European stocks drop after overnight Wall Street sell-off

European shares dropped on Friday following a sell-off on Wall Street, with shares in technology companies under renewed pressure after streaming giant Netflix warned on subscriber growth late on Thursday. The regional Stoxx 600 equity gauge fell 1.3 per cent in morning trade. European technology shares dropped 2.1 per cent. […]

European shares dropped on Friday following a sell-off on Wall Street, with shares in technology companies under renewed pressure after streaming giant Netflix warned on subscriber growth late on Thursday.

The regional Stoxx 600 equity gauge fell 1.3 per cent in morning trade. European technology shares dropped 2.1 per cent.

Those moves came after swings in US stock markets on Thursday culminated in the tech-heavy Nasdaq Composite index closing 1.3 per cent lower — down almost 13 per cent from a record high struck only in November. The broader-based S&P 500 index also lost more than 1 per cent.

Futures markets tracking the blue-chip gauge and the top 100 stocks listed on the Nasdaq were both down in the European morning on Friday.

Netflix warned on Thursday that subscriber growth would slow substantially in the first quarter. Shares in the streaming service were down by a fifth in pre-market trading on Friday. With a market value of $225bn, the group is a heavyweight on major US stock indices.

The Stoxx oil and gas sub-index dropped almost as much as its tech sector, while European banks fell 1 per cent. Shares in Siemens Energy plunged 12 per cent after the group cut its full-year financial targets.

“It is hard to see any positives,” said Luca Paolini, chief strategist at Pictet Asset Management.

“Sentiment was already pretty downbeat,” he said, as traders positioned for the US Federal Reserve to raise borrowing costs and tensions built between western powers and Russia over Ukraine.

“Without decent earnings, it is going to be difficult for equity investors this year, although there is a risk of panicking too early,” Paolini said.

US government bonds firmed, extending a rally from Thursday, as concerns swept markets that US interest rate rises could hamper global economic growth. The yield on the 10-year US Treasury note fell 0.04 percentage points to 1.79 per cent as its price rose.

This yield has climbed rapidly in recent weeks as traders anticipated the Fed reversing a policy of buying Treasuries and other debt securities to suppress borrowing costs through the coronavirus pandemic.

Treasuries tend to rally when recessionary fears boost the appeal of low-risk assets, however. Markets have priced about four quarter-point interest rate rises by the Fed this year after US inflation hit a near 40-year high in December, prompting worries about the effect on the spending power of businesses and households.

“The market is starting to be concerned that the Fed is too hawkish and it will choke the economy,” said Tatjana Greil Castro, co-head of public markets at credit investor Muzinich.

In Asia, Hong Kong’s Hang Seng fell 0.1 per cent and Japan’s Nikkei 225 declined 0.9 per cent.

Brent crude, the international oil benchmark, fell almost 2 per cent on Friday to $86.67.

The dollar index, which measures the currency against six others, slid 0.2 per cent.

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Fri Jan 21 , 2022
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