Crispin Murray: What’s driving ASX stocks this week

Pendal's Head of Equities, Crispin Murray


Here’s what’s driving Australian equities this week according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.

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CONFIDENCE in policy stimulus, some better US earnings and easing concerns over vaccines contributed to strong gains for equities last week.

There is evidence of hedge fund de-grossing as a result of recent short squeezes, but at the moment it is showing up in specific stocks rather than disorderly drawdowns. This also helping markets recover.

The S&P/ASX 300 gained 3.5% last week, led by banks and technology. Defensives underperformed. In the US, the S&P 500 rose 4.7%.

Covid and vaccines outlook

Hospitalisations and cases continue to trend down in the US and the UK, while vaccinations continue apace.

In the US, the number of Covid-19 patients in hospital per million people is down 30% from the peak, easing stress on the system. There have been big improvements in the past week in the hardest-hit states such as Texas and California.

The pace of vaccinations continued to accelerate in the UK and the US – although the latter saw some impact from poor weather.

Almost 15% of the UK population has received a first dose – and roughly 90% of those aged 80 and older. The UK and Israel are two bellwether countries to watch. This is where the impact of vaccines on the severity of cases will become evident earliest.

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Projections suggest the UK will have vaccinated half its population by mid-March. The US is on track for the same target in the first half of May. Australia is expected to achieve 50% by early July. There is a tactical element to this for investors. Markets where the roll-out has been faster can expect to open up earlier and recover faster.

Economics and policy outlook

US payrolls rose 245,000 in November — well below the consensus estimation of 460,000. This reflects the impact of rising case numbers on retail and service sectors in that month.

The US unemployment rate dropped from 6.9% to 6.7% — but this resulted from a fall in the participation rate. The pandemic has forced roughly 6 million people out of the labour force. This is important in the context of the Fed’s employment milestone towards tighter policy. There are still a lot of people to come back into the workforce.

The data was not all bad. Hours worked (+0.9%) and income (+1.1%) were both better. The lead indicators on consumer spend are still tracking sideways. But with stimulus, lower cases and warmer weather coming through the picture could look very different in two months.

The Democrats look set to pass the Biden stimulus package through Congress via reconciliation – which would not require Republican votes. This means some measures are likely to tighten up — for example there could be greater restrictions on who gets the full stimulus cheques.

There also may be less allocated to States which are already seeing better-than-expected revenues. However it also means the aggregate package amount is likely to be at the high end of the expected range.

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It is worth noting that despite a very weak near-term outlook for GDP, the Bank of England reduced the expectation of negative rates. The outlook is for a rapid recovery, helped by a roll-back of restrictions as the vaccine program takes effect. UK banks rallied on the news. We may see a repeat of this in other countries.

Finally, while there is plenty of worried commentary about the risk in equities given the recent strong run, it is worth reiterating the extraordinary moves in fundamentals we think continue to support markets:

  • In the US, money supply (M2) is up 26% year-on-year
  • The combined balance sheets of the Fed and ECB are up 70% year-on-year
  • US fiscal stimulus, as measured by the budget deficit, is up US$2 trillion year-on-year
  • Global short interest rate yields are down by 100bps to 0.65% year-on-year.

Macro risk and uncertainty remain elevated. Equity markets have had a strong run. Nevertheless, we think the combination of these effects is extraordinary and continues to provide a substantial foundation for both economic recovery and equity markets. We remain positive. We expect bond yields to rise, coinciding with a rotation to cyclicals.


Despite some evidence of continued hedge fund de-grossing, the markets had a sharp, broad-based recovery last week as the focus returned to liquidity and better earnings in US.

Normal correlations remained in place across asset classes. Equities were up, US 10-year bond yields rose 10bps, the USD weakened, gold was down 2% and Brent crude up 6.2%.

The Australian market more than caught up with the prior week’s losses. Defensives generally lagged. Staples were only up 0.57% and Utilities fell 1.0%.

Resources (+1.5%) lagged the rebound. We continue to see very supportive fundamentals, but the iron ore price was down 1.4%. There is a sense that resources have been a crowded trade and there may be some rotation to other sectors — potentially exacerbated by hedge fund de-grossing.


Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds.

Crispin manages a number of our flagship funds along with one of the largest equities teams in Australia.

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

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