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European stocks dropped on Monday by the most since the U.K. voted to leave the European Union, after Saudi Arabia started a price war and Italy locked down a key region.
The Stoxx Europe 600 SXXP, -6.17% retreated by over 6%, its worst single-day percentage drop since the Brexit vote in June 2016. Futures on the Dow Jones Industrial YM00, -4.86% fell more than 1200 points.
The yield on the benchmark 10-year Treasury fell 20 basis points to 0.51%, and the yield on the 10-year Bund fell 13 basis points to -0.83%.
Brent crude-oil futures plunged over $9 a barrel, dropping 20% in electronic trade.
Saudi Arabia slashed the prices it offers after failing to reach an agreement with Russia on production cuts and announcing it would increase output next month.
The International Energy Agency cut its global oil demand, now expecting a 90,000 barrel-a-day decline this year, from a previous forecast of an increase of 825,000 barrels-a day.
Smaller companies were crushed. Tullow Oil TLW, -32.11% lost 36%, and oil-services firm Saipem SPM, -18.95% dropped 27%.
Of the majors, BP BP, -18.71% dropped 16% and Royal Dutch Shell RDSA, -13.49% fell 14%.
“Already facing a supply-demand imbalance, the market is set to see significantly more crude oil in the short term. We also view the cuts to Europe as signaling Saudi Arabia’s intention to force Russia back to the negotiating table, with the aim of delivering a new production curb agreement,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Italy, meanwhile, announced a sweeping quarantine for its northern regions.
The country’s FTSE MIB I945, -9.70% slumped nearly 9%.
“The markets are looking at what is happening in Italy as a sign of what may be coming elsewhere in Europe, as the virus continues to spread,” said Ricardo Evangelista, senior analyst at broker ActivTrades.
