Mutual Daily Mutterings
Quote of the day…
“Keith Moon, God rest his soul, once drove his car through the glass doors of a hotel, driving all the way up to the reception desk, got out and asked for the key to his room…” – Pete Townsend of the Who
S&P 500 – quarterly reporting…
Source: Bloomberg, Mutual Limited
- Overview – after tickling the soft under-belly of historical highs yesterday, stocks retreated overnight across US and European markets. Again, stocks and bonds were positively correlated, yields on the rise across the board. It’s just not normal! Next cats and dogs will be getting along, and Collingwood and Carlton supporters will be hugging and displaying signs of affection and mutual respect toward each other. The overnight narrative is suggesting investors are awaiting the core of earnings season and more economic data later in the week to gauge whether to throw more coin down the rabbit hole. Or, there was no real news of note, so the moves were largely meaningless. No major names of note reported overnight, with just under 10% of the S&P 500 constituents reporting so far (Q1) – too early to call a trend, but early numbers have been constructive. Three-quarters of companies reporting have beaten consensus sales expectations and a similar proportion have beaten on the earnings front. For the ‘coiners out there, the grand-daddy of them all, Bitcoin, took it in the neck over the past week, down -11.2%, although it picked itself up off the canvas overnight…just. Some are suggesting the sell-off in Bitcoin triggered last night’s pull back in broader markets (I’m not buying it though). Talking head…” whenever a headline-grabbing asset sees a big decline at a time when the broad market stands at an expensive level, it usually has a negative impact on the stock market, even if it’s only short-lived.” All is not lost (if you’re a longer-term investor), Bitcoin is up almost 700% since the onset of the COVID pandemic.
- Offshore Stocks – a sell-off in Tech (-0.88%) stocks did the most damage on the day, accounting for around half of the fall in the S&P 500. Tesla was the main driver here, contributing the most to the decline as one of its electric cars that “no one” appeared to be driving crashed, killing its two passengers. The broader gains over recent weeks comes despite concerns surrounding the spread of a widening array of COVID variants and still accelerating infection rates. One rationale for the recent buoyancy in stocks is the absence of short interest. No doubt with hedge funds still licking their wounds post the Reddit driven retail assault they’re keeping their collective heads down for a while…but that could reverse rapidly. Per Goldman Sachs (as quoted by Bloomberg) “the median short interest in members of the S&P 500 sits at just 1.6% of market value, near a 17-year low is despite valuations being near 20-year highs.” At the same time, hedge-fund longs are around the highest relative levels for quite some time. Talking heads…”there’s just mass euphoria….no one wants to get their head ripped off by a short anymore.” Nevertheless, investors and traders alike will be looking to earnings season to justify their recent exuberance. Talking heads…. “with a deluge of earnings activity this week from across industries, we may be in a bit of a holding pattern until investors digest any beats or misses on that front….bottom line is that short-term volatility is typical when we’re knocking around market highs as traders look to uncover value.”
- Local stocks – the ASX 200 closed with its nose just above the water line, with very modest gains, although the trend into the close was weak. More stocks fell (52%) than gained, just, and also, more sectors fell (6/11) than gained. The intra-day high was 7094, or +0.44%, still a fraction off all-time highs. Materials (+0.78%) was heroic on the day, ably assisted by Financials (+0.30%). Without these two sectors, which collectively account for half of the index, it would have been a darker day for stocks. Energy (-1.44%), REITS (-1.14%) and Tech (-0.75%) where the main party-poopers. Relative strength indicators retreated from ‘overbought’ levels (69.6 vs 70.0), but still remain elevated, indicating a susceptibility to further weakness. Futures are in the red.
- Offshore Credit – JP Morgan, Goldman Sachs, Bank of America have all come to the well and gorged themselves on cheap debt. Morgan Stanley decided it wanted in, tapping primary markets for US$7.5bn, taking the total volume issued by these four banks to US$41.5bn. And its not just US$, with JP Morgan heading across to ‘ol blighty to print a further £2bn. Citigroup and Wells Fargo are considered likely to follow a similar path in coming days. Of the overnight deals, books were 2.4x covered (vs YTD average of 3.1x) and the average compression from launch to print was -18.1 bps (vs YTD average of -24.1 bps). YTD issuance across US markets stands at US$517bn, down -19% on 2020’s run rate, but up +33% on 2019’s run rate.
- Local Credit – traders…”a typically quiet Monday, though flows we did see were mostly constructive. Primary remains the focus with a number of A$ deal for investors to consider. Secondary flows are mostly related to the primary pipeline with relatively few accounts looking to add risk directly from secondary market offerings. This dynamic is likely to persist in the near term whilst the primary pipeline remains active”…yep, what he said. A little bit of movement in major bank senior paper with the Jan-25’s drifting a basis point wider to +33 bps, while the rest of the curve closed unchanged. In the tier 2 space, most lines closed unchanged, with decent two-way flow, albeit in small size. The ANZ Feb-26 call line tightened a basis point to +130 bps, as did the WBC Feb-26 call (to +132 bps). Next cab off the rank with an A$ tier 2 deal is likely to be CBA, with a couple of lines coming up (to be called). Fingers crossed.
- Bonds & Rates – little movement in ACGB’s yesterday with the 10’s at 1.72% (-2 bps), or down -12 bps from intra-month highs despite data suggesting the recovery has a solid foundation and rising inflationary pressures. In overnight moves, the broader Northern Hemisphere bond complex is +2 – 4 bps higher (yields) and steeper…moving in sync with risk assets (stocks), again an abnormal move, but perhaps reflective of other underlying concerns – geopolitical perhaps.
- Macro – nothing of note out overnight (offshore) and nothing worth writing about locally today either.
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Scott Rundell, Chief Investment Officer
T: +61 3 8681 1907