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Mutual Daily Mutterings

Quote of the day…


“I am not worried about the deficit. It is big enough to take care of itself”…Ronald Reagan





Chart du jour…a history of tapering

Source: Bloomberg



“On The Juice…




Overviewa pinch and a punch…”

  • A modestly soft end to the month in US stocks as investors trimmed positions for month-end rebalancing purposes and ahead of Friday’s potentially market-moving US jobs report. Meanwhile, in the land far-far away, European shares retreated on signals the ECB is ready to join the Fed (and RBA) and consider draining the punch bowl, aka tapering.  Treasuries trimmed early gains with yields closing marginally higher with a modest bear-steepening – where long end yields rose more than front end rates.  On the macro front, US housing data was mixed, with pending home sales missing estimates to the downside, with declines accelerating vs prior months, while house prices rise more than expected.  US consumer confidence data hit six-month lows as the lingering Delta variant is having a detrimental impact on consumer psyche, which shouldn’t surprise anyone.    Oil dipped on expectations of increased supply out of the OPEC+ producers.
  • Taper talk…”the Fed’s asset-purchase reductions may eventually cause a modest increase in Treasury yields, as the market adjusts to a new demand paradigm, with overseas bidders remaining important participants” according to Bloomberg analysis, which is reflected in consensus pricing for treasuries.  Following Chairman Powell’s speech last week, consensus is now looking for a November kick-off for tapering.  Unlike the 2013 “taper tantrum,” markets have already priced in a portion of the Fed paring back its bond buying with Treasuries’ early 2021 move.  Nevertheless, further yield adjustment (higher) is during the taper, “as dealers will need to reprice risk tolerance as their ability to offload risk to a captive buyer fades away”.  Consensus has the treasury curve +25 bps steeper by year end, with 10’s +33 bps to 1.64% and 2’s +8 bps to 0.29%.
  • Anecdotal inflation signals…and yes take with a grain of salt given the source (conspiracy theory central)….”Zero Hedge reports that North American fertilizer prices are nearing a decade high. The higher price will put increased demand on energy prices, which are now 6.95% of world GDP, the highest since October 2014. Chinese coal prices have made new highs, up 5.7% over the last week at CNY1037.2 tonne”.



  • Offshore Stocks – very modest easing at month end, rebalancing rather than anything sinister…not that moves of -0.1% or -0.2% are exactly sinister.  Across the S&P 500 as many stocks gained as retreated, although only four sectors were able to advance.  They included REITS (+0.6%), Discretionary (+0.4%) and Telcos (+0.3%).  At the other end of the playlist, Energy (-0.7%), Tech (-0.6%) and Materials (-0.3%) were the lead laggers.  Over the month, the S&P 500 gained +2.9%, the NASDAQ +4.0%, the DOW +1.2%, and the EURO STOXX +2.0%. The S&P 500 has now delivered seven months of consecutive gains, a reasonably rare occurrence over the past, say 60 years. Fourteen times to be exact.  As to what happened after these streaks, it’s weighted toward further gains with 64% of the streaks continuing by more than +3.2% before the streak ended.  The other four times, or 36% of the time, the index retreated over the next month.  Each prior streak has ranged from a few basis-points up to almost 15%, whereas the prevailing streak is sitting on gains of +22%, a hot one given the somewhat perilous state of the world.
  • Local stocks – the ASX 200 closed the month with a spring in its step, advancing +0.4% on the day to close the month +1.9% higher.  That’s the eleventh consecutive monthly gain for the local index, and the first time in over 25 years where the index has delivered eight monthly gains in a row up to August.  On the day, some 69% of stocks advanced and all but two sectors closed higher.  The outliers were Energy (-1.4%) and Utilities (-1.2%), while at the top of the tables we had Tech (+1.9%), Industrials (+1.2%) and Staples (+1.1%).  Futures are signalling a weaker open today, -0.4%.


