Shock And Awe As Oil Prices Crater; U.S. Stock Futures Deeply In The Red And At Limit Lows; Traders Now Pricing In A U.S Recession
It is early, 0450 am EDT on Monday, so a lot can change; but, it appears likely we’re in for perhaps the worst sellloff that we have been experiencing during this coronavirus-induced marker carnage. The DOW futures are down 1,255 points as I write this short note, with an implied open of -1,303 points or so. NASDAQ Futures are lower by some 400 points, and the S&P down 145 points. U.S. Futures have actually hit their limit on the down side, so we could even see the maket lower than 1300 points when it opens. Stocks could enter bear market territory today, if the futures play out.
The fact that coronavirus infections did not noticably subside globally over the weekend; and oil prices heading to the low $30 range both combined to supercharge the global selloff. Italy over the weekend virtually shutdowm the northern half of the country, putting their economy at risk. And, Russia’s failure to agree with OPEC last week on cutting oil production quotas, prompted Saudi Arabia to announce production increases from its current 8.5 million barrels per day to in excesss of 10 million barrels per day. The kingdom’s decision sent oil prices sharply lower, down nearly 22 percent overnight and just over $32 er barrell. +$20 oil doesn’t seem too hard to imagine.
We have reached the panic stage and traders are pricing in a U.S. recession. Yes, it is going to be very ugly today; but, there are some positive things to hold on to. Coronavirus infections in South Korea were lower over the weekend. Whether or not the virus has peaked there remains a question; but, at least they had lower infection numbers. And, we have numerous pharmaceutical companies in the hunt for both theraputics as well as a vaccine for the coronavirus.
The significantly lower oil prices will act as a stimulus for the global consumer; but, U.S. shale producers will likely shutter their operations until oil prices return to a level where it is profitable to do so.
But, most importantly, the U.S. Federal Reserve and central banks globally need to act in a coordinated fashion and implement a global fiscal stimulus campaign to provide impetus and the ingreidents for eonomic growth.
If the coronavirus disappates over the course of the next few weeks, then a global fiscal stimulus package could help economies start to recover by this summer. Fiscal stimulus is warranted, as Japan and Italy are very likely headed for recession, China is likely headed for negative growth in the Q1 of 2020, ditto for South Korea, and the economies of the U.S. and Germany will be challenged.
It is always darkest before the dawn. There will be better days ahead — even if we can’t envision them quite yet. RCP, fortunascorner.com