Oil crash pummels stocks and bond yields; dollar rises
Reuters
Published Apr 21, 2020 01:04
Updated Apr 21, 2020 20:58
By Sinéad Carew
NEW YORK (Reuters) - Stock markets around the world fell on Tuesday, as oil prices kept sliding a day after May U.S. crude oil futures turned negative for the first time, shining a light on the depth of economic damage from the coronavirus pandemic.
While gold is often seen as a safe haven bet, that commodity also declined as investors looked to raise cash.
Investors rushed to buy bonds, which pushed down U.S. Treasury yields, with the five-year note hitting a new record low as the difficulties of restarting the U.S. economy sank in.
June oil futures were down around 50% after U.S. May futures fell to below minus $40 per barrel on Monday, which was the first time oil futures traded in negative territory.
The oil price crash was caused by a lack of storage as demand shriveled in an oversupplied market amid worldwide lockdowns that kept people at home and businesses shuttered in efforts to contain the spread of the virus.
On Monday, May futures had fallen as low as minus $40 a barrel due to dwindling storage space. May futures (CLc1), which expire today, rose to $10.67 per barrel and Brent (LCOc1) was at $18.83, down 26.36% on the day.
Equities around the world tumbled, with Wall Street's major stock indexes following Europe and Asia lower.
The Dow Jones Industrial Average (DJI) fell 492.98 points, or 2.08%, to 23,157.46, the S&P 500 (SPX) lost 68.45 points, or 2.42%, to 2,754.71 and the Nasdaq Composite (IXIC) dropped 209.60 points, or 2.45%, to 8,351.13.
The pan-European STOXX 600 index (STOXX) lost 3.39% and MSCI's gauge of stocks across the globe shed 2.6%.
As countries around the world keep reporting new coronavirus cases and deaths, they have also been working on plans to reopen economies amid signs containment efforts seemed to be working.
"Investors are feeling more comfortable about the virus curve flattening but are coming to grips with the economic realities," said TD Ameritrade Institutional’s senior trading strategist, Mike Turvey, noting that the fall-off of oil demand and prices was one alarming sign along with earnings news.
With bleak news at the forefront of investors minds, Turvey said investors ignored suggestions U.S. lawmakers were close to agreement on a fourth coronavirus spending bill.
DOLLAR RISES
The U.S. dollar rose against a basket of currencies as investors sought the safety of the world's most liquid currency in a risk averse market.
The dollar index (=USD) rose 0.28%, with the euro (EUR=) down 0.11% to $1.085.
Latin American currencies dropped, with the more crude-sensitive currencies retreating sharply. And while lower oil prices would typically benefit crude-importing emerging markets, the plunge in prices saw investors sharply reducing their exposure to risk assets.
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The Mexican peso lost 1.11% versus the U.S. dollar.
"It's definitely a risk-off day so the dollar is benefiting from that now," said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.
Benchmark 10-year notes (US10YT=RR) last rose 17/32 in price to yield 0.5722%, from 0.626% late on Monday.
The 30-year bond (US30YT=RR) last rose 67/32 in price to yield 1.1599%, from 1.235%.
Seaport Global Holdings managing director Tom di Galoma said the trading reflected several worries, including lower oil prices and a resulting hit to stock values stemming from wholesale closures of American cities and states.
"It's a continued flight to quality. Investors are looking for a safety asset, and Treasuries happens to be that," di Galoma said.
Gold prices dropped to their lowest since April 9 while palladium
"Oil has really got the entire commodity complex down with it ... A lot of people are exiting positions that they were very profitable on with a wait-and-see attitude to see whether there's further spillover from the energy into precious metals," said Bob Haberkorn, senior market strategist at RJO Futures.
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Written By: Reuters
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