Global stock market storm

The coronavirus caused a global stock market crash. To the health crisis that has shaken the markets for several weeks was added on Monday an oil shock of an extent unknown for thirty years. The equity markets experienced falls comparable to those recorded in 2008, in the aftermath of the Lehman Brothers bankruptcy.

The cocktail of falling oil prices and fears linked to the spread of the coronavirus was a real poison for the markets. Faced with the influx of sales orders, Monday morning quotes started late on several major places. The opening of the Paris Stock Exchange had to be postponed for fifteen minutes on Monday. An exceptional case which testifies to the extreme distrust of investors. European markets, which had already suffered a lot, lost ground on Monday. The main indices opened on falls between 6 and 12%.

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In Paris, the CAC 40 finished down 8.4%. In two weeks, it erased a year of increase. It has now lost more than 20% since the start of the year. The Paris Stock Exchange, like most of the major world markets, has thus switched to bear market , a bear market symbolized by the bear on Wall Street and in which the fall in the day calls for the next. Milan plunged by more than 11% on Monday, Madrid by 7.96%, London by 7.7% and Frankfurt by 7.94%.

The wind of panic had already swept the stock markets of the Gulf and the Asian markets. It then spread to Wall Street. After only a few minutes of trading, the circuit breakers allowing the market and investors to regain their senses in the event of a sudden fall were activated. A heavy silence immediately settled in the trading rooms, followed by a sales frenzy. The Dow Jones fell 7.79% on Monday and the Nasdaq fell 7.29%.

Bad news for oil companies

How did the fall in crude prices set fire to the powder on the equity markets? The plunge in black gold prices has sent down the stock market prices of oil and oil companies. The French giant Total unscrewed by nearly 16.6% on Monday, recording its largest decline in twenty years. The fall in crude oil prices is very bad news for the oil companies! The titles of the oil groups are in fact directly linked to the price per barrel. The mechanics are relentless: the more the prices drop, the more the companies' margins suffer and the more their prices plummet.

The oil services groups which are at the end of the chain are even more exposed. " When oil prices fall the big companies tend to cut their investments in an attempt to preserve their margins and the oil service groups which suffer from large fixed costs see their orders collapse and are literally strangled, " explains an expert.

Stock prices of oil services companies were literally massacred on Monday. In Paris, Technip lost 23.3%, registering the largest drop in the CAC 40. CGG was at the bottom of the broad SBF 120 index with an impressive 37.5% plunge.

However, experience shows that consumers perceive a real improvement in their budget with several months of lag

The shale gas sector in the United States, which carries a large debt, is of great concern. " Many of these companies have a production cost well above $ 35 a barrel and are threatened with bankruptcy with devastating effects on the financial sector, " said Frédéric Rollin, Pictet AM investment strategy advisor. This “credit risk” which can spread like wildfire has also weighed heavily on the equity markets.

The other transmission belt between the fall in oil prices and equity markets is through financial institutions. European banks are projected into the heart of this molten reactor: they carry credit risk, suffer from low rates which plunge with each blow of tobacco, and are exposed to Italy. In Paris yesterday, Societe Generale plunged 17.7% Crédit Agricole by 16.9 and BNP Paribas by 12.3%.

Bargain for households?

The fall in oil prices also has positive effects. The fall in the price of energy is even a real boon for households. " Experience has shown, however, that consumers perceive a real improvement in their budget with several months of delay, " explains Frédéric Rollin. In the meantime, if the economic situation has worsened, these effects are largely erased.

For Alexandre Baradez, head of market strategy at IG, eyes are now turning to governments and central banks. For him, faced with this global crisis, an international and coordinated response is necessary. " The markets are waiting for energetic measures to support the most fragile sectors from governments with a policy of supporting the central banks ."