Mutual Daily Mutterings
Quote of the day…
“Politics: Poli a Latin word meaning many and tics meaning bloodsucking creatures …” – Robin Williams
The short story “markets want to go higher…”
- Overview – from a likely Democratic sweep in the US election (according to the polls and odds) to the unwinding of September’s correction, to a belief that a stimulus package is inevitable, a bundle of divergent explanations exist for what just spurred a meaningful boost to risk sentiment with the stock market’s booking their largest weekly gain since June. Trump upped the ante on the stimulus front, “I would like to see a bigger stimulus package, frankly, than either the Democrats or the Republicans are offering”…there is also question marks being raised around Trump’s mental capacity given the cocktail of COVID medication his doctors are dosing him with.
- Stocks – “it’s been a game of name your narrative for a stretch”…solid gains across stocks in which US markets outperformed European markets, but then the ASX 200 trumped then all. All this in a week where the Donald binned and dusted off economic aid, virus infection rates rose and more people in the US filed for first-time jobless claims than estimated. Markets generally bottomed in the recent mini-cycle some 16 days ago, since then markets have surge in the US, up ↑7% – 8%, shrugging off a presidential COVID-19 diagnosis and one of the more contentious, yet comical, electoral debates. Locally, the ASX 200 stalled on Friday, closing unchanged, but had a very solid week, outperforming all comers.
- Offshore Credit – with stocks buoyant and volatility waning, a positive week in offshore credit with a solid tightening of spreads and decent primary issuance. US markets were quiet on Friday ahead of the Columbus Day long weekend, with no deals priced. It was a reasonably active week, however. EU markets underperformed US markets, but positive nonetheless. CDS markets also tighter, ↓6 bps – ↓2.1 bps on the day across CDX and MAIN respectively, with both ↓4 bps tighter on the week.
- Local Credit – going to the trader’s tapes…”an active end to the week with all sectors better bid as strong domestic real money buying picked up momentum. Corporates and Tier 2 in particular benefiting”. Spreads tighter on the day and the week…more of the same ahead, a slow grind.
- Bonds – modest moves across the ACGB curve over the week, with a modest bear steepening as markets continue to pricing in the growing expectation of official cash rate cuts and lower three-year yield targets. ACGB ten-year bonds are hovering a few basis points below post pandemic averages (0.88%), while three-year yields are hovering a couple of basis points off all-time lows, set intra-day during the week at 0.12%.
- Ahead – RBA Guvna Lowe speaks at the Citi Investor Conference on Thursday. We’re looking for some guidance on the direction of monetary policy and whether November will be a live meeting (market pricing suggests it is). Also on Thursday, we have local labour force data, which is expected (consensus) to see 35K jobs added (vs 111K last month), but with unemployment rate to rise to 7.1% from 6.8%.
Please see attached for more detailed discussions on the above themes.
Click here to find the full PDF from our Chief Investment Officer’s daily market update.
Scott Rundell, Chief Investment Officer
T: +61 3 8681 1907
Mutual Limited Daily Update