Mutual Daily Mutterings
Quote of the day…
“Valentine’s Day money-saving tip: Break up on February 13th, get back together on the 15th” – David Letterman
“Happy Valentines Day (for Sunday)…”
Source: the Google…
“Another dull day on the tools…”
- Overview – one of those days where the hyperbole doesn’t flow with any great fluidity, instead it’s extracted kicking and screaming from the depths of my inner-child’s sub-consciousness. A slow news day, very little of substance happened and markets consequently rolled over and went back to sleep. In the US it’s the eve of a long weekend, so investors likely put the cue back in the rack early. US jobs data (jobless claims) firmed a touch, which took a lot of the sting out of whatever risk indigestion there was on the day. Oil lost ground on rising stockpiles and profit taking, while treasuries slipped as the decline in jobless claims signalled a modest firming of the labour market. Credit was unchanged. The latest US fiscal relief package is still grinding its way through the gears, with some murkiness on whether the bill can make it through the Senate under the chamber’s fast -track rules, or whether it actually has the votes to pass. Bitcoin was on the beers again, jumping to new highs after Mastercard and BNY Mellon moved to make it easier for customers to use cryptocurrencies. The ‘coin rose as much as +7.4% to $48,364. Trump’s impeachment continues as a side show, providing nothing more than fuel for satirical cartoonists.
- Offshore Stocks – narrow losses, no gains, no losses…it keeps changing into the close…for the S&P 500, the DOW is still down a touch, while the NASDAQ looks to be holding onto its gains. Either way, muted volumes on the day as the recent bull run (S&P 500, +5.4% MTD) pauses to catch breath. To go too much further higher from here, over the near term, markets need another adrenalin boost, otherwise its range trading until prevailing optimistic narrative evolves into reality. Tech stocks did their darnedest to drag the S&P 500 into the green, +0.7%, but it was a lone battle, fighting the red zombies of all other sectors. Energy especially soiled the bed, down -2.3%. Elsewhere losses were particularly modest and lacklustre, the bears shaking their collective heads in disgust at the apathy. For the record, the Fed’s balance sheet is now up to $7.4 trillion, almost double since mid-2019. Europe was a little more-sure of itself, edging higher on improving reported corporate earnings.
- Local Stocks – a very, very modest, albeit broad based, down day. Around 65% of the ASX 200 constituents closed with a slight bloody nose, while seven of eleven sectors sported similar injuries. Worst performer being Tech, down over -2.0%…Afterpay a contributor, the lord giveth and the lord taketh away…APT dropped -2.3%. Nearmap (NEA), which for full disclosure I used to own until late last year, copped a walloping, down over -7.0% after being the subject of a short seller report. Good timing on my part (dumb luck more like it). Telcos (+0.9%) and Materials (+0.6%) did their best to keep the ship afloat, with some supporting roles from Utilities (+0.4%) and Financials (+0.1%), but in the end the market rolled over and booked a modest down day. Reporting season (interim) inched along with 59 of the ASX 200 now reported, with aggregate sales down -9.0% HoH and aggregate earnings down -39.4% HoH, both surprising to the downside. Futures are pointing to an unchanged open…give or take.
- Offshore Credit – long weekend in the US coming, so was always going to be quiet and it was. Secondary spreads continue to trend tighter, very gradually. More action in Europe, just. A handful of financials deals saw just under €2.0bn priced with books 3.4x covered and spread compression (from launch to pricing) of -21 bps. In CDS markets, MAIN eked out another half a basis point of tightening, while CDX didn’t really get out of bed, unchanged.
- Local Credit – the word on the ‘street’ yesterday…”very aggressive price action and spread tightening in Tier 2 and higher beta corps that is being fuelled by domestic real money buying, lack of primary issuance, and traders scrambling to buy any paper they can, at any price.” Major bank senior saw better selling yesterday, but donuts in the change column. In tier 2 it was a lift-a-thon for the boys and girls in the street, flexed of their marbles to real money buyers in the school yard of market life. From the mouths of the fleeced “spreads 2-3bps tighter in general but judging by some of the reported levels clients saw away they could easily be in the same again. It’s worth noting that whilst the magnitude of these moves is large, the volumes traded are still relatively small”. This next comment I think is a blatant attempt to shake loose some paper to re-populate barren cupboards, but here it is anyway “profit taking is likely to increase and as the market is really at the whim now of issuance, if that was to occur we could well see a decent retracement”….having said that, a degree of truth I think…but it’s a question of when. Take profits now and do what with the cash? You risk being under-invested and lag peers and or performance targets. For now, technicals support tighter, or at the very least, stable spreads. The status quo will only likely be tested when the next primary deal comes along.
- Bonds – at face value treasuries ignored the traditional playbook, with yields rising on a risk-off session. In reality, more likely bonds were reacting to the better-than-expected jobless claims data than the very modest softness in stocks. Further, there’s still a ‘raging’ debate over whether the combination of more US stimulus, vaccine deployment and the government’s determination to kickstart growth will cause the American economy to overheat…talking heads “while inflation is not showing up in the data right now, inflation is on its way thanks to fiscal and monetary stimulus and pent-up consumer demand that should intensify as the economy reopens.” Since mid-October ACGB’s have re-coupled with US treasuries and have been trending higher, and steeper on the increasingly popular reflation traded. After spending much of 2020 trading at a spread to treasuries (in 10-years) of around +35 bps (rough average), spread to treasuries is back at +3 bps.
- Macro – US jobless claims out last night…I’m borrowing some ink from NAB here…”US initial jobless claims, which fell to 793K from an upwardly-revised 812K, above the consensus, 760K. The four-week moving average level of initial claims has dropped to a five-week low of 823K, and should fall further as restrictions are slowly eased across many parts of the country. This should mean we won’t see January’s drop in US non-fam payrolls repeated in February and beyond. At the same time, the current level of claims remains a long way above the worst single reading during the GFC of 655K and, as Fed chair Jay Powell noted this time yesterday morning, the level of employment last month was nearly 10 million below February 2020 levels, such that, “Achieving and sustaining maximum employment will require more than supportive monetary policy”. No signs of concern here at the proposed $1.9tn additional COVID-relief on top of the $900bn agreed at the end of last year”. No local macro data of note scheduled for today.
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Scott Rundell, Chief Investment Officer
T: +61 3 8681 1907