Daily Wrap Up 20 April 2022

20 Apr 2022 04:47 PM

Indices rally, Netflix tanks  

Equity markets in Europe are higher thanks to the bullish session in the US last night. Even though the war in Ukraine persists, the mood in the markets is upbeat. Although there is speculation that Western governments will announce additional sanctions on Russia, the fact it has yet to happen has acted as a green light to the bulls. Continental European indices are outperforming as the DAX, the CAC and the FTSEMIB are all up over 1%, while the FTSE 100 is only up 0.25%. A sell-off in telecoms, pharma and mining stocks is holding back the British market. Sentiment in the US is still bullish as the Dow Jones broke above the 35,000 mark and it hit a two-week high. Due to the brutal fall in Netflix, the S&P 500 is only showing a moderate gain.

Shares in Netflix have tanked as the streaming service confirmed it lost over 200,000 paid subscribers in the first quarter – the first time it lost subscribers in 10 years. The group previously signalled it aims to add 2.5 million subscribers in the three-month period so the loss of 200,000 subscribers is a huge blow. It is worth noting the company halted its operation in Russia, which led to a loss of 700,000 accounts, so stripping that out, subscribers would have increased by 500,000 – while equity analysts were expecting 2.7 million. The stock is down over 35%.

US bond yields have cooled and in turn the US dollar has dropped by 0.7% - yesterday the US dollar index registered a two-year high. The Fed funds futures market is factoring in a 50 basis point hike at the next two meetings, which seems excessive. For too long the US central bank acted as if inflation was not a problem, but now the markets seem to think the Fed will jack up rate quickly to keep a lid on rising prices. In the past few days, both the World Bank and the IMF downgraded global growth forecasts, so the Fed should thread carefully as slower growth and rapidly rising rates would be a dangerous mix.

Gold is down on the session despite the slide in the greenback. It would appear the bullish mood in equities has hurt demand for lower-risk assets, hence the fall in gold. Silver is also down today for the same reason.

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