Dow futures crashed as the coronavirus hit more than 500 cases in the U.S., Italy quarantined 16 million people and oil prices collapse.
Dow futures crashed 1,00 points Sunday afternoon as coronavirus panic sweeps Europe and U.S. confirmed cases rocket above 500. In addition, the Dow Jones is dealing with a price war in oil markets after Saudi Arabia intentionally crushed the value of crude to punish Russia for rejecting OPEC’s supply cut deal.
The three major U.S. stock futures indices were under severe pressure at the open of trade on Sunday, as the Nasdaq, Dow Jones and S&P 500 all dove 3.5%.
Saudi Arabia has declared war on crude markets. By slashing prices, the House of Saud is flexing its muscles after the Russians rejected an OPEC supply cut to counter the effect of coronavirus.
As the largest exporter and with the ability to endure lower prices than most of its competition, Saudi Arabia has made moves like this before. Most at risk from this move will be Russian ally Venezuela, and arguably the United States’ armada of shale producers.
The Dow Jones has two of the world’s largest oil companies, Exxon Mobil and Chevron, which could weigh down an already struggling index.
Coronavirus headlines are not improving in Europe, as Italy quarantines its most economically vital area. As many as 16 million people are said to be under lockdown, as nervous investors in North America contemplate if the storm is headed their way.
Economists Martin Enlund, Andreas Steno Larsen and Joachim Bernhardsen at Nordea Research are certainly worried, as they anticipate these issues continuing to haunt the global economy. Rather than expecting a rebound in the stock market, they anticipate haven demand continuing to dominate as coronavirus cases spread in the U.S.:
In our main and more negative scenario, we foresee supply chain problems, quarantines (imposed or voluntary), and precautionary savings, which all weigh on both manufacturing and services sentiment in coming months. This may keep demand for various safe havens strong.The latest CFR (% fatality as share of confirmed cases) numbers out of the U.S. look oddly high, and might reflect a too-low denominator due to a lack of testing. As a result, we would expect the case count to rise rapidly in the U.S. in coming weeks.
Early evidence to start the trading week suggests Nordea could be exactly right, as U.S. confirmed cases of COVID-19 move above 500.
Despite the latest news out of China being quite positive, the Dow Jones’ most heavily weighted stock, Apple (NASDAQ: AAPL), faces a potentially rough week after Bloomberg’s Mark Gurman issued a bombshell report over the weekend.
According to the report, the tech giant is running low on replacement iPhones, while employees are also noticing other parts running low.
It’s difficult to know what this means for AAPL stock, given that the company has already issued a profit warning related to this issue. For Dow bulls, a struggling Apple means a significantly weakened index, so this issue is absolutely one to watch this week.
This article was edited by Sam Bourgi.
Last modified: March 8, 2020 10:33 PM UTC