Mutual Daily Mutterings
Quote of the day…
“I have not failed. I’ve just found 10,000 ways that won’t work.” – Thomas Edison
Rolling weekly spread change…
Source: Bloomberg, Mutual Limited
“Won’t someone think of the children…?”
“Oh, that inflation…!”
- Overview – markets are still digesting yesterday’s Fed statement, and the tone is increasingly obvious – US stocks fell, while oil slumped and treasury yields touched some of the highest levels in more than a year amid concern the Federal risks letting inflation accelerate unfettered too long, allowing it to become a bigger ‘problem’. Fed Chair Powell’s apparent willingness to keep the punch bowl brimming with monetary party favours, pumping support into the economy and letting it run hot has triggered bets on faster growth and inflation, sending market expectations of price pressures to multi-year highs. Talking heads…”there’s always the concern the Fed will make a mistake – that’s always a worry…everything is flashing inflation, but then the Fed is saying it’s going rise a little, but then it’s going to pull back.” US jobs data (jobless) claims surprised on the down side, also taking some jam out of the market’s donut. Re: the moves in oil, I pilfered this from NAB this morning…”oil has also fallen a lot as tensions mount between the US and Russia. Biden referring to Putin as a “killer” doesn’t seem to have gone down too well, and now with the threat of sanctions from the US there are fears Russia will up oil production in response to impact the US shale oil industry.”
- Offshore Stocks – the prevailing tug-o-war between value and growth stocks continued with the DOW (-0.4%) outperforming the NASDAQ (-2.7%). Regionally EU stocks were universally up on the day, with most indices up +0.1% – 0.5%, while the DAX outperformed all, up +1.2%. The narrative, somewhat conflictingly pointing to the Fed’s growth optimism, and seeming to ignore the inflation risk everyone else is bothered about. In the US, across the S&P 500, ~60% of stocks fell with Energy (-4.3%), Tech (-2.5%) and Discretionary (-2.1%) the key recalcitrant sectors. Only Financials (+1.1%) put up any resistance, with all other sectors cowering in the corner.
- Local Stocks – a broad based sell-off of reasonably meaningful proportions, with 62% of stocks in the red and only two sectors putting up a fight, although it was pretty insipid with Discretionary (+0.1%) and Materials (+0.1%) the only sectors in green. The bullies on the day were Healthcare (-1.7%), REITS (-1.5%), and Industrials (-1.4%), although if the themes from US markets are replicated locally today, I would expect a reversal of these moves, directionally at least.
- Offshore Credit – reasonably active in offshore primary markets, while spreads in secondary widened a touch with US HY particularly wider on the day. EU secondary on the other hand was more buoyant, taking an initial ‘glass half full’ view of the Fed’s statement.
- Local Credit – a reasonably quiet day in secondary as the growing primary pipeline takes centre stage, which has precipitated some selling in the corporate space. Some primary activity in the financial space, with MUFG announcing a 3.5 year deal out of their Sydney Branch. Across the major bank senior curve, no movement in secondary spreads, while in the trier 2 space another basis point tightening across the curve, although flows were muted. Very modest moves across key AusBond indices.
- Bonds & Rates – local yields were up a touch leading into the labour data (details below), but with the stonkingly strong print, yields received a bit of a kick up the caboose, rising +8 bps post the release to 1.80%, the AUD was back into the 0.7800’s. Local bond yields will likely lift again today given these leads in treasuries. In the Northern Hemisphere trading session, US 10-year Treasury yields were sharply higher around 1.75% initially, before easing back to 1.71% (+6 bps). As per the Fed’s meeting minutes, there is no obvious indication the Fed is about to take any actions to reign in the surge in long term yields. First, the Fed remains committed to its treasury buying program of US$80bn/month (at least). Also, the Fed noted in its post meeting statement that overall financial conditions remain accommodative. Talking heads… Fed Chair Powell “has given the green light to higher 10- and 30-year yields as progress out of the pandemic accelerates.“
- Macro – domestic labour force numbers were out yesterday, a belter, +88K added in February, almost 3x consensus expectations (+30K) and the prior month’s run rate. All of those jobs added were full timers (+89K), while part-timers dropped a smidge (-0.5K). With an unchanged participation rate (66.1%), the unemployment rate plunged to 5.8% vs 6.3% consensus and 6.4% the prior month (January). The big test comes when JobKeeper rolls off, when businesses who have been receiving this payment will be required to foot the full bill for wages and salaries. As at January 960K employees were receiving JobKeeper, down from a peak of 3.6 million through the middle of last year. Further, of the 878K jobs lost over Feb – May last year, around 93% were regained by January this year (source: CBA). While a given percentage of the remaining 960K are expected to lose their jobs come April 1st, it’s unlikely to be as high as some figures being flouted in the media, i.e. ~500K, which I’d suggest is pure clickbait, as they say, bad news sells. Still on jobs, but in the US, new jobless claims bucked recent trends and expectations, rising +770K versus an upwardly revised +725K the week before. Consensus was for a decline to +700K, while continuing claims edged down less than forecast
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Scott Rundell, Chief Investment Officer
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