(Adds close of U.S. markets)
* Stocks drop in Europe, Asia after Wall Street sell-off
* Oil prices fall further from 7-year highs
* Treasury yields drop as investors seek safety
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
NEW YORK/LONDON, Jan 21 (Reuters) - Risk aversion dominated
markets on Friday as stocks slumped on Wall Street and in
Europe, oil prices fell from seven-year highs earlier in the
week and bond prices surged with traders scurrying for the
relative safety of government debt.
Poor subscriber growth reported late Thursday at Netflix Inc
sent its shares plunging 21.8% and cast a pall over a
market already shaken by concerns the Federal Reserve will
tighten monetary policy too aggressively to fight inflation.
Investors are waiting for details from the Fed's policy
meeting next week on how it will proceed at a time that
inflation is such a hot political issue it could force a more
Data, however, won't begin to show an expected slower pace
of rising consumer prices for at least a few months, making Fed
Chair Jerome Powell's job more difficult as he tries to calm
"We know the Fed is beginning to pivot and the problem is
that the inflation numbers are not going to start to trend lower
until later this spring," said Andrew Slimmon, a managing
director at Morgan Stanley Investment Management.
Despite the negative Netflix earnings, it's too early to
know whether corporate fundamentals won't continue to be strong,
In Europe, the German, French and Italian indices fell
almost 2%, with the broad Euro STOXX index of 600
leading regional companies closing down 1.84%. MSCI's
all-country world index fell 1.74%.
On Wall Street, the Dow Jones Industrial Average slid
1.30%, the S&P 500 fell 1.89% and the Nasdaq Composite
lost 2.72%. Both the S&P 500 and the Nasdaq posted their
biggest weekly declines since the market crashed in March 2020.
With the Fed posed to hike interest rates as many as four
times this year, fear of a hard landing has risen among
investors. But a slowing economy in the months ahead will
probably give the Fed second thoughts, said Steven Ricchiuto,
U.S. chief economist at Mizuho Securities USA LLC.
"By the time we get to the second rate hike, everything will
be rolling over enough that everybody will back off from these
calls," he said. "The growth numbers will be slowing much more
quickly than the Fed anticipated."
U.S. Treasury and euro zone government bond yields fell as
concerns about potential conflict in Ukraine also dented risk
appetite and stock market drops increased demand for the debt.
The yield on 10-year Treasury notes fell 7.2
basis points to 1.762%, a sharp drop from a two-year high of
1.902% touched on Wednesday.
Markets overnight in Asia were broadly lower, including in
China where benchmark mortgage rates were cut on Thursday in the
latest move to prop up an economy soured by its property
The U.S. dollar edged lower with U.S. Treasury yields, with
investors looking to next week's Fed meeting for more clarity on
the outlook for rate hikes and quantitative tightening.
The dollar index, which tracks the greenback versus a
basket of six currencies, fell 0.138% to 95.627. The yen
was last down 0.40% at $113.6300. The euro was last up
0.30 percent at $1.1344,
Oil prices slid for a second day, pressured by an unexpected
rise in U.S. crude and fuel inventories while investors took
profits after global oil benchmarks touched seven-year highs.
Brent crude futures fell 49 cents, or 0.6%, to
settle at $87.89 a barrel, while U.S. futures settled
down 41 cents at $85.14 a barrel.
Gold was set to gain for a second week as inflation and
geopolitical risks lifted its safe-haven appeal, but it slipped
on Friday amid a broader decline in commodities.
U.S. gold futures settled down 0.6% at $1,831.80 an
(Reporting by Herbert Lash, dditional reporting by Sujata Rao
in London and Kanupriya Kapoor and Stella Qiu in Singapore;
Editing by Raissa Kasolowsky, Kirsten Donovan, Alexander Smith
and Jonathan Oatis)