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Mutual Daily Mutterings

 

Quote of the day…

”A gun is not a weapon, it’s a tool, like a hammer or a screwdriver or an alligator…” – Homer Simpson 

 

 

Dashboard…

 

“Skyrocket…

Source: www.hedgeye.com

 

“Is There Anything She Can’t Do?”

Source: www.heraldsun.com.au

 

 

Overview…”NATO turns the screws…”

  • Moves: risk on (generally) … stocks , bond yields , credit spreads , volatility and oil ….
  • A positive session for US stocks overnight, while European bourses were mixed.  After a brief rally yesterday, bond yields re-engaged with their upward trajectory last night.  Oil eased back a touch on the prospect of higher trading costs (i.e. increasing margin requirements).  US jobless claims came out materially lower than expected.  The main event was a meeting between NATO leaders in Brussels, including POTUS Biden.
  • Talking heads…”stocks are pushing higher and oil prices fall as the market breaths a sign of relief following Biden’s diplomatic marathon in Brussels.  Whilst NATO, Biden and the EU leaders agreed to strengthen forces and tighten sanctions to bring Russia to its knees economically, oil has managed to stay out of the equation, which is the point of relief for the markets.” (Bloomberg).  On the latter, EU leaders have rejected Putin’s decision to accept / demand payment for gas in RUB, not that it moved markets.
  • NATO has also agreed to boost troops on the ground across its eastern most members – a deterrent, but also a red rag to a somewhat deranged autocratic bull.  The US said it is working with NATO to prepare for possible biological or nuclear ‘incidents’ by Russia.  NATO formally called on all countries, including China, not to support Russia’s war effort in any way or to help circumvent sanctions.  Noble sentiments, but there will always be countries that play the long game and will likely see advantages in giving Russia a helping hand on the side, i.e.  China and India are taking cheap Russian oil.
  • Fed speak…Chicago Fed President Charles Evans commented overnight that he’s “comfortable” with raising rates in 25 bp increments, while being “open” to a 50 bp move if needed.  That’s three members now in as many days spruiking their support for 50 bp hikes if needed (although Chuck is not a voting member this year).  The Fed kicked off the rate hiking cycle last week, +25 bps to 0.5%, the first increase since 2018, and likely the first of many with markets forecasting a terminal rate of 2.75% – 3.00% by the end of 2023, if not sooner. For the record, local markets are pricing the RBA will be at 2.80% by Aug-23 (vs 0.10% currently).

 

The Long Story….

  • The war so far….
Fixed Income…

Source: Bloomberg, Mutual Limited

Stocks…

Source: Bloomberg, Mutual Limited

Commodities…

Source: Bloomberg, Mutual Limited

  • Offshore Stocks – a choppy session across European markets, oscillating between gains and losses several times through the trading session, although most indices were trending higher into the close, which gave US markets a good lead.  Onwards and upwards for US markets with the DOW up +1.0%, the S&P 500 +1.5% and the NASDAQ +1.9%.   Within the S&P 500, almost nine-in-ten stocks gained and no sector failed to get out the gate.  Tech (+2.7%) led from the front, followed by Materials (+2.0%), and Telcos (+1.7%).  The worst of the best included Energy (+0.1%), Staples (+0.6%) and REITS (+0.6%).
  • Local Stocks – the ASX 200 continues to shine in times of doom and gloom, able to eke out modest (very modest) gains yesterday, +0.1% following weak offshore leads.  Once again, the ASX 200 has Materials (+1.0%) to thank for its broader gains.  On the day just under two-thirds of stocks in the index retreated, and seven out of eleven sectors were in the red.  Line honours went to Utilities (+2.6%), followed by Energy (+2.0%), but it was third placed Materials that saved the day by virtue of its 25% weighting in the index.  Tech (-0.8%), Health (-0.6%) and Financials (-0.4%) were the class clowns, with the latter doing most damage.  ASX 200 relative strength indicators are approaching overbought territory, with the index now above its 50D, 100D, and 200D moving averages.  Having said that, while the war continues, commodity prices will remain elevated, which is providing a solid tailwind for the materials heavy ASX 200.  Even if the war ends tomorrow, the world-order has changed in response to Russian aggression. Europe is re-arming.  Commodity prices will likely remain elevated for the foreseeable future.  ASX 200 futures are up +0.5%.