(Source: Bloomberg)


  • Offshore Credit – some activity in offshore primary, while in secondary offshore credit spreads inched wider (+1 – 5 bps), all largely on the back of primary supply, which was buoyant.  High yield spreads on the other hand tightened, -17 bps across US HY and -9 bps across EU HY.  Overall tone remains constructive for now.
  • Local Credit – traders…”finally a busy day! A hark back to the old days with some decent volume traded in secondary markets and a plethora of well received primary deals. We hope that this pace persists over the coming days as primary markets fire up across the globe and risk starts to change hands again.”  Minimal spread movement for the last day of the month with major bank senior and tier 2 paper unchanged on the day and around a basis point tighter on the month.  The newly minted NAB Aug-26 senior line closed at +39 bps (vs +41 bps when issued) and the 2026 callable tier 2 lines closed between +123 – 130 bps, and the 2025 callable lines at +117 – 120 bps.  Both cohorts were +3 – 5 bps wider following new issuance, i.e. CBA’s 10-NC-5, which priced at +132 bps mid-month, and closed at +127bps (-5 bps).
  • Bonds & Rates – not a lot happening yesterday in local bonds, less than half a basis point lower or higher for yields across the curve.  The AOFM provided an update, with some Q&A from investors…”I’ve pilfered some comments from CBA…”we’d note the issuance side, which receives a lot of questions could be adjusted downwards if revenues continue, or upwards if lockdowns persist, came out as ‘balanced’.  Other discussions focussed on the ultra-long curve, its value and lack of liquidity, with the AOFM moving away from long dated syndications towards smaller, more frequent taps.  The AOFM also passed on feedback on the basket bonds, price making and liquidity given the RBA’s involvement in the market. ESG was of course a topic and a distinction between the issuer and debt issues was made. As AOFM CEO Rob Nichol mentioned some months ago, the decision to issue green debt is not one for the AOFM, but for the government. The AOFM plans to have meetings with domestic and Japanese investors later this year.”  Treasury prices fell (yields rose) after hawkish comments from the ECB and amid still limited flows for month-end.  By day’s end, a modest (+2 bps) bear-steepening of curves as markets also look to begin pricing in expected tapering effects, which is now being factored in for November and beyond.


(Source: Bloomberg)


  • Offshore Macro – some high-level thoughts from NAB…”China’s PMIs came in softer than expected and Canada’s GDP, expected to grow, actually fell. Add falling consumer confidence in the US and there’s plenty of numbers for those looking at the glass half full. Inflation reared its ugly head again too, the Eurozone CPI read was much more than anticipated, which could have implications for the ECB emergency bond buying programme.”  And, borrowing some ink from my former colleagues at CBA, a little more on the EZ CPU…”preliminary Eurozone inflation for August jumped to +3.0% YoY (consensus: +2.7% YoY) mainly because of the weak base of comparison with 2020.  Similarly, core CPI jumped to +1.6% YoY from +0.7% YoY.  Nevertheless, re opening frictions and base effects will fade”.
  • Local Macro RBA’s Private Sector Credit Growth data out yesterday for July.  Total credit outstanding grew to $3.1 trillion, or up $13.3bn over the month, representing growth of +0.7% MoM, well ahead of consensus (+0.5% MoM), but lagging June’s growth rate of +0.9% MoM).  Over the year, total credit outstanding grew $126.5bn, or +4.0% YoY (vs +3.5% YoY consensus), with 77% of credit growth coming from the owner-occupied space ($97.6bn YoY).  Business credit growth has rebounded also, up $11.9bn MoM (+1.1%) and $25.6bn YoY (+2.4%).  “Alongside this lift in credit associated with businesses accessing lines of credit, deposit growth strengthened in June and July.  Total deposits increased by 1.7% in June and then rose by 1.2% in July, up some $69bn. By way of comparison, over the previous 8 months, from September last year to May, deposits increased by a total of 3.25% and some $75bn” (WBC commentary).  Today, we have Q2 GDP data scheduled for release with consensus expecting +0.4% QoQ (vs +1.8% QoQ Q1) and +9.1% YoY (vs +1.1% YoY Q1).  Ten-year credit growth trends are detailed below….


(Source: RBA, Mutual Limited)



Click here to find the full PDF from our Chief Investment Officer’s daily market update.



Scott Rundell, Chief Investment Officer

T: +61 3 8681 1907



Mutual Limited Daily Update

Mutual Funds

MCTDF – Mutual Cash Fund
Gross running yield: 0.26%
MIF – Mutual Income Fund
Gross running yield: 1.40%
Yield to maturity: 0.74%
MCF – Mutual Credit Fund
Gross running yield: 2.51%
Yield to maturity: 1.59%
MHYF – Mutual High Yield Fund
Gross running yield: 7.33%
Yield to maturity: 5.51%