Mutual Daily Mutterings
Quote of the day…
“I asked God for a bike, but I know God doesn’t work that way. So I stole a bike and asked for forgiveness” – Emo Philips
Rolling weekly spread changes…
Source: Bloomberg, Mutual Limited
“Hour of power …”
- Overview – in the words of Ron Burgundy, “well, that escalated quickly.” See ‘Offshore Stocks’ below for details, but some crazy moves in US stocks late in the Friday trading session, which has traders on edge as we approach quarter end. When the dust settled, stocks closed higher, while bond yields rose. The Fed loosened its bank dividend restrictions – assuming they pass the next round of stress testing. The Fed had previously ordered banks to cease dividend increases from June 2020, a measure designed to ensure banks had sufficient capital to endure any hardship resulting from the pandemic. Also aiding the optimistic tone, President Biden is scheduled to release details of US$3 – 4 trillion infrastructure binge. Still in the US, vaccine rates are running almost as hot as the initial infection rate with 42% of the population done, indicating that President Biden’s doubling down on his vaccination target is looking to be a safe bet. The Suez Canal traffic jam persists…from Bloomberg “efforts to free the beached Ever Given are nearing a pivotal stage, relying on machines and human engineering but also hoping for a celestial pull. High tides over the next few days offer perhaps the best chance yet to float a steel behemoth that’s four times heavier than the iconic Sydney Harbour Bridge.” Depending on who or what you read, the traffic jam is costing the global economy US$10bn a day…talking heads ““it is a severe blow to the already constrained supply chains that were just recovering from the Covid pandemic…if it goes into weeks, it could turn into what we could call catastrophic.”
- Offshore Stocks – on the day the S&P 500 rallied 65 points, of +1.7%, 50 of those points came in the final hour of trading, this despite some hefty selling, mainly through block trades (the sale of a large chunk of stock at prices sometimes negotiated outside of the market). Block trades are reasonably common. However, these trades were super-sized (~US$20bn), and they hit the market during normal trading hours, which isn’t that normal. Stocks sold in these trades includes Chinese tech giants and US media conglomerates. While some stocks bounced back from the selling, some didn’t, including ViacomCBS and Discovery, both of whom posted their worst ever daily loss…like, ever! It’s worth noting that both of these firms have increased fourfold since October last year, so fair to say some profit taking was inevitable. Talking heads…. “we have seen an increase in volatility in equities capital markets, tech, working-from-home names with retail stepping back and more rotation to value in the last few weeks”…and…”the markets could start trading in a friendly manner at the beginning of the week…although there is currently some major profit-taking and unusual block trade activities, these market asymmetries can currently still be processed well.”
- Local stocks – a solid end to the week for local stocks, with a modest, but broad-based rally across most sectors – just one down, Healthcare (-0.7%). Telcos (+1.3%), Materials (+1.2%), and Tech (+1.2%) drove the gains with 67% of stocks across the broader market up. On the week, the ASX closed up +1.7%, led by Healthcare (+5.1%), Utilities (+3.5%), Telcos (+3.1%) and Discretionary (+3.0%). Tech (-0.04%) was the only sector not to fire, i.e. close in positive territory. E-mini’s are up considerably, +1.4% – 1.6% across the main US indices, while the ASX 200 futures are up +0.7%.
- Offshore Credit – a busy week of issuance across offshore markets, with US$40bn priced in US IG, in line with initial estimates. For the week ahead, expectations are for US$20 – 25bn, keeping in mind it’s a shortened week (Easter). Overall themes remain constructive with ~60% of recent deals pricing tighter in secondary. Key indices are a few basis points tighter on the week with US outperforming EU, and high-yield outperforming investment grade.
- Local Credit – a quiet end to the week, although traders are reporting some late buying in long end corporates and major bank senior paper. Nevertheless, major bank senior closed Friday unchanged across the curve – although on the week the curve is a touch steeper with the Jan-25’s +0.5 bps to +32.5 bps, while the 3-years are +0.5 bps also, at +24.5 bps. In the tier 2 space, also unchanged on the day and slightly tighter (-1 – 2 bps) across the NAB and ANZ 26 calls, while the MacBank 25 calls also tightened -2 bps. Elsewhere along the curve, tier 2 spreads were unchanged.
- Bonds & Rates – some interesting observations from NAB this morning, “Will the start of Japan’s fiscal year see a renewed interest in treasuries and Aussie sovereign bonds? Bond yields are heading into quarter end off their recent yield highs but remain well above levels recorded at the start of the quarter. The US 10-year treasury yield is currently up +77 bps on the quarter (the 5-year up +50 bps) while the Australian 10-year bond future is up +72.5 bps on the quarter (the 5-year bond up +48 bps)”. Interestingly, the US 10-years are trading above the AU 10-year bonds (yields), albeit it marginally, a reasonably rare and infrequent occurrence over the past 12 months and over a longer run historically – i.e. maybe 5% of the time all the way back to the early 1970’s. Suspect we’ll see some selling pressure in GACGB’s this week, which might ‘normalise’ the relationship.
Macro – from WBC’s ‘Around the Grounds’ this morning (I’m being lazy)… “US consumer sentiment (Univ. Michigan survey) was firmer, mostly on expectations, to 79.7, from the preliminary reading of 77.5. 1yr-ahead inflation expectations remained at 3.1%, but 5-10yr ahead expectations rose to a 2015 high of at 2.8%, from 2.7% in Feb. Personal income and spending in February continued to be influenced by government payouts. Following a sharp 10.1% MoM income rise in January, February saw income down 7.1% MoM, and spending down 1.0% MoM. Core PCE inflation was 1.4% YoY, vs. est. 1.5% and prior 1.5%.”
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Scott Rundell, Chief Investment Officer
T: +61 3 8681 1907