Global Markets Had One of Their Worst Weeks in Years
Synopsis
Global markets took a heavy beating the week of March 2 after US and Israeli strikes on Iran triggered oil price surges, stock sell-offs, and extreme volatility from Asia to Wall Street. Oil climbed more than 20% across the week. The Dow fell nearly 800 points on its worst day. South Korea had one of its worst sessions in years before bouncing back hard on Thursday. Airlines were among the biggest losers all week. Heading into the weekend, markets were cautiously steadier but fragile, the war was still going, oil was still above $80, and no one knew what the next week would bring.
International markets suffered a severe beating during the week of March 2 as US and Israeli attacks in Iran sparked oil price jumps, stock sell-offs on bourses across the globe from Asia to Wall Street. Oil gained more than 20% over the week. On its worst day, the Dow declined almost 800 points. South Korea struggled through one of its worst sessions in years.
Key Highlights
- Oil prices soared by more than 20% in one week after the US and Israel hit Iran on February 28.
- After the Dow plunged close to 800 points on Thursday and was down more than 1,200 at its lowest point
- South Korea’s Kospi had its worst day in years on Thursday, dropping over 12 per cent before recovering sharply
- Global airlines were battered, and the US airline ETF fell 4.8% Thursday alone
- Asian markets attempted to rebound on Friday, but oil held above $80 a barrel as there were no signs of peace talks
Investors on Edge as Oil Shock Shakes Global Markets
It all began on the final weekend of February as the US and Israel bombed Iran. Iran’s Supreme Leader was killed and then the Iranians shut down the Strait of Hormuz and launched missiles across the region again. On Monday morning, international markets were startled and throughout the week the shock remained.
Oil jumped and the global stocks fell. Which led to investors selling off risky assets in favour of dollars and gold. New headlines and market swings came daily. The damage across world markets was severe by the end of the week.
The First Wave of Panic, Monday and Tuesday
The moves were immediate when markets opened on Monday, March 2. Oil surged 13% overnight before closing the day up 6.3%, with US crude reaching $71 per barrel. The Dow fell by 600 points in early trading and trimmed losses to 73 points at the end of the day. The S&P 500 finished little changed and the Nasdaq was higher by a tad. At first, it seemed manageable, then came Tuesday.
South Korea had been closed on Monday for a holiday, but when it reopened, it fell 7.2%, its biggest one-day loss in two years. Europe’s Stoxx 600 sank 3%. Oil rose another 5.9 per cent, to $75 a barrel. The Dow dropped as much as 1,200 points and closed down 355. Wall Street’s fear index, the VIX, reached its highest point in three months. All of Asia’s energy-importing nations were in a squeeze, as the price of keeping the lights on just became much costlier.
Wednesday to Thursday, Oil Passes $80 and the Dow Takes Another Hit
On Wednesday, we had a momentary break from the chaos. Reports that Iran may have made muted overtures to the US on negotiating an end to the conflict calmed nerves a little. Oil paused its climb and the S&P 500 gained 0.5%. Europe’s Stoxx 600 rose 1.37%. Scott Bessent, the US Treasury Secretary, said the US Navy would accompany oil tankers through the Strait of Hormuz as necessary, which helped settle oil prices and markets tipped up for a day.
Thursday wiped that out. Iran launched a missile at an oil tanker, and the price of oil surged 85%, its biggest one-day increase since May 2020, closing above $81 a barrel. The Dow lost 785 points and was down more than 1,100 at one point. The S&P 500 fell 0.56%. Boeing and Caterpillar, two companies that are hit hard when the world economy slows down, were both down more than 3.5%. It was the airline ETF’s worst day since April. It was the worst session of the week.
Asia Tries to Recover, But Fears Stay High on Friday
Asia-Pacific markets were trying to bounce by Friday after South Korea’s Kospi posted a stunning 10% recovery on Thursday in its best day since 2008. Japan’s Nikkei was up 2.7% on Thursday and flat on Friday. Hong Kong gained over 1.6%. But the recovery did not reach everyone. Australia’s ASX 200 fell 1% and India’s markets dropped 0.7%.
Oil retreated slightly on Friday, US crude dipped below $81, but remained well above where it was before the start of the war. No shipping companies were dispatching tankers through the Strait of Hormuz. The price of insurance for ships attempting to pass was prohibitive. JPMorgan cautioned that if the disruption lasted longer than three weeks, producers in the Gulf could run out of space to store oil and prices could leap into the range of $100 to $120 a barrel. No one expected an early resolution.
FAQs
- What is the Strait of Hormuz and why does it matter?
It is a narrow canal and one-fifth of the barrels of oil traded globally pass through everyday, Iran debilitating it chokes off the global oil supply immediately.
- Why were airline stocks hit so hard?
Fuel is one of airlines’ largest expenses, and whipsaw oil prices will leave the airlines with huge losses overnight.
- Can oil get even higher from here?
JPMorgan said it could reach $100 to $120 a barrel if the Strait of Hormuz remained blocked for longer than three weeks.
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