World markets start the week cautiously, as US crude futures dive

London/Sydney — Caution recaptured world markets on Monday as another drubbing for US crude oil futures kicked off a week of data and earnings that will drive home the damage being inflicted by global coronavirus lockdowns.

European stocks made a choppy start, with the pan-regional Eurostoxx 600 swinging in and out of positive territory in early trading. London’s FTSE and Germany’s DAX were up 0.2%.

E-Mini futures for the S&P 500 slipped nearly 0.5% too, after Wall Street enjoyed a strong end to last week, though it barely seemed to reflect the latest violent turbulence in oil markets.

With some global storage facilities nearly full to capacity, the “front-month” May benchmark US crude contract was down $3.40, or 18%, to $14.87 a barrel, having at one point dived as low as $14.47 a barrel — the lowest since March 1999.

European benchmark Brent was down a more manageable 3% at $27.30 a barrel, but it all points to the same problem — too much supply, not enough demand.

“For oil there is a bit of a technical story (with storage), but still, if energy consumption is down 30% and Opec reduces supply by 10%, there is still a large gap,” said Rabobank’s head of macro strategy Elwin de Groot.

The equity and other major markets however were still trading largely on the newsflow of the European virus numbers gradually coming down, he added.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2% in slow trade, pausing after five straight weeks of gains.

Japan’s Nikkei fell 1.2%, but Chinese shares edged up 0.4% as a benchmark lending rate was lowered to shore up the coronavirus-hit economy after it contracted for the first time in decades.

US President Donald Trump said on Sunday that Republicans were “close” to getting a deal with Democrats on a support package for small business.

The US has by far the world’s largest number of confirmed coronavirus cases, with more than 750,000 infections and over 40,500 deaths, according to a Reuters tally.

The S&P 500 has still rallied 30% from its March low, thanks in part to the extreme easing steps taken by the Federal Reserve. The Fed has bought nearly $1.3-trillion of Treasuries alone, and many billions of non-sovereign debt it would historically have never gone near.

“The question is, are markets underestimating this in terms of the long-term affect on the economy. There will be damage and there will be damage in terms of the consumer psyche,” Rabobank’s de Groot said.

That damage should become all more clear this week with April global purchasing manager data — seen as some of the most forward-looking economic gauges — being published on Thursday.

A taster on Monday was that Japan reported its exports down almost 12% in March from a year earlier, with shipments to the US down over 16%.