Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,051.00
  • Dow Average up 0.3% to 35,441.09
  • Aussie up 0.7% to 0.6652 per US$
  • U.S. 10-year yield fell 5.0bps to 4.3361%
  • Australia 3-year bond yield fell 6.1 bps to 4.16%
  • Australia 10-year bond yield fell 6.9 bps to 4.50%
  • Gold spot up 1.4% to $2,042.01
  • Brent futures up 2.2% to $81.73/bbl

Economic Events

  • 11:00: (AU) Australia to Sell A$800 Million 2.75% 2035 Bonds
  • 11:30: (AU) 3Q Construction Work Done, est. 0.3%, prior 0.4%
  • 11:30: (AU) Oct. CPI YoY, est. 5.2%, prior 5.6%

Treasuries extended their November rally, the dollar fell and stocks edged higher on speculation the Federal Reserve is done with interest-rate hikes and will be able to ease policy next year.

Fed swaps are now anticipating over 100 basis points of rate cuts by the end of 2024. In a speech entitled “Something Appears to Be Giving,” Governor Christopher Waller — one of the most-hawkish officials — said he’s “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.” While acknowledging the many uncertainties, his colleague Michelle Bowman refrained from telegraphing an imminent hike.

To Peter Williams at 22V Research, the chances of a dovish pivot or reset seem to be increasing even as Fed-induced recession odds recede.

Two-year yields dropped 14 basis points to around 4.75%. The dollar fell to its lowest since August. After swinging between small gains and losses, the S&P 500 managed to close with a small advance. The gauge, which is trading near “overbought” levels, is still headed toward one of its biggest November gains on record.

US consumer confidence rose for the first time in four months in November, aided by more optimistic views about the outlook for the labor market. Home prices hit a fresh record high, according to seasonally adjusted data from S&P CoreLogic Case-Shiller.

Other News

Sydney-based long-short equity hedge fund GCQ Funds Management is up by 52% this year, its first full calendar year managing client money, bolstered by super-sized bets in technology stocks and well-timed exits from European luxury companies.

The fund’s gain reflects a jump for its largest holdings: Alphabet Inc. is up 54.6% this year; Hemnet Group AB, a Swedish real estate portal, increased 89%; and Inc. gained 75.9%.

The $317 million global equity fund is run by Doug Tynan, co-founder and chief investment officer for GCQ. The strategy does not track a benchmark, but has outpaced this year’s 16% rise for the MSCI World Index of developed markets stocks — an appropriate yardstick — by a factor of three.

The gains were also helped by a jump in Microsoft Corp. The fund scooped up the stock last year when rising interest rates weighed on tech valuations.

“Eighteen months ago, some of the highest quality oligopolies and monopolies in the world were trading at substantial discounts to their future cash flows and they had no debt. We pivoted the portfolio into those companies,” Tynan said in a Tuesday interview.

The stake in Alphabet was built out earlier this year, recycling profits from a well-timed exit from European luxury companies. The fund wound down positions in Compagnie Financiere Richemont SA, Hermes International, and LVMH, which surged on hopes for China’s re-opening before quickly declining. GCQ sold near the top in March and April in a move Tynan describes as lucky.

“We didn’t think it was the peak,” he said. “We always force ourselves to sell 10% below what we think it’s worth.”

The investment in Alphabet coincided with concerns about the rise of generative artificial intelligence on Google’s internet search business, he adds.

“The front page of The Economist was asking whether the Google business model was over because of ChatGPT. We thought it was a good time to buy,” says Tynan. “It’s one of the best natural monopolies the world has ever seen.”

Now, the fund is hunting for smaller companies that fit its investment thesis — a checklist that narrows down characteristics, including market share dominance, within a handful of industries Tynan favors.

“We’ve turned over the portfolio substantially — about 50% over the past few months — selling anything expensive and bringing in new companies that we’ve known a long time that are cheap,” Tynan said.

The strategy launched in January 2021, shortly after co-founder and chief investment officer Tynan quit VGI Partners, where he was head of research. GCQ opened to outside money in February last year.

The fund has also held sizeable stakes in Visa Inc. and Mastercard Inc. through the year, in addition to ratings agencies and index providers S&P Global Inc., Moody’s Corp. and MSCI Inc. The fund is also bullish on Fair Isaac Corp., which provides credit scores in the US, and WD-40 Co., the industrial lubricant manufacturer.

“We made an outsized return by owning some of the best monopolies and largest companies in the world,” he said. “Now we are buying small monopolies.