 

 

Source: Bloomberg

 

 

  • Offshore credit – firmer overnight in cash markets with spreads grinding tighter across the board.  CDS markets also enjoyed a better day in the trenches – in the US at least, -1.1 bps tighter for the CDX, while MAIN drifted half a basis point wider.  Barring a few basis points here and there, US IG and EU IG markets have largely clawed back most of the war impact.  Issuance was respectable, $US6.4bn printed across four issuers, taking weekly issuance to US$37.4bn, well ahead of estimates (US$30bn).

 

 

Source: Bloomberg

 

 

  • Local Credit traders…”local credit market remains muddied but we are seeing an increasing number of domestic investors return to the fray. A period of tranquillity in funding markets and ACGBs will surely help. But when…...”  As muddy as the credit waters may be, there was some clarity of thought amongst some investors with the first spread tightening across major bank senior paper in well over a month.  Five-year senior is now marked at +89 bps (-1 bp), while 4-year spreads also enjoyed some love, -1 bp to +77 bps.  The front of the curve not feeling the love though, +3 bps to +33 bps…levels that we were seeing in 5-year paper during the worst of the pandemic.  Traders…”with ~$8bn of recent 5-year issuance now under water and unlikely to be sold we are seeing ongoing selling the front end as clients look to sell down and recycle the proceeds.”  While tier 2 paper found love also, no change in spread noted.  With reporting season black out approaching (next week), the window for issuance is closing, suggesting the rumoured deal just ain’t coming.  At least, not yet.  The 2026 callable notes are pricing +174 – 179 bps, while the 2025’s are at +156 – 157 bps, and lastly the 2024’s at +124 bps.  A call out to the MQG May-26 callable notes, which are at +202 bps. I like.  The Aussie iTraxx tightened through the session, – 1 bp to 85.5 / 87.5 bps.

 

 

Source: Bloomberg

 

 

  • Bonds & Rates – some very modest and very brief respite yesterday for duration players with a meaningful 4 – 6 bps rally across the curve through early trading, but it didn’t last long.  Something happened at lunch with all but a small dinner roll of gains erased.  By day’s end the curve was largely back where it started and bond traders will awake this morning to another day of rising yield pressure.  Core European yields rose +5 – 7 bps, while US treasuries are +5 bps higher this morning.  We’ll likely see yields up again today in local markets, and with an election budget next week, I would expect some heavy spending, necessitating more issuance, which will place upward pressure on yields, all other things being equal.

 

 

Source: Bloomberg

 

 

  • Macro – “US jobless stunner: Initial jobless claims for the week ending 19 March fell to their lowest level since 1969, coming in at 187k (expected: 210k). This is consistent with other indicators showing very tight labour market conditions. Fed Chair Powell previously described the jobs market as being “tight to an unhealthy level” last week, and this sort of data only strengthens the case for the FOMC to raise fed funds by 50bp when it next meets.” (ANZ)
  • “US durables goods orders disappoint: February durable goods orders fell more than expected, down 2.2% (exp: -0.6%). This was partly due to declines in aircraft orders. Core capital goods orders declined 0.3%, following a 1.3% rise in January. This was the first decline in the core measure in a year, so is too early to be indicative of softness in the investment pipeline. But this does bear watching as the Fed raises rates.” (ANZ)

Charts…

 

Source: Bloomberg, Mutual Limited

 

 

 

Click here to find the full PDF from our Chief Investment Officer’s daily market update.

 

Contact:

Scott Rundell, Chief Investment Officer

T: +61 3 8681 1907

E: Scott.Rundell@mutualltd.com.au

W: www.mutualltd.com.au

Mutual Limited Daily Update

Mutual Funds

MCTDF – Mutual Cash Fund
Gross running yield: 0.29%
MIF – Mutual Income Fund
Gross running yield: 1.45%
Yield to maturity: 1.15%
MCF – Mutual Credit Fund
Gross running yield: 2.73%
Yield to maturity: 2.00%
MHYF – Mutual High Yield Fund
Gross running yield: 5.33%
Yield to maturity: 4.72%