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Mutual Daily Mutterings

Quote of the day…


“I once bought my kids a set of batteries for Christmas with a note saying “toys not included”– Bernard Manning





Chart du jour… …yields



“Merry Cryptomas…




Overview…”Transitory is the new fidget spinner…”

  • Markets jumped the gun on Monday with dip buyers charging head first into the omicron breach, only to be smacked over the snout with a rolled-up newspaper last night.  Stocks sold off from the get-go as the narrative turned sour again, uncertainty around the omicron variant, and comments from Fed Chair Powell really casting doubt on the near-term risk tone.  The VIX recorded its largest monthly rise since February 2020.
  • Risk sentiment weakened on the back of some cautionary language from Fed Chair Powell, specifically on omicron and what it might mean for the recovery…it poses potential ”downside risks to employment and economic activity and increased uncertainty for inflation”.  He also stated before the Senate Banking Committee that it’s time to stop using the word “transitory” to describe inflation.  Lastly, the Fed will likely look to accelerate its tapering timeline to give it greater optionality to fight inflation.  Yields bull flattened.
  • Talking heads…”Powell just added gasoline to the fire by finally admitting that inflation isn’t going away as fast as anyone would like…..a faster tapering is probably coming as a result, and that has markets worried the punch bowl is leaving the party.”  Add to this, the potential growth headwinds from omicron and you can see why markets remain on edge. “With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.
  • Moderna (vaccine manufacturer) executives threw some shade on sentiment, saying the “existing vaccines will be less effective at tackling Omicron than earlier strains of Covid-19 and it may take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” Maybe a “under-promise, over-deliver” hedging kind of comment, but it wasn’t taken that way by markets.
  • Again, from Moderna…“scientists are worried because 32 of the 50 mutations in the Omicron variant are on the spike protein, which the current vaccines focus on to boost the human body’s immune system to combat Covid-19….most experts thought such a highly mutated variant wouldn’t emerge for another one or two years.”  Moderna shares fell -4.0%…
  • The next couple of weeks will be volatile, with +/- 1.0% days becoming the norm in stocks – at least until there is some clarity around how effective existing vaccines are in limiting the severity of symptoms, and if not, how long for a replacement vaccine.  Bond yields will likely remain range bound, probably continue to flatten on the inflation vs growth impairment cross winds.


The Long Story….

  • Offshore Stocks – stocks started to look heavy late yesterday in our time-zone, which flowed into the start of the Northern Hemisphere trading day.  Europe opened with its head flushed down the toilet, down -1.6% in early trading (Euro STOXX 600), but then clawed back some lost dignity to close down -0.9%.  US futures were choppy leading into the open, which was initially a modest down, but then as the day wore on, Powell spoke, Moderna’s CEO spoke, and the tone turned to custard again, down -1.9% in the S&P 500, with the DOW (-1.9%) and NASDAQ (-1.6%) not spared the rod.  There was again nowhere to hide with 99% of stocks in the S&P 500 retreating with even the best performing sector down around -1.0% (Tech).  Misery loves company, so up there with Tech was Discretionary (-1.4%) and Healthcare (-1.9%).  The really morose and miserable sectors included Telcos (-3.0%), Utilities (-2.9%) and Staples (-2.7%).   On the month the S&P 500 delivered a loss of -0.8%, while the DOW had a real stinker, losing -3.7%, while the NASDAQ was able to claw its way into positive territory, +0.2%.
  • Despite the omicron situation, JPM are confident the post pandemic rally will persist in US stocks…”sporadic setbacks”, such as the emergence of omicron should be viewed “in the context of higher natural and vaccine-acquired immunity, significantly lower mortality, and new antiviral treatments…we expect post-Covid normalization to continue to assert itself globally in 2022.”  JPM forecast the S&P 500 will rise to 5050 by the end of 2022 vs the current level of 4563, or +11.0%….”we continue to see market upside, though more moderate, on better-than-expected earnings growth with supply shocks easing, China/EM backdrop improving, and normalizing consumer spending habits.”  Policy error, rather than COVID, was singled out as the key risk to their bullish view.
  • Local Stocks – a modest rally in the end with the local index closing well-off its intra-day highs (+1.3%) as offshore futures began to wobble, in turn as markets processed the facts (as they stand now) and associated uncertainties presented by the omicron COVID variant.  We’ll fall today given the leads, with futures down -0.5%.   Yesterday saw just under two-thirds of stocks advance and only three sectors bloodied, Utilities (-1.2%), Discretionary (-0.8%) and Healthcare (-0.1%).  Telcos (+1.8%) were top of the pops, followed by REITS (-0.9%) and Staples (-0.8%).  The ASX 200 delivered a net loss for November, -0.9%, the third monthly loss in a row.  YTD the index is up +10.2%



