Today's Markets: Growth fading as stagflation looms

Traders are in downbeat mood as fighting intensifies in Ukraine's east and global growth hopes are blunted

April 19, 2022

IMF to follow World Bank in downgrading global growth forecasts
Coupled with heightened inflation expectations = stagflation incoming
Russia doubles down in Donbas

Equity indices across Europe opened up in downbeat mood this morning as the latest grim developments in the Russo-Ukraine war coupled with news of downgrades to global growth forecasts weighed on sentiment. The FTSE100 was down almost 0.5 per cent by late morning with the FTSE250 shedding 0.8 per cent, over the Channel the CAC40 and DAX were off 1.25 per cent and 1.1 per cent respectively.

European indices took a lead from Asian markets, which were hit hard overnight as news of a tightening of regulation over livestreaming in China, adding to the growing regulatory crackdown on the tech industry in the country, dragged on sentiment, leaving Hong Kong’s Hang Seng index 2.7 per cent lower.

The International Monetary Fund (IMF) is shortly expected to release downgrades to global growth forecasts as the surge in inflation coupled with further disruption to supply chains due to the war in Ukraine and strict lockdowns in China, and in particular its economic powerhouse of Shanghai have raised the spectre of stagflation. The World Bank has already shaved its global growth forecasts for this year from 4.1 per cent to 3.2 per cent and warned of a period of 'exceptional uncertainty'.

In Ukraine, focus has hardened on the eastern front where Russia is said to have stepped up its assault in the Donbas region where most of its firepower is now focused, prompting fresh calls from the Ukrainian government for citizens to leave the area. Russia’s intent now appears to be the ‘liberation’ of the Donetsk and Luhansk regions with renewed attacks reported over the past 24 hours from Mariupol in the south to Kharkiv in the north. Meanwhile the strangling effects of international sanctions on the Russian economy continues with automotive manufacturer Stellantis suspending production at its plant south of Moscow. Moscow continues to retaliate against sanctions - the latest move being a proposal to delist the global depositary receipts (GDRs) of Russian companies which trade on international exchanges. GDRs for companies such as EN+, Sberbank and Gazprom among others were suspended by the London Stock Exchange in March. Read more of our coverage of the impact of Russia’s invasion on your investments here.

Companies

Funky Pigeon grounded by cyber attack

WH Smith (SMWH) has suspended sales from its greeting card offshoot Funky Pigeon after an attack from hackers, who may have accessed “personalised card and gift designs”, the retailer said. The train station and airport mainstay said no customer payment data had been stolen, but stored names and emails could have been accessed. “The company has temporarily suspended orders from the website and is currently investigating the detail of the incident with external IT specialists,” WH Smith said.

This is the second retailer to be hit this month. TheWorks.co.uk (WRKS) said earlier in April there had been “unauthorised access to its computer systems” and had to close some shops “due to till issues”. Last month, the UK Information Commissioner John Edwards reported a 20 per cent rise in cyber security incidents in the past two years, and he said businesses had to set up tighter security to protect customers’ data. AH

Streaming services cancellations rise as cost of living bites

The cost of living crisis is making UK households much more discerning about their streaming content. In the first quarter of this year, 1.51mn streaming video on demand (SVoD) services were cancelled by UK households, according to Kantar. More than half a million of the cancellations were attributed to ‘money saving’.

Currently most people still have at least one streaming service, with 58 per cent of households having at least one paid subscription. Households with one service only dropped 1.2 per cent which suggests consumers are cutting back on services and keeping only their favourites.

Amazon Prime and Disney Plus were taking an increasing amount of market share last year but have seen this fall back at the start of this year. Having lagged behind Amazon and Disney last year, Netflix and Now TV have made up some ground in the first quarter. Netflix’s (US:NFLX) share of new subscribers was 11 per cent in Q1 2022 up from 5.6 per cent in Q4 2021.

The combination of cost of living and maybe some screen fatigue after years of being locked up at home are creating headwinds for a streaming market that has become a crowded area. Consumers increasingly have appetite for only one service rather than a portfolio. Consolidation of the biggest players is a natural conclusion.

Eyes will be on Netflix's earnings announcement later today for indications as to how it is faring. AS

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Investors turn away from US growth stocks