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Markets panicking over oil prices

by LLB Editor
10th Mar 20 7:21 am

It was a bad day for financial markets yesterday – the London market was down 7.7%, the worst fall since the banking crisis more than a decade ago.

Overnight in Asia markets have been moving in the other direction – the Nikkei is up 0.85% – the oil price is up about 8%.

Stephen Clapham, an analyst from Behind the Balance Sheet, is asked why markets fell so much when we’ve known about coronavirus for some time.

“An easy explanation is that people are panicking,” he says. “Oil fell very sharply at the weekend, and oil is kind of important because it also affects the credit markets. A bunch of shale players in the US, which fell 30% to 40% yesterday, are also heavily borrowed, and they borrow these almost junk bonds, high yield bonds, that yield a very high rate of interest. They may not be able to pay them if the oil price stays low, they may not be able to repay these bonds, which cause problems in the credit market.”

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