Mutual Daily Mutterings
Quote of the day…
“Why waste your money looking up your family tree? Just go into politics and your opponent will do it for you …” – Mark Twain
“In the trenches…”
The short story “go big or go home…!”
- Overview – US Q3 reporting season underway last night with JPM and Citi teeing off. JPM reported provisions for credit losses of $611m, well shy of the $2.4bn consensus estimate. Revenue, investment banking fees, FICC sales & trading and equities all outpaced consensus. Citi’s credit provisions amounted to $2.3bn vs $3.9bn consensus. Earnings and FICC sales & trading revenue also beat consensus. Fiscal stimulus talks in the US are stuck in neutral. Again, the sticking point remains the wad of stimulus needed to do the job – obviously the Dems think a bigger pile of cash is needed than that tabled by the Republicans. Members on the right have proposed some stop-gap measures, but this has been rejected with Trump promptly tweeting “Go big or go home!!” He really is a poet at heart. Nancy didn’t hold back though, “Tragically, the Trump proposal falls significantly short of what this pandemic and deep recession demand”. And the difference? It’s around $400m, $2.2 trillion vs 1.8 trillion.
- Stocks – modest losses in all but the NASDAQ overnight with banks leading the charge south. Despite JPM and Citi beating consensus on the severity of provisioning (lower), the narrative turned decidedly sour, i.e. “banks led losses in the S&P 500, with JPM and Citigroup sinking as investors worried that third-quarter results signalled just a pause in pain from soured loans”. The narrative also honed in on the fiscal package stalemate. It is widely viewed that more stimulus needed to help propel the recovery…and realistically support frothy valuations. September saw a near 10% correction in US stocks on these concerns, yet markets have clawed all but a final few basis points of this correction back…still no fiscal package, and no improved recovery prospects. Another correction perhaps? Possible given we’re in the final straight of the US Presidential election. Weak leads for the ASX 200 today.
- Offshore Credit – modestly active session in offshore primary with a handful of deals across US and EU IG markets. Deals were well supported. Secondary spreads are a touch tighter, but at the index level there isn’t much in it (↓1 bp). Synthetics followed the tone in stocks, closing wider…probably wider than I would have expected given the modest moves in stocks. CDX is ↑1.9 bps wider, while MAIN is ↑1.2 bps wider. Offshore bank CDS (Snr Fin) is ↑2 bps.
- Local Credit – continued strong bid tone across local markets with major bank senior paper grinding tighter – 3Y at +31 bps (↓1 bp) and the Jan-25’s are at +41 bps (↓1.5 bps). Tier 2 is on a tear, all major lines tighter. ANZ 31-26 at +175 bps (↓2 bps), NAB 31-26 at +184 bps (↓1 bps), CBA 30-25 at +171 bps (↓1 bps), while the 29-24 suite of lines is at +164 bps (↓3 bps). We have been positioned for this move tighter for several weeks now.
- Bonds – the modest risk off tone saw US treasuries bull flatten ↓3 bps, while in local bonds, very little action over the past few sessions.
- Ahead – Q3 results from Wells Fargo, BofA and GS are due out tonight; MS earnings are scheduled for Thursday.
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Scott Rundell, Chief Investment Officer
T: +61 3 8681 1907
Mutual Limited Daily Update