European stock markets slump as global sentiment sours
European stocks slumped on Friday following a sell-off on Wall Street sparked by jitters around the prospect of the US Federal Reserve raising interest rates, and shaky company earnings.
The London index dropped sharply with fallers led by Scottish Mortgage Investment Trust (SMT) and Royal Mail (RMG.L).
Tepid retail sales and rate-hike expectations further dampened investor sentiment. Figures out earlier from the Office National Statistics showed retail sales dropped by 3.7% in December, against expectations of just a 0.8% fall. Sales were still 2.6% higher than pre-pandemic levels.
The heavy fall in the run up to Christmas comes as Omicron led to a drop in people visiting shops. In-store sales fell particularly sharply, dropping by 7.1% for non-food retailers.
The London benchmark was also pulled down by heavyweight mining stocks with BHP (BHP.L) being among the top losers as it prepares to exit the index next week.
S&P 500 futures (ES=F) were down 0.1%, Dow futures (YM=F) rose slightly to 0.08%, and Nasdaq futures (NQ=F) were 0.5% lower as trade began in Europe.
Asian markets finished lower with shares in China leading the region. The Shanghai Composite Composite (000001.SS) is down 0.91% while Japan’s Nikkei 225 (^N225) is off 0.90% and Hong Kong’s Hang Seng (^HSI) is lower by 0.12%.
Meanwhile, oil dropped as OPEC+ struggled to meet its scheduled increases in production targets and the spectre of Russia invading Ukraine sent jitters through global markets.
Brent crude oil (BZ=F) lost over 2% to $86.62 a barrel and the US crude (CL=F) fell almost 1% to $86.29 per barrel on Friday morning
Read more: UK retail sales plunge after Omicron spread
Across the pond, the US stock markets fell for the third consecutive day on Thursday, led by technology stocks.
The Nasdaq (^IXIC) dropped or 1.3%, to 14,154.02 as investors positioned themselves for the likelihood that the Federal Reserve will tighten monetary policy more aggressively to stave off inflation.
“The Fed this time will be far more prudent about quantitative tightening especially given high leverage in the system,” according to Sebastien Galy, senior macro strategist at Nordea Asset Management.
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“More gloom is descending as investors digest some major earnings disappointments, adding to concerns of an accelerating monetary tightening schedule,” Richard Hunter, head of markets at interactive investor, said.
“The latest catalysts for another downward lurch came from Netflix and Peloton. The former announced weak subscriber growth which was far short of expectations, and potentially as a result of the post-pandemic boost evaporating, alongside increased competition from the likes of Disney and HBO.
“The news played into investor concerns that the pandemic-related demand for consumer goods was not sustainable, and was another reminder of a recent and weaker than expected retail sales number. It also raised question marks over whether the current reporting season will provide enough positive surprises to lift the mood. 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.”
US Treasury yields were slightly lower along the curve on Friday, having risen sharply earlier in the week.
Yields on benchmark 10-year notes were last at 1.7791%, their lowest in a week, having hit a two-year high of 1.902% on Wednesday.