Crispin Murray: what’s moving Aussie stocks this week

Pendal's Head of Equities, Crispin Murray

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

US Covid number continue to increase, while payroll data is disappointing. Nevertheless, equity markets continue to rally.
A number of recent developments bear watching:

  • Polls indicate the Democrats may win both of Georgia’s Senate seats in the January run-off, which could hand them control of the Senate. The market has welcomed the prospect of divided US government. This could change that view.
  • Delays in approval for the AstraZeneca vaccine — pending more thorough tests — may mean countries outside of the US might not achieve herd immunity until the end of 2021.
  • There is some commentary around the potential for vaccine production to be held back by a lack of key inputs such as vials and needles.
  • There is potential for certain strains of Covid to be vaccine resistant — specifically the N439K strain which is rare but shown to be resistant to some antibodies in recovered patients.

Nevertheless, the market remains sanguine. The S&P/ASX 300 gained 0.55% and the S&P 500 was up 1.72% last week.

The recent strong run may mean we are in for a period of consolidation — though not necessarily a material pull-back.

We still see plenty of supportive factors for markets in the near term, including:

  1. Vaccine means a resolution to the impact of Covid is on the horizon
  2. High case numbers, concerns on the economy and uncertainty on the roll-out of vaccines mean policy makers remain in the mindset of “whatever it takes”. Fiscal and monetary stimulus remains in place as a result.
  3. The Democrat win in the US — with Congress likely divided — means the end of the unpredictability of the Trump Administration, but lower chance of a dramatic new policy agenda.
  4. China’s economy continues to outperform the rest of the world. Positive interest rates are attracting capital which supports the RMB and Chinese spending power. This is good for commodities.
  5. Australia is in the sweet spot of summer + Covid suppression + a potential vaccine before winter. This provides a reasonably clear path for the economy.
  6. A Brexit deal possibly ends some uncertainty in Europe.

In the market, low rates continue to support growth stocks, which are holding up well. Value stocks are benefiting from accelerating growth and greater earnings certainty all supported by substantial liquidity. This means the current rally has decent breadth.

Covid outlook

Europe continues to improve, leaving the US as the flashpoint for the northern hemisphere wave.

It is still too early to read the consequences of the Thanksgiving break. The next two weeks will be important to determine if this has triggered a re-acceleration.

Regionally the worst states in the Midwest have begun to see some relative improvements. This has been offset by a re-acceleration in Florida, Michigan and New York — though some of this is a catch-up in post-Thanksgiving reporting. Some of the greatest strain on hospitals had been in the Midwest, so this is a marginal positive.

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Hospitalisation growth broadly remains more limited than case growth at about 10 per cent. ICU occupancy improved marginally in the Midwest, which had been under some of the greatest strain. But we are seeing a broadening of severe cases, making it harder to help the badly impacted states. There are also reports of healthcare staff shortages emerging.

Economic outlook

Total non-farm payroll data for November was disappointing, suggesting the jobs rebound is decelerating. Though overall unemployment continues to fall.

This may not have too great an impact on Q4 GDP growth, given the strength in industrial production for export and to restock inventories. This continues to drive a disconnection with sluggish real-time mobility data — and the initial data for Cyber Monday retail sales — but suggests Q4 GDP may be stronger than many expect.

Softer payroll data raises the near-term chances of a fiscal package. Commentators suggest something in the order of $US500 million to $US1 billion. There are some signals the Fed may start extending the duration of the bonds it is purchasing.

Globally economic signals remain positive as industrial production ramps up and the expectation of significant on-going fiscal stimulus drives industrial commodities.

Copper rose to a 7-year high. Iron moved higher too, as Brazil’s Vale announced a smaller-than-expected increase in production next year.

These moves in commodities are driving mining stocks globally. The US mining sector has broken back above pre-Covid levels, while Australian resources look set to do the same.


Ten-year government bond yields rose 12bps in the US and 10bps in Australia, reflecting the USD fall and the rise in commodity prices. This is supportive for the market’s value stocks.

We don’t see the slow rise in bonds as a negative for equities. It’s borne of higher optimism about future growth and a belief the Fed will be later in the cycle to raise rates than normal.

The implied message from central banks is that savers will have to take one for the team in terms of an extended period of low rates.

This is beginning to be reflected in expectations of equity market performance — and in equity market ETF inflows, which have rapidly accelerated since the US election and vaccine news.

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This has potential to be self-fulfilling. The bulk of flows go into index funds and get invested immediately, which may force some holdout investors back into the market.

US market valuations for the five largest stocks remain extremely elevated. Beyond this, the recent “catch-up” by other parts of the market has left their valuations looking full in historical terms. Nevertheless there is the potential to rise further, particularly given the sharp recovery in earnings coming through.

In the Australian equity market a sell-off at the end of November has quickly reversed. Resources led the way last week (+5.43%) while growth names (Technology +0.34%, Health Care -2.36%) and defensives (Utilities -2.18%, Consumer Staples -0.09%) lagged.

Again, macro factors were important at the stock level. Mining stocks have broadly consolidated for a number of months, but a weaker USD and stronger global demand have the potential to prompt a move higher relative to market.


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.

He 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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