Mutual Daily Mutterings
Quote of the day…
“I am not a vegetarian because I love animals; I am a vegetarian because I hate plants” – A. Whitney Brown..…
“Delivery Room Disaster…”
Picture du jour…
Source: social media
Overview…”and, I’m back…”.
- Welcome to Cell Block 4. Another day in paradise as we’re once again made to pay the price for government quarantining incompetence and vaccination complacency. Here’s hoping it’s just a seven-day lockdown as planned, and not something longer…I’d be willing, however, to bet my second born son (my favourite) that we’re extended.
- It was month end for US markets on Friday with today, or tonight, being Memorial Day (akin to our ANZAC Day) – UK markets are also closed. For the fourth month in a row US stock markets have gained on better economic data and continued monetary stimulus and further fiscal hopes, the latter fuelling dreams of a brighter and more resilient future. On Friday, US treasuries rose a touch despite a string of buoyant macro-data prints, which kept 10-year yields around 1.59%. In commodities, oil had its biggest weekly gain since mid-April.
- On Friday the fiscal fairy godfather, President Biden, dropped his budget proposal on Congress, proposing more than US$6 trillion in fiscal spending over the coming fiscal year. This equates to around 2.0% of annual US GDP and adds to a mountain of fiscal stimulus already thrown at the system, which equates to 26.5% of annual US GDP…and this is on top of the squillions pumped into markets through QE and other stimulatory monetary policies measures. For context, this is 5x the volume of stimulus thrown at the 2008 – 2009 recession.
- For the week ahead, all eyes will be on further commentary from a plethora of Fed speakers, plus we have some key US data, including jobs data (Non-Farm Payrolls). Euro-area CPI is also out, and an OPEC+ meeting.
- Closer to home, tomorrow we have the RBA rates non-decision. There is a growing consensus that the July meeting will be live vis-a-vis some meaningful changes to monetary policy measures. These include announced changes to yield curve control targets (i.e. no extension from the April to November 2024 bond for QE purpose), and likely announced tapering of bond buying programs. It’s almost a given also that the TFF will expire at the end of the month. Today also brings private sector credit growth for April.
- Offshore Stocks – decent gains on the day to end the week and for US and UK markets, solid monthly gains also – although the NASDAQ did ease off the gas, edging slightly lower. Mirroring the value vs growth switch-a-roo, the old-school DOW (+1.9%) outperformed the SPX (+0.9%), which has a ~26% weighting to tech (ergo ~74% weighting to old-school sectors). On the day, REITS (+0.7%), Utilities (+0.5%) and Tech (+0.3%) formed the lead peloton, while bringing up the rear, Materials (-0.2%), Discretionary (-0.2%) and Telcos (-0.3%). Again, US markets closed tonight.
- Local stocks – a solid end to the week for local stocks with the ASX 200 gaining +1.2%, taking the index to new all-time highs, 7180. That’s a gain of +0.6% from pre-pandemic highs (21-Feb-20), and +57.9% from post-pandemic lows. Around 75% of ASX 200 stocks gained on Friday and only one sector failed to gain, Tech (-0.5%). At the top of the pile, we had Materials (+1.9%), Energy (+1.7%) and Industrials (+1.6%). Relative strength indicators are beginning to run hot, with RSI’s at 62, the high end of normal trading ranges (30 – 70). With firm offshore leads, we should see further advances today, adding to the +1.6% MTD gains already in the tin. Futures are marginally ahead.
- Offshore Credit – a solid week of issuance, with US$35bn priced, which was toward the top end of consensus expectations. Primary markets were boosted by a US$7bn AstraZeneca deal and strong participation from the banking sector. Bloomberg is reporting that 80% of last week’s primary deals are trading tighter in secondary. Projections for this week, a public-holiday shortened week, are coming in at US$20bn – US$25bn. Indices are showing spreads in the US wider on the month, +7 bps in IG Corporates and +1 bps in IG Financials, while in Europe IG Corporates are unchanged and IG Financials -3 bps tighter.
- Local Credit – tight, very tight, and no real action of note. Major bank senior paper remains unchanged at +34bps for the Jan-25’s, a basis point tighter on the week. The three-year part of the curve is at +24 bps. If primary were to come, I’d suggest final price of around +45 – 50 bps, with initial guidance of +50 – 55 bps. That’s if a deal was to price over the next month – which is not my expectation, nor that of the market. At last week’s ANZ Debt Investor Conference in the Hunter Valley, a survey was put to attendees on when a deal might come, the majority of votes went toward Q3’21, followed by Q4’21, and pricing was around the levels indicated above. Last week’s WBC US$ 5- year deal is swapping back around +45 bps. In tier 2 space, no changes to end the week also, with the 2026 callable stuff around +129 – 132 bps.
- Bonds & Rates – a heavy week of US data last week, including an expected rise in the core PCE deflator to above 3.0%, failed to make much of a dent on bond markets, with US Treasury yields ending the day slightly lower. US 10-year yields closed toward the bottom end of recent (30D) trading ranges, 1.59% (1.56% – 1.70%). In local bonds, the 10-year ACGB’s are yielding 1.69%, also toward the bottom end of recent trading ranges (1.63% – 1.80%). Expectations remain for yields to trend higher as data continues to point to economic resilience and rising inflationary expectations.
- Macro – private sector credit data out today, for April, with consensus expecting +0.4% MoM and +1.4% YoY, which is flat to March data.
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