- FTSE 100 closes down
- Gaming stocks massively out of favour
- Nasdaq Composite rallies back above 14,000
4:50pm: FTSE 100 ends lower, US stocks down midday
The FTSE 100 finished the day on a down note, falling 91 points, or 1.2%, to 7,494, as UK retail sales dropped by a worse-than-expected 3.7% on a monthly basis in December, the biggest decline since January 2021.
“Investors will be glad to get to the weekend after the slump this week,” IG chief market analyst Chris Beauchamp said.
“While the selling seems to have slowed for now, the prospect of a week filled with big earnings and a crucial Fed meeting means there might not be a rush to buy the dip just yet,” Beauchamp added.
Mining companies and homebuilders were among the biggest decliners.
Other notable movers included shares of BHP Group Ltd, which slipped more than 3% after the company’s shareholders approved a plan to scrap its dual listings in favour of a main listing in Australia.
3.50pm Nothing worth betting on
The Footsie’s two biggest gaming stocks are among the three worst performers on the top shares index.
Ladbrokes and Coral owner Entain PLC (LSE:ENT) is 5.5% lower and Flutter Entertainment PLC (LSE:FLTR), which owns Paddy Power and Betfair, is off 5.4%.
The FTSE 100 is in full-scale retreat, down 129 points (1.7%) at 7,456, which is actually a sight worse than the tech-heavy Nasdaq Composite – down 0.8% – is faring in the US, and with this supposed to be a day in which tech stocks are getting it in the neck hardest of all.
That does not quite stack up as the FTSE 100 has no real tech giants to speak of, unless of course Entain and Flutter are now being thought of as tech stocks.
#Netflix Inc $NFLX down 23% pic.twitter.com/KgDTjiIQQ9
— totalinvestor (@totalinvestor1) January 21, 2022
“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,” reported CMC’s Michael Hewson.
3.00pm: US markets open lower; Netflix is hammered
US markets have opened lower as expected with the tech-heavy Nasdaq Composite taking the biggest hits.
The Dow Jones industrial average was down 89 points (0.2%) at 34,634 while the broader-based S&P 500 was off 34 points (0.8%) at 4,458.
The Nasdaq Composite was down 184 points (1.3%) at 13,969, falling below 14,000, which some regard as a psychological level.
READ Netflix shares slump on weak subscriber growth forecast
Netflix Inc (NASDAQ:NFLX) shares are taking a pasting and are down 23% after the streaming giant underwhelmed with its trading update yesterday.
Talking of psychological levels, in London, the FTSE 100 has at least recovered enough so it is now suffering only a double-digit fall; it is down 97 points (1.3%) at 7,489.
2.15pm: Triple-digit fall for Footsie
It’s now a triple-digit fall for London’s index of blue-chip stocks, with mining stocks responsible for a large proportion of the losses.
The FTSE 100 was down 100 points (1.3%) at 7,485.
“Why is everything selling off?” wonders Fawad Razaqzada, rhetorically, at ThinkMarkets.
“The number one reason behind the risk off tone is surging inflation and the prospects of faster-than-expected monetary policy tightening. The era of ZIRP is beyond us as central banks now start to withdraw support,” Razaqzada.
Lest you think ZIRP is some minor character in a space opera, it stands for zero interest rate policy.
“Investors now have to rely on solid company fundamentals than chasing momentum. Most companies and sectors remain significantly overvalued, as Netflix investors have found out. With inflation eating into disposable incomes, it is possible that investing could take a hit while certain group of investors cash out to release funds for real-world purchases,” Razaqzada said.
What about gold, traditionally a haven in times of uncertainty?
It’s no safe harbour today, as it is down US$1.20 (0.1%) at US$1,841.40 an ounce. Silver is faring even worse, as it is down 0.6%.
“Although off its best levels, gold is still up for the second week, suggesting investors have been seeking protection against surging inflation and as excessive risk taking in equities and crypto came to an end,” Razaqzada opined.
Oil?
No respite there. The US benchmark, West Texas Intermediate, is off US$1.67 (1.9%) at US$85.26 a barrel while Brent crude is down 59 cents (0.6%) at US87.79.
