U.S. markets crater as coronavirus, oil prices trigger brief halt in trading

Treasury Secretary Steven Mnuchin and White House National Economic Council Larry Kudlow will meet with Senate Republicans at their lunch on Tuesday, according to two people briefed on the plans.

The meeting will come as the White House and Congress are looking at emergency steps to try and address the economic concerns that have arisen in the past few weeks tied to the virus.

The White House and congressional Democrats are both talking about whether to add new paid sick leave benefits for workers, though there is not yet agreement on how to move forward.

This is what panic selling looks like. When everyone wants to sell and almost nobody wants to buy, prices suddenly stop having much to do with the underlying value of whatever it is that is being traded. As the expression goes on Wall Street, nobody wants to try to catch a falling knife.

But it’s even worse than that when most of these stocks, bonds and derivatives have been purchased with borrowed money. The wiseguys who now dominate the daily trading on Wall Street — the hedge funds and private equity funds — typically put down $1 or $2 of their own and their investors’ money for every $10 worth of the securities they purchase.

When panic sparked by the coronavirus and a possible oil price war overwhelmed Wall Street on Monday morning, the ensuing sell-off was so severe that it triggered the New York Stock Exchange’s “circuit breaker” system. The system is meant to stop stocks in free-fall when they threaten to “exhaust market liquidity,” according to the NYSE.

Circuit breaker rules, which apply only during regular trading hours, stipulate that a single-day, 7 percent decline in the Standard & Poor’s 500 index triggers a forced 15-minute halt on trading. If the S&P 500 were to decline 13 percent, it would initiate another 15-minute freeze. A 20 percent decline would close markets for the day.

Senate Finance Chairman Chuck Grassley (R-Iowa) is looking at “targeted tax relief measures” with the aim of providing a “timely and effective response to the coronavirus,” a spokesman said Monday.

Committee spokesman Michael Zona said several options under the committees jurisdiction were being reviewed as they learn more about the impact on specific industries and the economy as a whole.

He did not specify what the measures might be. President Trump last week called for a one-year payroll tax cut as a way to address the economic fallout, but that idea has not been warmly received by many Republicans.

The oil price war Saudi Arabia launched against Russia over the weekend sent crude prices into one of the steepest falls in history Monday, a potential disaster for oil field workers, U.S. shale drillers, investors and members of the Organization of the Petroleum Exporting Counties that rely on oil to make their budgets add up.

Moscow’s refusal to cut its oil output by half a million barrels a day ruptured the unusual three-year marriage of OPEC, led by the Saudis, and major non-OPEC producers, led by Russia, as its members scrambled to find a way to respond to weakening global demand tied to the outbreak.

White House officials have invited top Wall Street executives to meet this week as the coronavirus outbreak has created enormous strains on the U.S. economy, according to two people with knowledge of the meeting.

The gathering comes amid extreme volatility in financial markets. The stock market has fallen sharply in the past two weeks, many investors are seeking safe-haven in U.S. government debt, and the oil market has tumbling.

The White House’s agenda for the meeting could not be learned. The Wall Street executives invited to the meeting also could not be immediately learned.

Pick just about any market — stocks, bonds, oil — and it’s sending a signal that investors around the world think there’s a high probability of a recession.

J.P. Morgan sent around a note to clients late last week saying markets were indicating a 90 percent chance of a recession, a term that generally means six straight months of economic contraction. The picture looks worse now, especially in the bond market. Last week, Wall Street panicked when the yield on a marquee government bond — the U.S. 10-year Treasury — fell below 1 percent. That had never happened before. Now that yield is below 0.5 percent, a jaw-dropping situation that didn’t even occur during the Great Recession.

As he concluded meetings in Saudi Arabia on Feb. 23, Federal Reserve Chair Jerome H. Powell sent urgent emails to his staff about the coronavirus. The outbreak was escalating in South Korea, Italy and Iran, and the central bank needed to intensify its response to the economic shock.

While Fed economists began to run through scenarios of what could go wrong, senior White House officials both privately and publicly maintained that there was virtually no reason for concern. On Feb. 25, as Powell began meeting with staff to prepare contingency plans, White House economic adviser Larry Kudlow said the United States had an almost “airtight” containment on the outbreak, a day after urging investors to “buy these dips" in the stock market.