Markets Overview

  • ASX SPI 200 futures down 0.3% to 7,581.00
  • Dow Average down 0.1% to 38,588.47
  • Aussie up 0.2% to 0.6550 per US$
  • U.S. 10-year yield little changed at 4.2733%
  • Australia 3-year bond yield fell 1.1 bps to 3.75%
  • Australia 10-year bond yield rose 1.1 bps to 4.18%
  • Gold spot up 0.4% to $2,025.13
  • Brent futures down 1.2% to $82.57/bbl

Economic Events

  • 10:30: (AU) Jan. Westpac Leading Index MoM, prior -0.04%
  • 11:00: (AU) Australia to Sell A$800 Million 3.75% 2037 Bonds
  • 11:30: (AU) 4Q Wage Price Index QoQ, est. 0.9%, prior 1.3%
  • 11:30: (AU) 4Q Wage Price Index YoY, est. 4.1%, prior 4.0%

Big tech dragged the stock market away from its all-time highs, with Wall Street awaiting Nvidia Corp.’s earnings on Wednesday for confirmation the chipmaker can meet the lofty expectations set by the artificial-intelligence boom.

While the ongoing earnings season has so far reaffirmed the view that Corporate America is holding up well, the reporting period has been mixed for the “Magnificent Seven” megacaps. Ahead of the chipmaker’s numbers, some traders decided to lock in profits — with the market also weighing a report that Microsoft Corp. is developing a networking card as an alternative to the one supplied by Nvidia.

The bar is high for the company at the heart of the AI revolution — which boasts the best performance in the S&P 500 this year after more than tripling in 2023. Nvidia’s revenue is expected to be buoyed by soaring demand in its data-center business. AI should remain strong, especially with Meta Platforms Inc. and Tesla Inc. loading up on graphics processing units, Susquehanna said.

To Matt Maley at Miller Tabak + Co., while bets are that Nvidia will report solid earnings and forecasts, one thing to keep in mind is that the stock has not always responded well to fabulous results.

In the run-up to its results, Nvidia sank over 4%. The Nasdaq 100 dropped almost 1%, while the S&P 500 fell below 5,000. Treasury 10-year yields were little changed at 4.27%. The dollar wavered.

Other News

Australia’s biggest pension funds are losing their appetite for bonds as interest rates peak and are instead ramping up bets on a potentially riskier avenue of higher returns: private credit.

Cbus, which has A$90 billion in total assets, is planning to triple its global allocation to private credit over the next 18 months, while A$104 billion Hostplus is looking to add to its already record holdings of the asset class. The nation’s biggest pension manager AustralianSuper in December boosted its investment mandate with private-credit specialist Churchill Asset Management.

“In parts of the credit market and private credit areas, particularly some of the activity we do directly ourselves in Australian credit, we’re finding good opportunities,” said Brett Chatfield, chief investment officer at Cbus in Melbourne. “There’s still very good opportunities to earn low double-digit returns.”

The fund plans to boost its private-credit assets outside Australia to as much as A$300 million in the next 18 months, from the present level of about A$100 million, Chatfield said. The pension provider is also looking to increase its A$1 billion bet on Australian private credit by up to A$500 million, he said.

Private credit is when money is lent directly to a borrower who may have trouble accessing loans elsewhere. The greater risk the recipient may be unable to repay the loan means investors can collect higher interest rates than they can from comparable fixed-income markets. That’s a risk many funds in Australia’s A$3.6 trillion pension market are willing to take to generate higher returns for their members.

Australia is home to the fastest-growing pension pool in the developed world, with funds receiving a compulsory 11% of salaries from 27 million residents, a capital flow that’s spurred them to venture ever further offshore. While the last two years of rising global rates encouraged funds to load up on bonds, that window looks to be closing amid expectations for rate cuts this year.

Direct lending yielded an average 11.5% in the second quarter of last year, according to an analysis by JPMorgan Chase & Co. In comparison, global investment-grade bonds yielded an average 3.82% Monday, down from a high of 4.42% in October, a Bloomberg index shows.

“We can buy traditional fixed-income but also the next question is: can you continue to do better?” said Con Michalakis, deputy chief investment officer at Hostplus in Melbourne. “The yield curve offered opportunities, but then also so did the private credit market, so did the investment-grade market, so did the asset-backed market.”

Hostplus is looking to add to its record 7% allocation to private credit in its default balance fund, and is combing through potential investments for asset-backed, mid-market and special situation opportunities, Michalakis said.

Elsewhere some caution is setting in.

Fresh from boosting its mandate with private-credit specialist Churchill to A$1.5 billion from A$250 million, AustralianSuper is now exploring other avenues such as private equity instead.

Private credit is “certainly offering very high yield, but we haven’t really seen the impact to the real economy and to some of these businesses from substantially higher interest rates,” said Katie Dean, head of fixed-income, currency and cash at AustralianSuper, which has A$315 billion of assets.

“We’re not actively reducing, we’re just not actively increasing our allocation is probably the best way to describe that,” she said of the fund’s exposure to private credit. AustralianSuper currently has about 20% of its portfolio in bonds, which is historically high, she said.