Mutual Daily Mutterings
Quote of the day…
“When will I learn? The answers to life’s problems aren’t at the bottom of a bottle. They’re on TV! …” – Homer J Simpson
The short story “lazy narratives…”
- Overview – I thought markets had already reached the realisation that a new US fiscal stimulus package wasn’t going happen before the election, but again it’s been thrown up in the narrative as the reason for last night’s modest risk-off tone. This time it was Treasury Secretary Mnuchin who poured the cold water on expectations – nevertheless, both sides are still talking to each other, so hope springs eternal, I guess. US Q3 reporting season continued, with a mixed set of results from Wells Fargo (very poor), Bank of America (MISS vs consensus), and Goldman Sachs (BEAT vs consensus). E-mini’s are down ↓0.6% – 1.0% across US indices, while ASX 200 futures are suggesting a moderate down day, ↓0.25%
- Stocks – mixed across European stock markets, some up, some down, modest moves. In US markets, again the narrative lacks imagination and has pointed to both mixed bank earnings and the dawning realisation that a fiscal package is not imminent. Combined the two narratives sucked some of the jam out of the market’s donut. A touch over half of the S&P 500 closed down on the day. One bright spot was energy shares, which were boosted by the rally in oil (↑9%). The ASX 200 was off its food a touch yesterday, down on minimal local news, instead following offshore leads directionally.
- Offshore Credit – mixed again in primary, with just a couple of deals in US IG for $1.6bn, while in EU IG we saw five borrowers for €5.4bn. One of these included Japanese beverage group, Asahi, who were tapping markets to help fund its purchase of Caaarlton & United Breweries. US deal metrics were ok, new issue concession of +3 bps and books were covered by 1.6x – well down on recent levels, but was only two deals, and spreads compressed 12 – 15 bps post launch. In EU IG, books were 4.1x oversubscribed with spread compression of a robust 34 bps on average. In CDS, again mirroring tone in stocks with CDX ↑3 bps wider and MAIN ↑1.8 bps wider.
- Local Credit – holy spread tightening Batman. Once again, a scramble for risk, driven by real money buyers and street trading desks looking to build inventory. Also reflecting the buoyant tone, the new Mizuho 3-year FRN printed ↓12 bps tight to initial guidance. On the day, major bank senior paper reached new tights with 3-year at +29 bp (↓2 bps), while the Jan-25’s crunched in ↓3 bps to close at +38.5 bps. We’re not in Kansas anymore Toto!
- Bonds – little movement in bonds overnight, and local bonds are relatively stable also. Guvna Lowe speaks at the Citi Investor Conference today, topic is “The Recovery from a Very Uneven Recession”. At 9am.
- Ahead – September labour data is out today. Consensus is expecting ↓40K (vs ↑111K in August) and unemployment rate of 7.0% vs 6.8% last month. Beyond this, we have clean air for a few days
Please see attached for more detailed comments.
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Scott Rundell, Chief Investment Officer
T: +61 3 8681 1907
Mutual Limited Daily Update