In aviation, a stall is basically a condition where the pilot allows the aircraft’s speed to drop so low that the wings stop generating lift, never an optimal condition. In mid-March, equity markets crossed controls in the stall, pulled the nose up and went into an aggressive spin. Their record highs gave more than enough altitude to recovery, albeit leaving investors in a cold sweat afterwards. The perils of stalling to close to the ground, though, were laid bare by the negative price shock of the May WTI futures settlement. That resulted in a smoking hole in the field for many investors.
Investors hoping for a continuation of v-shaped peak-virus price action overnight were somewhat disappointed. Chinese equities endured a torrid day with both the Shanghai Composite and CSI falling over 4.0% as momentum aggressively stalled. Luckily, after a huge run higher, the retail investor dominated markets had plenty of altitude to recover. Across Europe and North America, the stall across asset classes was rather more benign. A gentle buffet and push the stick down as momentum stalled on equities, currency markets and energy.
Much has been made of the mixed signals from Netflix and the US data overnight. Netflix added lots of subscribers but said further growth level at that rate would be challenging. The 10% drop in its share price was limited to just Netflix, though. The US retail sales data rose, but future improvement is threatened by the fallout from the exploding number of Covid-19 cases across America. Initial Jobless and Continuing Claims both improved slightly, but the rate of improvement is stalling. They are stuck stubbornly around 1.4 million and 17 million respectively.
Most attention will be on the European Union Leaders Summit, which is meeting to continue negotiations about the nature of the EUR 750 billion pandemic recovery fund. It is unlikely a final deal will emerge today with the Frugal Four and Club-Med nations still far apart.
Financial markets, whilst vulnerable to headline induced clear air turbulence, seem content on finishing the week in straight and level flight. Perhaps with a little stalling practise along the way.
