall came after stock markets around the world fell dramatically. In Europe, the main French, German and Spanish stock market indices all traded more than 7%. Norway – a major oil exporter – saw its main stock market drop by more than 12%.

Among the fallers:

• Oil companies recorded the largest declines in London, with shares of Shell and BP down about 15%, while Premier Oil saw its shares more than halve in value
• Miners also fell sharply, with the owner of De Beers Anglo American and the BHP group all losing more than 10%.
• In Frankfurt, Deutsche Bank led the decline, down 12%, followed by automaker Mercedes-Benz Daimler, down 10%
• Likewise in Paris, banks such as Crdit Agricole and Socit Générale fell by 10%
• The Russian ruble fell more than 8%, on its way to its worst day-long decline since December 2014

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Among the winners:

• Gold peaked in seven years, trading at $ 1,700 per ounce
• At a historic point, benchmark bond yields for two, three, four, six and seven year maturities became negative when the market opened, but have since returned to positive. This means that investors will lose money by holding the bond.

Earlier Monday, Asian stock markets also fell sharply, as Japan's Nikkei 225 index fell 5% while the Australian ASX 200 fell 7.3%, its largest daily decline since 2008.

In China, the Shanghai Composite benchmark fell by 3%, while in Hong Kong, the Hang Seng index fell by 4.2%.

Besides the fall in oil prices, Asian investors have also reacted to a sharp drop in Chinese exports and to figures showing that the Japanese economy was shrinking faster than expected.

Why should I care about the stock market downturn?

The initial reaction of many people to "markets" is that they are not directly affected, as they do not invest money.

Yet millions of people receiving a pension – private or professional – will see their savings (in what is called a defined contribution pension) being invested in pension plans. The value of their savings pot is influenced by the performance of these investments.

Pension savers generally let experts choose where to invest this money to help it grow. Widespread stock price declines may be bad news for retirement savers.

Currently, $ 600 billion is held in defined contribution pensions.

Significant increases or decreases can therefore affect your pension, but the advice is to remember that pension savings, like any investment, is generally a long-term bet.

Read more here.

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"Political Poker"

The price of oil had already dropped sharply this year, as coronavirus disease had started to spread internationally, with demand for fuel expected to decline.

Last week, the group of oil exporters Opec – which includes Saudi Arabia – agreed to cut production to support prices.

However, he also wanted non-OPEC oil producers such as Russia to accept reductions, and on Friday, Russia rejected the plans.

In response, Saudi Arabia has cut its official selling prices for oil and plans to increase production. This move is seen as Saudi Arabia flexing its muscles in the oil market to get Russia to align.

Michelle Wiese Bockmann, commodity analyst and editor for Lloyd's List, said that the oil market has changed in recent years and that Saudi Arabia is trying to maintain its position on the market.

While cuts in production from Venezuela, Iran and Libya should have pushed up prices, the United States and its huge shale oil reserves intervened in every turn, driving prices down.

"This is already a very volatile situation," she said.

Urquhart-Stewart said the market "has gone from a problem of economic demand to a more political game of poker".

Since Saudi Arabia has some of the lowest production costs, they can drive prices down long before they have to give in, he added.

Analysis

by Andrew Walker, World Service Economics correspondent

The price of crude oil is about half the level it had reached in early January.

The root cause of this is the coronavirus. It hit demand for oil and some of the major exporters tried to stabilize its price.

Last week, a group of them discussed production cuts.

But the largest producer among them, Russia refused and the price of oil fell further.

Then on the weekend, Saudi Arabia, the biggest producer urging Russia to accept production cuts, announced that it would increase supplies and offer discounts to buyers. This brought down the price of oil.

In turn, this undermined the stock markets, although it was not the only factor. Falling oil prices are a problem for the credit markets.

Many shale producers in the United States are probably not viable and have borrowed from the high-risk debt market, issuing so-called junk bonds. There is therefore a potential for losses for investors who hold these bonds.

A cheaper oil is obviously an advantage for users. Airlines have been hit by lower bookings, but cheaper fuel will make up for that. And over time, there will be an impact on the price motorists pay, although in many countries, including Britain, tax accounts for the bulk of what they pay.