The global markets are heading towards a downturn as Coronavirus and the global Oil industry are taking a negative turn. The outbreak of the virus has resulted in increased uncertainty that has further given rise to increased volatility within the global financial markets.
Traders grow increasingly pessimistic about the current state of the markets, especially after OPEC and Russia failed to reach a deal on oil supply cuts. Their failure to do so led Saudi Arabia to start an aggressive oil price war after Russia refused to support deeper oil cuts to cope with the outbreak of coronavirus, sliding oil prices to a multi-year low.
U.S. West Texas Intermediate crude and international benchmark Brent crude on Monday had their worst day since 1991.
An oil price war will have massive geopolitical consequences, dragging down markets already shaken by the new coronavirus, COVID-19.
Coronavirus affects the Oil market in two ways:
First, Coronavirus had caused global travel restrictions, and this had caused a sharp drop in the consumption of aviation fuel -- meaning less oil and oil-based products are being used and produced.
Second, market sentiments towards the global energy market are pessimistic, prompting movements away from the stocks of oil and energy companies and further dragging down prices.
As the novel virus continues to spread beyond Asia, the oil market will continue to suffer losses, but the question remains for how long?
As for the currency markets, the dollar is getting weaker. According to CME Fed Watcher, market participants are expecting more action from the Federal Reserve. The expectations are that the Fed will cut the interest rates by 75 basis points to 3.5% amidst increasing signs of a recession during its upcoming meeting in March, and this is despite the fact that the Fed has already cut interest rates by 50 basis points to combat the risk of coronavirus on the US economy.
But looking at gold, this is not the story we are seeing. Gold prices hit 7-year high as investors turn to traditionally safer assets amid coronavirus sparked sell-off.
So... are the markets heading for a pause?
The coronavirus concerns have the world “on the edge of its seat,” impacting everything from financial markets to the travel industry. The impact of the virus on the global economy can’t go unnoticed. However, it’s not possible to predict whether the bearish trend will continue or not, but we don’t underestimate the impact of the virus on market sentiment.