It’s been a disappointing end to the week for European markets, with the FTSE100 posting its first weekly decline since mid-December, while the DAX has fallen sharply, sliding to a one month low, with all sectors firmly in the red.
Sentiment hasn’t been helped by rising concern that the situation on the Ukraine, Russia border may be deteriorating further after the US announced that it was considering evacuating diplomat family members from Ukraine, with the DAX seeing the biggest losses.
As far as the FTSE100 is concerned there have been pockets of green, with defensives outperforming, as investors reach for the tobacco stocks to calm their nerves, while GlaxoSmithKline has also edged higher.
The biggest losers have been basic resources, energy and financials, all of the big winners of the last few weeks, with banks feeling the effects of the sharp slide in yields, while today’s weakness in oil prices is weighing on BP and Royal Dutch Shell.
Despite the Plan B restrictions imposed by the government in December Wagamama’s owner Restaurant Group upgraded its earnings forecasts for the financial year, saying that they expected FY adjusted EBITDA would come in at the upper end of its guidance of £73m-£79m.
Due to a decent performance during October and November the group was able to ride out the slowdown in December, although as we head into 2022 higher prices and lower consumer confidence could weigh on any rebound in demand.
US markets have continued where they left off with another weak open, while bond yields have gone the same way, suggesting that these declines aren’t about rising inflation risk, or fiscal tightening but more a case of straightforward risk aversion, as well as concern about elevated valuations.
Today’s slide has seen the S&P500 trade back down to its 200-day MA, while the Dow and Nasdaq 100 have already broken these key support levels.
Don’t Look Up may have helped boost Netflix subscriber numbers in Q4, however its shareholders will be feeling a sense of don’t look down, as they survey the wreckage of the share price over the last few weeks, and today’s open which saw it open over 20% lower.
There is no question that Netflix remains the market leader in its space, but it is coming under increasing pressure from multiple sides. Its content slate still looks strong, with decent numbers of views for films like Don’t Look Up and Red Notice, and plenty of new content coming at the end of Q1, however investors appear to be more concerned about looking down, than looking up right now, with the shares down over 40% from their November peaks
Today’s move has seen the share price fall back to levels last seen in May 2020, wiping out all its pandemic gains, prompting some concern as to whether the company can adapt its business model to a much more competitive marketplace. Revenues have still been growing quarter on quarter, although not as fast as some would like. Consequently, shareholders appear to be experiencing a significant bout of vertigo as far as valuations are concerned.
It is already taking steps to address these concerns by moving into gaming and is also hoping to move into sports programming after the success of the F1 docuseries “Drive to Survive”. Netflix also needs to think more about how it manages its overseas currency exposure as it expands in international markets. Losing out on up to $1bn in revenue due a stronger US dollar is not a position any company should be in.
A sell off in crypto, as bitcoin drops below the $40k level, is also crushing the likes of Coinbase, MicroStrategy and a range of other small players, with Robinhood Markets, who are due to report next week, trading at record lows.
At the moment investors appear to be getting increasingly concerned about a lot of companies that have done well as a result of the pandemic, with Peloton shares also collapsing after the company suspended production on its bikes after sales fell sharply.
Currency markets are a mess today with the euro higher despite ECB President Christine Lagarde peddling the narrative that current levels of inflation are likely to be benign, and that prices are likely to fall back. This seems a triumph of hope over expectation, given what is happening everywhere else in the world, and what is playing out with respect to factory gate prices, across all of Europe.
Despite this the euro has moved sharply higher, although some of this may be as a consequence of a short squeeze against the pound after today’s shocker of a UK retail sales number for December.
The pound has underperformed after December retail sales slid back 3.6%, in the wake of the Governments rollout of Plan B restrictions which saw sales volumes plunge as consumers stayed at home, and limited their social contacts. While most of the pain was felt in pubs and hospitality, high street retail also felt the effects, and although there may have been a bit of a rebound between Christmas and New Year, confidence post New Year appears to have taken a knock, after consumer confidence slipped to an 11-month low in January. There appears to be little doubt that the surge in prices seen in the last two months has shaken consumer confidence and caused a significant pullback in spending habits.
Crude oil prices have continued to look resilient hitting their highest levels since 2014 earlier this week, however with risk sentiment so fragile and inflation running higher, there is a concern that we could see an element of demand destruction if prices continue to rise. This week’s surprise rise in US inventories could well speak to that very scenario, and this has seen prices fall back from their highs this week.
A late week slide in US yields has seen gold prices hit their highest levels in two months, while a sharp fall in bitcoin prices below $40k has prompted some renewed inflow into the yellow metal over the last couple of days.
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