1.20pm: Palm oil prices hit record high (the future is not oran-utang)
Cryptocurrency prices may be cratering but the price of palm oil is at a record high.
It’s not often the two are mentioned in the same sentence except by ecologist bemoaning the detrimental effects both have on the environment.
Malaysian palm oil futures have been on a five-week long charge and the most widely traded contract has hit MYR 5,260 per tonne, reputedly because of supply concerns.
Indonesia, the world's biggest palm oil producer, is to restrict palm oil exports as it tries to control domestic cooking oil prices.
According to the World Wildlife Fund (WWF), more than half of all packaged products Americans consume contain palm oil so that’s another log on the inflation fire - one chopped down from a tropical forest, presumably.
In the equities market, red is the colour and football is not the game.
The FTSE 100 is down 89 points at 7,496 with Scottish Mortgage Investment Trust PLC (LSE:SMT), down 3.9% leading the retreat following last night’s massive earnings miss by Netflix.
The investment trust actually does not hold any Netflix stock – or at least the stock does not feature in its top 10 holdings – but that’s not the point. It is supposed to be a sign that tech stocks have got a bit “toppy”; witness the share price collapse yesterday of Peloton Interactive (NASDAQ:PTON), the exercise bike company.
Its shares slumped 24% while Netflix’s shares are off 19% in pre-market trade today. What both companies have in common is they made hay during the lockdowns and now restrictions are being loosened, the happy times are over and the Peloton machine can enjoy its new life as a glorified clothes hanger.
12.35pm: Nasdaq index set to take another bath
The Footsie has lost what recovery momentum it had and is down more than 1% again 7,506, while Wall Street is expected to head for a continuation of yesterday's sell-off.
As well as tech-focused Scottish Mortgage, the bottom of London's blue-chip barrel today is dominated by miners and commodity stocks, including BHP Group PLC, Fresnillo PLC (LSE:FRES), Evraz PLC, Anglo American PLC and Rio Tinto PLC (LSE:RIO).
Consumer stocks like Entain PLC (LSE:ENT) and Royal Mail PLC (LSE:RMG), travel-related names like BA owner IAG and Rolls-Royce Holdings PLC (LSE:RR.) are also in there.
Over in the US, with the tech-heavy Nasdaq likely to decline with Netflix Inc (NASDAQ:NFLX) slumping almost 20% in pre-market trading.
Futures for the Dow Jones Industrial Average are down 0.2% in Friday pre-market trading, while the broader S&P 500 index is down 0.4% and those for the Nasdaq is pointing to a further 0.8% fall.
It's a turbulent end to the week, says Craig Erlam, market analyst at Oanda, seeing the widespread selling as reflecting underlying anxiety in the markets is once again taking hold.
"The hope going into earnings season was that companies were going to settle the nerves. That we were about to get a reminder of the strength of the economy and the resilience we've seen over the last couple of years. Instead, the results have been rather disappointing.
"The banks didn't give us much to cheer about and if the Netflix results are anything to go by, big tech may also underwhelm. The subscriber numbers were a real blow and investors are being forced to adjust to the reality that there is nowhere near the momentum that the last couple of years was expected to generate. Immense competition in the space and higher costs are also major headwinds."
That negativity, on top of concern about central bank squeezes and rising costs of living and other worries, is taking its toll across the broader markets, says Erlam, with "investors starting to realise that earnings season may not be the game-changer they hoped it would be".
He said the response to Netflix might be overblown "but that is a reflection of the mood in the markets right now.
"And it could get much worse.
"The Nasdaq has broken through some key technical support levels including the 200-day moving average for the first time since April 2020. The party isn't over for big tech but unless they give us something to cheer about next week, they could be in for a rough ride in the coming weeks."
11am: Stocks and crypto crumble
The Footsie is down 0.8% at 7527, with some of the session's early losses pared to make the London benchmark one of the least-bad performers in Europe this morning.
