Mutual Limited CIO Scott Rundell has provided some commentary following the US CPI data figures released overnight:
Overview: well, that was fun
- Markets have reacted violently to what I would consider to be a modest miss in US CPI. Stocks and bonds were smoked, taken to the principal’s office for a good old-fashioned, old-school pre-woke thrashing. US headline CPI printed at +0.1% MoM for August, a modest miss vs consensus of -0.1% MoM, but directionally it was what markets focused on. Core CPI came in at +0.6% MoM. No sector in stocks were spared the rod.
- A +75 bp hike is now a given next week from the Fed with OIS markets pricing in a +84 bp hike. There is also a building conversation around whether they pull both policy pistols at once and go with a +100 bp hike. Here and now, a +50 bp hike is unlikely, don’t go chasing waterfalls people. According to a BofA survey, investors are fleeing equities on fears of a Fed-induced global meltdown, with allocations at an all-time low (52%) and cash exposures at an all-time high (62%).
- In response to the hot CPI print, bond yields spiked higher, particularly 2Y bonds, which are more sensitive to monetary policy. The curve flattened further to reflect growing concerns the Fed will drive the economy right off the cliff.
- The Ukraine military is celebrating a successful counteroffensive to take back towns around Kharkiv, Ukraine’s second most populous city. In retaliation, Russia has knocked out the power and water supplies in the city. News has now emerged of 50 high-profile Russian leaders requesting the resignation of President Putin however we certainly won’t be holding our breath.
The Long Story….
- Offshore stocks – hate to say it, but told you so….US stocks belted overnight…although I’d suggest it was a potential overreaction. A sell-off was warranted, no doubt, given we’d seen four consecutive days of rallying on the belief the inflation had peaked, but I’m not sure a move of this magnitude was necessary. Nevertheless, selling was the order of the day with the DOW -3.9%, S&P 500 -4.3% and NASDAQ -5.2%. Virtually every stock within the S&P 500 was down and obviously no sector was spared the rod. Naturally, given the spike in bond yields, Tech took the brunt of selling, down -5.4% with communication services also hit, -5.6%. The rest weren’t far behind, Energy was the least hurt but still down a bone-crunching -2.45%. Twitter moved up +0.8% against the market on news that shareholders had approved the $44bn Musk buyout that he no longer wishes to pay for. The CBOE VIX shot up +3.40 to 27.27 (+14.2%). Euro stocks followed US markets, Stoxx 50 -1.7%, FTSE 100 -1.2% and DAX -1.6%. Futures have stabilised, so we might see a dead-cat bounce tonight
- Local Stocks – it was a solid day in local markets yesterday with the ASX 200 up +0.65%. The broad advance lifted 9 of the 11 sectors, REITS led at +1.6% followed by Consumer Discretionary +1.2% and Energy +1.0%. Tech -0.3% and Health Care -0.8% were marginally in the red. A relatively benign day on the news front, Link Group shares plummeted -20% on news their buyout might be quashed by British regulators, Pilbara Minerals hit a record high on a wide lithium rally and Star Entertainment Group jumped +4.1% despite negative press on the Bell Report findings. ASX 200 futures are down -2.3% this morning in response to the rout offshore, bringing the index to 6855 and wiping all the gains the index has made over the past three days.
- Credit – some egg on my face yesterday. After sprouting off that we’d likely not see any tier 2 supply for a couple of months, ANZ launches a 12NC7 deal. Shortly after smacking my forehead on the desk a few times in frustration, I discovered the deal was in fact a chunky reverse inquiry from a large super fund, with a heavy preference for fixed. Initially, there was a whiff of a floater, but in the end only a fixed deal. In the end, a $900m deal (book in excess of $1.3bn) was priced at ASW+260 bps, which was where it launched giving it a coupon of 6.41%. A pretty sweet deal for ANZ, last month they priced a 10NC5 at +270 bps, now they’re getting two years extra tenor and paying -10 bps less. ANZ’s last deal, the Aug-27, is quoted around +230 – 235 bps depending on your source.
- In addition to the surprise ANZ deal, a couple of other primary deals kept markets active. All new deals were absorbed with minimum fuss. Major bank senior closed unchanged with 3Y at +70 bps and 5Y at +92 bps, and in tier 2, also closing unchanged despite the new deal. Not that surprising, it was priced bang on the curve, so no pressure to reprice secondary markets. The new deal was pricing 5 – 6 bps tighter on the break with “expectation that this will tighten versus the fixed rate ANZ 09-32/27s which we continue to sell ~35 bps tighter at ASW+220 bps.” (traders)
