Mutual Daily Mutterings
Quote of the day…(I couldn’t choose between the two, and it’s Easter, so you get both)
“Fool me once, shame on – shame on you. Fool me – you can’t get fooled again” – George W. Bush
“You couldn’t fool your mother on the foolingest day of your life, if you had an electrified fooling machine” – H. Simpson
MoM & QoQ spread changes…
Source: Bloomberg, Mutual Limited
“Go big, or go home…”
- Overview – a modest rally in stocks on fiscal stimulus headlines, while bond yields in the US drifted higher, and lower in Europe. Focus remains on the final outcome on the Archego spectacle, with several banks smarting from their involvement – basically Archego failed to settle on margin calls, forcing banks into a fire sale of stocks. On the fiscal front, Smokin Joe Biden unleashed another round of fiscal Red Bull for the US economy…subject to gaining Congress and Senate approval (not easy). I wouldn’t say Biden has gone all in, but he’s almost bet the house on ensuring the US economy maintains escape velocity. But, what he gives with one hand (US$2.25 trillion of infrastructure expenditure), he takes away with the other (corporate tax hikes). The expenditure will be spread across transportation (US$620bn), initiatives to improve quality of life at home (US$650bn)…can anyone explain what that means? US$580bn to strengthen manufacturing. And, $400bn to improve care for the elderly and infirmed. To pay for it all, corporate income tax will increase from 21% to 28%, with a 21% minimum on global corporate earnings (from 10.5%), essentially rolling back half of Trump’s 2017 tax cuts. The government claims these tax increases will pay for all investments in this plan over the next 15 years, or until the Republicans get back into power. The plan needs to get through the usual approval process, which won’t be simple or easy. Republicans will straight out reject it, and a decent number of Democrats will need some convincing. Latest US jobs data surprised on the upside.
- Offshore Stocks – old is new again…maybe. Tech stocks wound the clock back a month or so, rallying ahead of ‘value’ stocks as the fiscal stimulus announcements gave growth stock advocates some go-go juice. Having said that, the rally in the S&P 500 was pretty narrow, with more stocks down (58%) than up (42%). Across sectors, Tech (+1.5%) led the charge, and actually the only sector keeping the broader index’s nose above water. Energy (-0.9%), Financials (-0.9%) and Materials (-0.5%) were the main naysayers on the day. On the month the S&P 500 gained +4.2%, with all sectors up, at the top Utilities (+10.1%), a ‘value’ sector, while at the bottom we have Tech (+1.6%), a ‘growth’ sector. It was also quarter end, with the S&P 500 notching up +5.8% of gains, driven by Energy (+29.3%), Financials (+15.4%) and Industrials (+11.0%). Staples (+0.5%), Tech (+1.7%) and Utilities (+1.9%) were at the bottom of the performance tables for the quarter.
- Local stocks – an interesting day in the local stock trenches yesterday, shrugging off weak offshore leads, the ASX 200 rose +1.8% shortly after lunch, but then gave back more than half its gains to close up +0.8% on the day. Still, it was a broad-based rally with 77% of stocks up and no sector in the red. Utilities (+0.1%), Energy (+0.1%) and Telcos (+0.1%) brought up the rear, while Industrials (+2.2%), REITS (+1.3%) and Staples (+1.2%) were sitting upright at the front of class, earning them all elephant stamps from teacher. It was month and quarter end yesterday, with the broader index closing +1.8% MoM and +3.1% QoQ. On the month, only three sectors in the red, with Materials (-5.0%) and Tech (-3.0%) meaningfully under-performing. Energy was down only -0.5%. Top billing went to Discretionary (+6.9%), Utilities (+6.8%) and Telcos (+5.8%), all largely ‘value’ sectors. Over the quarter, five sectors up, led by Financials (+11.3%), which drove the bulk of the gains in the broader index, countering much of the losses generated across the other six sectors down, led by Tech (-11.5%).
- Offshore Credit – a very modest end to the quarter for offshore issuance, a handful of deals, hardly worth mentioning. MoM offshore spreads are a few basis points wider in the investment grade space, with US IG underperforming EU IG. High yield performed well with spreads tighter MoM and QoQ.
- Local Credit – a word from the traders first…”a busy day flow wise with index extension trades providing the driving force. Little of note beyond these flows as undoubtedly many investors stood on the sidelines moving into quarter end.” Over the month spreads have drifted wider on some pretty heavy primary action, some $7.2bn worth, although maturities were almost that figure also. Over the month major bank senior paper, say the Jan-25’s traded in a tight +32 – 34 bps trading range, closing at +33 bps. Tier 2 paper closed around the +129 – 131 bps area for the 2026 calls, some -10 bps tighter for March.
- Bonds & Rates – a bit of a fizzer for local bonds yesterday, 10-year yields only marginally higher (+1 bp) to 1.8%, toward the top end of its monthly trading range (1.65% – 1.83%). ACGB’s (10-years) fell -14 bps MoM and rose +81 bps QoQ. Treasuries overnight drifted higher, with the 10’s closing at 1.74%, +4 bps on the session. MoM US 10-year yields rose +33 bps and +82 bps QoQ. Bond yields have found a range, seeming to top out over the month as the reflation trade looks to be priced in.
- Offshore Macro – US jobs improved with private companies adding 517K positions in March, compared with the prior month’s upwardly revised 176K (ADP Report). It was the biggest gain since September, led by the service and hospitality sector. Further, jobless claims, out tonight, should show the slow decline in filings continuing, or at least that’s what economists are predicting, ahead of what’s expected to be a heady payrolls print on Good Friday.
- Local Macro – February private sector credit growth came out slightly softer for February, just +0.2% MoM, or +1.6% YoY vs consensus expectations of +0.3% MoM and +1.7% YoY. Historically annual growth has been around +7.8% YoY (since 2000). Despite anaemic credit growth, private house price growth was very strong at +15.1%, the second highest monthly gain in twenty years. Building approvals also grew strongly, +21.6% MoM vs +3.0% consensus and -19.1% MoM in January.
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Scott Rundell, Chief Investment Officer
T: +61 3 8681 1907