Old-time investors may be enjoying the chance to laud it up over the young 'uns as blue-chip shares are doing much better than cryptocurrencies, with bitcoin reaching its lowest level since August.
Bitcoin's crumbling is reflective of a wider sell-off of cryptocurrencies, with bitcoin and ether are plunging by more than 6% each, extending losses as the bear market deepens.
Bigger fallers among the second-tier coins include Solana, Decentraland and Avalance, all down almost 10%; while Chainlink and Loopring are down 12% and 14%.
Around US$147bn has been wiped off the crypto market over the last 24 hours, noted Victoria Scholar, head of investment at Interactive Investor.
"The negativity on Wall Street this week with the Nasdaq shedding nearly 5% is permeating into other risk assets including the crypto complex. A hawkish Fed trajectory, which aims to dampen price levels, is softening the appeal of inflation hedge assets.
"On top of that, Russia’s central bank announced draft proposals to ban all crypto trading."
She noted that with bitcoin snapping below critical support at $40k meant it reached the weakest level since August, retreating more than 40% from its November high.
"The notoriously volatile asset has now retraced more than 75% of its gains since the summer with the potential for risk-off sentiment in equities to continue to weigh on cryptos.”
It reflects growing pessimism among investors and traders over riskier assets, said Naeem Aslam at AvaTrade.
From a technical price perspective, with the violation of the key 40k level, "all eyes" are on the next two important price levels, 35K and 30K, which he said is "the most important one".
"It is highly likely that the bitcoin price will visit the 30K, but if it does will make the current sentiment even worse, but the smart money will know that it is a deal of their lifetime."
Aslam said a big question from investors and traders is why there had been no bull rally in bitcoin yet.
"The thing with bitcoin is that when it begins to fall, the price action drops like there is no tomorrow."
He noted January had not been the best month for bitcoin, historically, with the price tending to have been much more volatile in the first month of the year in the last ten years.
"Having said that, bitcoin is still the currency of the future, and if one was ready to buy Bitcoin at 68K, then he or she must be excited to see a bargain like today."
9.40am: 'Is this the bear market proper?'
As shares in London and across Europe tumble, echoing the late plunge in the US overnight, investors and analysts are wondering if the technical correction seen on the Nasdaq is going to turn into something bigger.
With a bit of light carnage among pandemic bubble stocks and Bitcoin cracking below US$40k, Neil Wilson, analyst at Markets.com, said: "Is this the bear market proper – an end to the ’09-’18 expansion?"
He noted that legendary stock market guru Jeremy Grantham has calculated the trend is pointing to the S&P 500 crashing to 2,500 from around 4,400 at the moment.
"Who’s up for a 50% decline? The Fed would try to stop that but can it?" said Wilson, noting that wild swings in financial market are catching investors offside.
He noted that even though interest rates are actually lower now, with the 10-year US yield dropping under 1.8%, "momentum is unstoppable for now".
For all that, the FTSE 100 has trimmed its losses, now down 66 points or 0.9% at just over 7518.
Bulls are mounting a defence, said Wilson, with the index seeming to have marked out a higher range, with his technical analysis suggesting some trend support.
Risers include defensive stocks, including British American Tobacco PLC (LSE:BATS), Imperial Brands PLC (LSE:IMB), Intertek Group Plc (LSE:ITRK) and United Utilities Group PLC (LSE:UU.).
8.32am: Gloom descends
The FTSE dropped sharply in early trade on Friday, with fallers led by big tech representative Scottish Mortgage Investment Trust PLC (LSE:SMT) and Royal Mail PLC.
London's blue chip index fell 83 points, or more than 1%, to just under 7503 in the first half-hour, its lowest point this week.
Richard Hunter, market analyst at Interactive Investor, said: “More gloom is descending as investors digest some major earnings disappointments, adding to concerns of an accelerating monetary tightening schedule."
He said the latest catalysts for another downward lurch came via earnings reports from Netflix (Netflix shares slump on weak subscriber growth forecast) and another warning of low demand from home exercisers Peloton.
"The news played into investor concerns that the pandemic-related demand for consumer goods was not sustainable," said Hunter.
