Markets Overview

  • ASX SPI 200 futures little changed at 7,246.00
  • Dow Average up 0.4% to 36,551.20
  • Aussie down 0.2% to 0.6556 per US$
  • U.S. 10-year yield fell 2.9bps to 4.2044%
  • Australia 3-year bond yield fell 1 bp to 3.94%
  • Australia 10-year bond yield fell 1.2 bps to 4.33%
  • Gold spot little changed at $1,980.16
  • Brent futures down 3.6% to $73.32/bbl

Economic Events

  • 14:30: (AU) Nov. CBA Household Spending YoY, prior 2.0%
  • 14:30: (AU) Nov. CBA Household Spending MoM, prior -1.0%

Wall Street saw mild moves in the run-up to the Federal Reserve decision, with the latest inflation data reinforcing speculation policymakers will be in no rush to claim victory just yet.

While markets continued to bet officials will be on hold Wednesday, the latest figures bring into question the aggressive pricing of a dovish pivot. Traders have slightly trimmed their wagers on rate cuts in 2024, with the first one still projected to happen in May. The data also spurred speculation that Jerome Powell will try to throw cold water on the Fed-easing buoyancy.

Following the last Fed decision, Powell reminded investors that inflation progress will “come in lumps and be bumpy.” The fact that Tuesday’s consumer price index was roughly in line with estimates — and ticked up a bit — underscored the choppy nature of getting prices back to the 2% target — especially in the service sector, which the Fed has zoned in on as the last mile in its inflation fight.

After whipsawing in the immediate aftermath of the report, two-year yields steadied above 4.7%. Long-term Treasuries swung to a small gain after solid demand in a $21 billion sale of 30-year bonds. The S&P 500 eked out an advance to the highest since January 2022. The “fear gauge” — the VIX — hit an almost four-year low.

Other News

Australia’s largest pension fund is increasing exposure to the fast-growing private credit market to boost returns amid shrinking bank balance sheets and tightening regulation.

AustralianSuper Pty Ltd., which manages more than A$300 billion ($198 billion) of assets, has increased an investment mandate with private credit specialist Churchill Asset Management to $1.5 billion from $250 million.

“From a private market perspective, we think it beats infrastructure and property,” Nick Ward, AustralianSuper’s head of private credit, said from New York in an interview on Tuesday. “Margins have increased to take into account the higher risk environment,” adding that Churchill typically focuses on senior loans to US middle market companies at yields of around 11% to 12%.

AustralianSuper has over $4.5 billion invested in private credit globally and is expecting to triple the exposure in the coming years. Its bet on the $1.6 trillion market underscores growing interest in the asset class following the 2008 financial crisis that saw regulators clamping down on risky lending by banks.

All of the fund’s loans are offshore due to the relatively small size of the Australian market, as it seeks opportunities in Europe and the US, Ward said.

Churchill’s president and chief executive officer, Ken Kencel, is betting on growth in middle market companies — borrowers he defines with a credit profile of B+ to BB- and cashflows of between $25 million and $100 million.

“These are good scale businesses and market leading companies and we believe the risk adjusted returns in the traditional middle market are the most attractive,” he said.

But for the private credit sector, a lack of transparency and regulation has become a source of concern. UBS Group AG Chairman Colm Kelleher and Pimco executives warned in November of growing risks, such as a lack of transparency – a view that Kencel disagrees with.

“We are not seeing any signs of any type of bubble or indications we’re approaching one,” he said. “We report to our investors every quarter with a tremendous amount of detail,” referring to the performance of each loan and its risk rating.