TOKYO (Reuters) – Financial markets have been thrown into turmoil following Saudi Arabia’s response to the collapse of OPEC+ talks and concerns about the global spread of the coronavirus.
FILE PHOTO: The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann
Following are comments from analysts:
JOHN LEKAS, CEO, LEADER CAPITAL, VANCOUVER, WA:
“We are in an Armageddon situation. We could move down 30% in the equity markets in the next 30 days. We are at floor 8 after a jump off a 20 story building.
“The 10 year is your growth rate, give or take a little. That means growth in essence went from a little over two to basically zero overnight. Two quarters of negative gross domestic product is a recession. We will most likely get that.
“It also puts U.S. President Donald Trump’s election at risk. The market has not caught up to the facts.
“The bond market action is something I have never seen in my lifetime. The argument that low rates mean cheap money… doesn’t hold because credit gets tight and cash disappears.”
ANDREW BRENNER, HEAD OF INTERNATIONAL FIXED INCOME AT NATALLIANCE SECURITIES, NEW YORK:
“Sunday night panic is here as the markets open… Oil is down 22% due to the Saudis sending the Russians a message and opening up the spigots.
“If cash (Treasuries) were trading, it looks like the long bond would be close to 1.125% and the 10-year around 0.60%.
MASAYUKI KICHIKAWA, CHIEF MACRO STRATEGIST, SUMITOMO MITSUI ASSET MANAGEMENT, TOKYO:
“I don’t think the end goal of the Saudis is to collapse the oil market. This is more likely a tactic to get Russia back to the negotiating table.
“I am sure that behind the scenes the United States and Saudi Arabia are trying to get Russia to return to negotiate. The problem is we do not know how long this will last, so investors have no choice but to sell risk.
“If this is prolonged, we need to monitor the impact on the high-yield credit market, because companies that have been issuing these bonds recently are concentrated in the energy sector.”
MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST, JONES TRADING:
“The news over the weekend took a turn for the worse. The latest round of negative headlines about COVID-19 included Italy’s decision to quarantine 16 million Italians in the Lombardy region until April 3.
“The bigger story is Saudi Arabia’s response to the Russia driven breakdown of OPEC+. The kingdom has chosen to use its position as the lowest-cost producer to undercut its competition, especially Russia, and flood the market with oil.”
“These events will have notable market ramifications. Ironically, had these events occurred prior to the COVID-19 outbreak, they would have been viewed as bullish. Auto companies would rally and so would airlines and materials companies that use crude as an input.
“Of course, energy companies would come under pressure, as would electric vehicle companies. Overall, lower oil prices are a positive for the real economy. That said, those groups that would stand to benefit are grappling with a much larger economic uncertainty tied to coronavirus.”
Reporting by Stanley White in Tokyo and Megan Davies in New York
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