By Craig Erlam
Wednesday was slightly better for stock markets in Europe as they continued to fluctuate in the same ranges they’ve traded in for the last month.
US indices had a mixed start to the day, with the Dow outperforming, up around 1%, while the S&P managed small gains, while the Nasdaq was hit in the aftermath of Netflix’s results.
The tech sector has had a rough year as a result of the drastically changing interest rate environment and results like those from Netflix don’t help. The growth model has been a big attraction for many of these big tech names and Netflix is suffering in the aftermath of the pandemic turbo-charged growth phase.
The first decline in user growth in more than a decade, down 200,000 global subscribers in the first quarter, already made for tough reading, but combined with the expectation of another loss of 2 million in the second quarter has investors asking very big questions.
In a time of household budgets being squeezed, how high up the list are streaming services like Netflix when it comes to cutting back? What other tech services are easy to dispose of?
This could become a major problem in the quarters ahead and the company needs to act fast, something investors seemingly don’t feel confident about as the stock plunges another 35%.
It traded Wednesday down $100 per share to its lowest level since early 2018. By the end of the day it dropped another $25 to close at $226.19, a third of the $700 seen last autumn.
US housing under further strain
US existing home sales fell by 2.7% in March to 5.77 mln annualised, in a further sign of the housing market cooling amid higher interest rates, high prices, low inventory and a higher cost of living.
Households are being squeezed from all angles and that’s clearly starting to affect spending behaviour which could feed into other segments of the economy in the coming months.
With rates set to rise much further and faster than we’ve seen in decades, the housing data may come under further strain even if the inventory problem can be overcome.
BoJ yield resistance
Central banks are under the spotlight at the moment and for different reasons.
At one end of the scale is the US Fed which is desperately trying to communicate its aggressive tightening plans as it tries to play catchup on inflation.
In the middle is the ECB which is continuing to push back but slowly coming around, with Mārtiņš Kazāks suggesting a rate hike could come as soon as July. That may be a bit optimistic, but the message is clear.
Then there’s the Bank of Japan. There is no runaway inflation in Japan and yet, policymakers are facing other issues as a result of their Yield Curve Control policy tool.
With yields being pulled higher alongside those elsewhere, the BoJ’s upper bound is being tested, forcing it to commit to unlimited purchases in order to maintain the policy. The yen is sliding as a result which is also making officials uncomfortable. How long can this go on?
Oil buoyed
Oil prices were back in the green on Wednesday, paring Tuesday’s declines just as WTI appeared to be nearing $100 once more. The recovery was aided by the EIA inventory data which reversed last week’s shock 9.4 mln barrels increase to register an 8 mln barrels draw.
The downward revisions to growth forecasts from the IMF and World Bank in recent days weighed on oil prices after a four-day surge.
The war in Ukraine and lockdowns in China were largely behind those revisions which will weigh on demand this year. Even so, with supply catching up slowly, prices are expected to remain very high for the foreseeable future.
Gold range shift
It’s been a turbulent few days for gold. After cruising higher for most of April to peak near $2,000, the yellow metal went into freefall on Wednesday and now appears to have stabilised around $1,950.
This could potentially mark the new range support after a period of trading broadly between $1,900 and $1,950.
High inflation is prompting more aggressive tightening and traders may be fearing more to come, not to mention the economic consequences of such policy moves.
Bitcoin pressure
It’s been a volatile few days for bitcoin as well, but it hasn’t really moved on from where it was a week ago.
It continues to hover around $40,000 and is struggling to generate any upside momentum which may come as a concern to some. It did see strong support at the start of the week when it tumbled, but that may not be the case if it continues to be tested.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