"So far, the reporting season has been patchy, and next week will provide further tests to sentiment with the likes of Apple and Microsoft trying to lift the mood."
Disappointing UK retail data this morning has not helped matters, though some economists said the numbers are unlikely to dissuade the Bank of England to hike interest rates again next month.
Retail sales volumes, including petrol, fell by 3.7% month-to-month in December, well below the consensus forecast for a 0.6% decline.
Year-on-year growth worsened to 0.9% from 4.3% in November, also below the consensus, 3.4%.
For the fourth quarter overall, retail sales were down only 0.2% compared to the Q3 and were still 4.0% above their 2019 average level, said economist Sam Tombs at Pantheon Macroeconomics.
"That’s a good result for retailers, given that consumers always were likely to rotate back towards purchasing services, and households’ real incomes fell in Q4, due to the end of the furlough scheme, the withdrawal of the uplift to Universal Credit, and the surge in CPI inflation."
He said December’s sharp decline in retail sales are not likely to dissuade the Bank of England's monetary policy committee from raising interest rate again at its meeting on 3 February.
The December drop is "largely is the consequence of consumers purchasing Christmas gifts earlier than normal last year, due to concerns about product availability", he said, with the decline in overall volumes in December was driven by a 7.1% month-to-month drop in non-food sales.
6.29am: Wall Street sets bearish tone
A late sell-off yesterday in US markets looks set to prompt an early retreat on this side of the Pond.
Spread betting quotes indicate the FTSE 100 will open 93 points lower at 7,492.
Stateside, the Dow Jones slumped 313 points to 34,715 after making a positive start while the S&P 500 fell 50 points to 4,483.
Asian markets this morning are in the red with Japan’s Nikkei 225 231 points weaker at 27,542 and Hong Kong’s Hang Seng off 166 points at 24,786.
“On the data front we have the latest UK retail sales numbers for December, and the bar here is likely to be a low one, given the Plan B restrictions which were implemented mid-month are likely to act as a drag,” said Michael Hewson at CMC Markets.
“It’s been a difficult year for the UK consumer, after a strong performance in April, UK retail sales spending ended up being quite subdued over the rest of the year, as consumers adopted a cautious stance to their spending over the summer months.
“With warnings about supply chain disruptions in the lead up to Christmas, due to the prevalence of the Delta variant across the world, the word started to go out at the end of Q3 for consumers to get their shopping in early to avoid disappointment.
“These warnings were heeded given the rebounds seen in UK consumer spending in October and November, which saw retail sales rise by 1.1% and 2% respectively,” he added.
We’ve already had the release this morning of the Gfk consumer confidence numbers for January, with the index slipping on the back of the increase in headline inflation, falling to -19, from -15 in December, which represents an 11 month low.
On the company news front, Close Brothers Group PLC (LSE:CBG) will release its scheduled pre-close trading update where shareholders will look for signs that Winterflood Securities, the group’s market-making arm, has reversed its decline.
Around the markets
- Sterling: US$1.3588, down 0.07 cents
- 10-year gilt:1.227%, down 3.13 basis points
- Gold: US$1,841.50 an ounce, down US$1.30
- Brent crude: US$86.78 a barrel, down US$1.60
- Bitcoin: US$38,881, down US$2,510
- Ethereum: US$2,853, down US$231
6.50am: Early Markets - Asia / Australia
Asia-Pacific markets fell on Friday as Japan's core consumer prices rose 0.5% in December from a year earlier, increasing for a second month in a row at the fastest pace in nearly two years.
A BOJ board member was quoted saying that "It's unlikely Japan will see wages rise as sharply as in the United States. But there's a significant chance both economic growth and inflation could overshoot expectations."
The Nikkei in Japan fell 0.90% and South Korea’s Kospi retreated 1.06%.
China’s Shanghai Composite slipped 0.75% while Hong Kong’s Hang Seng index was down 0.67%.
Australia’s S&P/ASX200 tumbled 2.27% lower to 7,175.8 points, as Australia recorded its deadliest day of the COVID-19 pandemic, with 88 deaths.