Europe open: Stocks reel amid 'margin calls' in wake of oil price crash

Stocks on the Continent plummeted at the start of the week as crude oil prices crashed after Saudi Arabia kicked-off a price war in response to Russia's decision not to support further oil output cuts to help prop up the market.

As of 1019 GMT, Brent crude oil futures for May delivery were down 25.5% to $36.09 a barrel on the ICE, having fallen by as much as 31.5% to $31.02 a barrel during Asian trading - the largest one-day decline since January 1991, at the start of the first Gulf War.

"European markets have plunged sharply this morning, in a manner reminiscent of the dark days of 2008, after Saudi Arabia fired the starting gun on an oil price war with Russia," said Michael Hewson, chief market analyst at CMC Markets UK.

"This seems a high stakes gamble given how high the Saudi breakeven price is, when you price in all of their welfare spending. The one upside for Saudi Arabia is that this will be even more painful for Iran, already suffering as a result of a coronavirus outbreak."

Against a backdrop of talk in markets of margin calls and enormous volatility, the benchmark Stoxx 600 was 6.45% lower at 343.50, alongside a 6.58% drop for the German Dax to 10,773.45, while Milan's FTSE Mibtel was plummeting 9.9% to 18,740.60.

In parallel, the Stoxx 600's sector gauge for Oil and Gas stocks was down by a record 14.02%, alongside a 37.38% jump in the VStoxx index of volatility for the Euro Stoxx 50 benchmark to 62.67.

That was the second-highest reading for the VStoxx since the Great Financial Crisis.

At the individual company level on the Stoxx 600, the worst performing issue was Tullow Oil, followed by a who's who of the Oil & Gas sector's biggest names, including BP and Eni.

Euro/dollar meanwhile was jumping 0.87% to 1.1406 as traders priced-in the hit to America's shale oil sector and alongside a 9% drop in the value of the Russian rouble against the Greenback.

Petroleum storage outfit Koninklijke Vopak N.V. was one of the just three stocks trading higher out of that 600-strong contingent, together with salmon farming specialist Mowi ASA and RyanAir Holdings.

Longer-term Italian government bonds were getting slammed as well, with the yield on the 10-year BTP leaping 23 basis points higher to 1.30% after Italian authorities imposed a partial lockdown on the Lombardy region at the weekend, as well as on provinces in Piedmont. Emilia Romagna, Veneto and Marche.

However, come Monday, residents were reportedly being allowed to move freely in and out of those areas simply by saying that their trip was justified.

The news came as the death count from the coronavirus outbreak in Italy hit 133 on Sunday, making it the deadliest outside China.

In the People's Republic of China on the other hand, there was apparently some goods news to be had, with the WHO reporting a further large drop in the number of new coronavirus cases on Sunday to just 46.

Elsewhere on the economic front, Germany's Federal Office of Statistics reported a 3.0% month-on-month jump in the country's industrial production for January (consensus: 1.7%), which came alongside upwards revisions to readings for the previous months.

"Overall, these data are good news. They further evidence that the industrial sector was recovering ahead of the Covid-19 outbreak." said Claus Vistesen at Pantheon Macroeconomics.

"It is futile, however, to use the January headline to say anything about Q1 as a whole. It could be a grim one, at least judging by the slump in China and increasingly likelihood of major quarantining across the European continent."