JSE plunges; Covid-19, oil price war chase away global bulls; Eskom; Sasol; rand
By Jackie Cameron
- South African stocks plunged to a more than four-year low on Monday, joining a global sell-off in riskier assets as oil prices collapsed more than 30%, hitting chemical and energy firm Sasol the hardest. It shed nearly 50% of its value. Reuters reports that Saudi Arabia’s plans to hike crude production and slash its official selling price came after Russia on Friday balked at steep production cuts proposed by the Organisation of the Petroleum Exporting Countries (OPEC) to stabilise prices hit by economic fallout from the coronavirus. The decline in the Johannesburg All-Share index and Top-40 index was compounded by fears the impact from the fast-spreading coronavirus will intensify, it notes.
- US stocks extended losses back past 7%, as a full-blown oil price war rattled financial markets already on edge over the spreading coronavirus, reports Bloomberg. Treasury yields plummeted, crude sank more than 30% and credit markets buckled. The S&P 500 sank the most since the May 2010 flash crash and is now down 18% from its Feb. 19 all-time high, threatening to end the record-long bull market that began 11 years ago to the day, says the news wire. Bloomberg highlights the following developments on Monday.
- All but eight S&P 500 companies were lower Monday, with energy producers routed by 19%. Exxon Mobil and Chevron were down more than 9%. Banks lost 10%, with an ETF that tracks regional banks headed for its worst day since 2009. Apple sank 6% and Dow Chemical plunged 20%.
- Crude tumbled the most since the Gulf War in 1991, after an OPEC+ alliance that had contained global production disintegrated. WTI and Brent pared some of their losses but remained down more than 20%.
- The 10-year Treasury yield fell below 0.5% and the 30-year yield dropped under 0.9%, taking the whole US yield curve below 1% for the first time in history.
- The Stoxx Europe 600 Index fell the most since 2016 on trading volumes exceeding three times the 100-day average. Several of the region’s gauges look set to enter bear markets. Japanese stocks entered one earlier when they tumbled almost 6%.
- A US derivatives index that measures the perceived risk of corporate credit surged by the most since Lehman Brothers collapsed.
- Exchange rates including the yen saw sharp moves as traders struggled to establish where new ranges might be. The yen was up about 3% versus the dollar while the euro and Swiss franc both strengthened more than 1%.
- The plunge in international oil prices has a potential upside for South Africa’s debt-stricken state power utility – lower costs. Eskom can’t generate enough power from its coal-fired power stations to meet demand, and burnt through diesel worth R6.5bn ($407m) at its open-cycle gas turbines in its last financial year to try and avert or limit power cuts, says Bloomberg. With the utility expecting supply constraints to persist for at least 18 months, a prolonged fuel price slump will go some way to helping contain its primary energy costs, reports the news service. “The price of oil plummeted as much as 32% in rand terms on Monday, and was 19% lower at 11:15am in Johannesburg, after talks between the Organisation of Petroleum Exporting Countries and Russia collapsed and Saudi Arabia initiated a price war. The price of crude in rand terms – which determines South Africa’s gasoline prices, which are regulated by the state – has plunged 19% in the past two trading sessions.
- Sasol’s record share plunge on Monday, coming as the oil price slumped and just days after the company credit rating was cut to junk by Moody’s Investors Service, is raising concern among investors that it may need to hold a rights offer as it struggles with an about $8bn debt burden.
- The number of confirmed coronavirus cases in sub-Saharan Africa climbed to 16 as the continent’s two biggest economies announced more people tested positive for the disease. There are four more cases in South Africa, bringing the total in that country to seven, Health Minister Zweli Mkhize told Bloomberg reporters Monday in Johannesburg. In Nigeria, the health authorities announced a second case. “All of the new patients are linked to so-called index cases – the first instances of people contracting the virus that were announced in Nigeria on Feb. 28 and in South Africa on March 5.” Authorities in both countries have intensified efforts to prevent the virus from spreading, including tracing people who’ve come in contact with the index cases on airline flights from Italy, says Bloomberg.
- Irish authorities canceled the nation’s annual St. Patrick’s Day celebrations, as concern around the coronavirus outbreak escalated. The St. Patrick’s parade scheduled for March 17 in Dublin has been shelved. Irish Prime Minister Leo Varadkar told reporters in Dublin Monday: “It is possible we are facing events unprecedented in modern times. The virus “can’t be stopped, but it can be slowed.” The government plans a raft of measures for sick pay and other benefits as part of its response to the coronavirus, at a cost of about €2.4bn, added Bloomberg.
- South Africa’s rand plunged by almost 8% against the dollar on Monday, touching its weakest level on a closing basis since January 1980, as investors fled riskier assets. Bloomberg reporters note that global sentiment was the largest factor in the rand’s performance, with the currency seen as a proxy for its emerging-market peers. But local factors, including renewed rolling power cuts by Eskom and a downbeat assessment by Moody’s Investors Service of South African growth ahead of its ratings review later this month, contributed to the selling pressure.