Panic strikes stock indices, yen pops

Fed fears, mixed corporate earnings, and plunging UK retail sales have hit risk sentiment with even the price of oil finally rolling over.

• Netflix drops 20% after hours on weak outlook
• Haven trades including the yen and gold start to work
• UK retail sales drop -3.7% MoM in December as Omicron cases surge

The rally on Wall Street was short-lived as investors sold the rip - the main Wall Street indices closed lower on Thursday as weaker earnings and Fed fears spooked the market

Investors have been unable to shake off concerns that the Fed will need to act more aggressively tightening monetary policy in order to rein in US inflation, which has risen to a four-decade high. Fears of a more hawkish Fed ahead of the FOMC next week have fueled a rotation out of high growth tech stocks, pummeling the Nasdaq. The tech-strong index has declined 5% so far this week. 

Netflix disappoints

Corporate developments have added to the negative tone in the markets after Netflix shares plunged after hours on a disappointing subscriber outlook. Is there really anyone left who didn’t subscribe during lockdown?! 

The streaming giant reported Q4 EPS of $1.33 on revenue of $7.71 billion, beating expectations on both top and bottom line. Subscriber numbers came in slightly below forecasts at 8.2 million. However, Netflix is expecting just 2.5 million new subscribers in Q1 2022. This was a big disappointment for investors who quickly sold out of the stock sending the share price 20% lower in afterhours trade.

Risk-off sentiment pulled Asia lower overnight and is set to weigh on European stocks on the open, along with tumbling oil prices and weak UK retail sales.

UK retail sales plummet

UK retail sales tanked -3.7% MoM in December, down from a 1% increase in November and well short of the -0.6% decline forecast. Retail sales tumbled as Omicron cases surged in Britain in December. Self-isolation, in addition to fears of falling ill before Christmas kept Christmas shoppers at home in the key festive period. Still, it’s worth remembering that retail sales are notoriously volatile, and the Omicron impact is not expected to last long. Footfall data is already showing that shoppers are returning to the high street in mid-January – perhaps to nab some sales.

Oil drops after 10% gains this year

Oil prices dropped over 3% on Thursday after a surprise climb in US crude inventories and after comments from the Biden administration that it can accelerate the release of strategic reserves. According to the EIA, US gasoline inventories unexpectedly rose by 5.9 million barrels to the highest level in 11 months. Meanwhile, crude oil stockpiles rose by 515,000 barrels prompting profit-taking from traders.  Oil prices have had a rock-solid start to 2022, rising 10% in just three weeks, hitting a seven-year high this week. 

Safe haven currencies rise, commodity currencies fall

In the forex market, risk-sensitive commodity currencies are coming under pressure. The Australian dollar is leading the charge lower. The haven Japanese yen is putting in a solid performance, lifted by the souring market mood and by a tick higher in Japanese inflation to 0.8% YoY in December. The minutes to the latest BoJ meeting showed policymakers adopting a more hawking tone as inflation risks build, albeit slowly.