  • Offshore Credit – Bloomberg…”US junk bonds appear poised to close out November with one of the biggest monthly losses since the pandemic started. As equity indexes fall in response to Jerome Powell’s comments today, high-yield bonds will probably erase Monday’s gain.  Junk bonds have floundered since a hotter-than-expected CPI report earlier this month renewed fears surrounding inflation. The Bloomberg U.S. Corporate High Yield Index is down 0.86% in November, the steepest decline since a drop of 1% in September 2020, and yields are near the highest since last November. Omicron adds risk, but a faster taper and earlier hikes could be even more significant, if credit-risk gauges offer a clue.
  • Local Credit – trader commentary…”a mixed session for credit, sentiment firmed vs the day prior although broader street liquidity still remains poor.  The bulk of today’s activity took place in corporate and SSA paper, with spreads catching support from month end index flow and offshore buyers.”  In major bank paper (senior), the curve was largely unchanged, just the Aug-26’s drifting wider, +1 bp to +63 bps, although I did see the bid / offer at +66 / 63 bps at one stage yesterday.  In the tier 2 space, volumes reported as muted with no noticeable movement in spreads.  With offshore equities weaker again overnight, we could start December with a sustained widening bias – albeit, mildly so.  I think we’re done for supply.  Most issuers will likely have put the cue back in the rack.  All up, the next couple of weeks will be wobbly as we gain more clarity around the science behind the omicron variant.
  • With the late rally in underlying yields, the fixed rate credit index (AusBond) delivered a monthly return of +1.1% vs -2.8% through October.  Still, not enough the erase the red in the ledger, down -1.8% YTD.  Fixed rate credit is on target to deliver its first calendar year loss in well over 20 years.  FRN’s were flattish on the month, -0.02%, mainly on account of modest spread widening (+1 bps).  YTD FRN’s are up +0.3% and FRN’s have never recorded a calendar year loss, and I doubt this year will be the first.
  • Bonds & Rates – bonds continued their risk off rally yesterday (local) with the 3’s10’s bull flattening as markets begin to speculate on loose monetary policy persisting a bit longer in the face of the growing omicron variant and the risk it brings to the table.  US markets overnight saw a bull flattener also, with US 2-year yield up +4 bps to 0.524% on Fed Chair Powell’s quasi-acknowledgement that inflation is no longer transitory, while 10-year yields dropped -6 bps to 1.438% reflecting the growth risks caused by the new variant.  Reflecting persistent inflationary concerns, US money markets are pricing in around +60 bps of rate hikes – let’s call it two rate hikes – by around the end of 2022, an increase of +10 bps earlier in the week.  The first hike, all other things being equal, is priced for July 2022.  It would be fair to assume that the Fed will be done with its tapering agenda by then, if not sooner.
  • Local bonds had a better month in November vs October, with ACGB’s +2.5% vs -3.8% last month.  Year to date, however, and its still pretty grim for fixed rate bonds, down -3.1%.  Semi’s fared a little better, +1.9% on the month vs -3.6% in October, and -3.2% YTD.  ACGB’s and Semi’s are on course for their worst calendar year performance in over 20 years, and in the case of Semi’s, their first negative year in over 20 years.



  • Offshore Macro – NAB…”given the Omicron and Powell headlines, data didn’t get much of a look-in as a driver of pricing.  Eurozone CPI surprised to the upside but consumer confidence and the Chicago PMI in the US both came in lower than expected – although even at a much-lower-than-expected 61.8, the Chicago PMI is still well in expansive territory.” Bloomberg snippet…”at the margin omicron hurts supply chains and that means inflation prints will remain elevated long enough that ‘transitory’ will hit the dustbins and be replaced with accelerated tapering and rate hike timetables. Whether that is the right strategy is another question.”
  • Local Macro – a couple of data points out yesterday, one being October building approvals, which fell -12.9%, much more than consensus expectations of -1.5% and well September data (-4.3%).  ANZ….”the magnitude of the drop was driven by a reversion in approvals in New South Wales (-29.4% m/m), though it also reflects an ongoing moderation of approvals from Homebuilder highs nationally. Increases in fixed rates may put further downward pressure on building next year.” Private sector credit for October grew at a slower clip than consensus, +0.5% MoM vs +0.6% MoM, and down on the prior month (+0.6%).  Annual data came in at +5.7% YoY vs +5.8% YoY consensus, but ahead of the September annual run rate, +5.3% YoY.   The annual run rate is sitting at levels not seen in over five-years.  Housing credit continues to underpin growth, although business lending is doing its bit also.  Today, we have Q3 GDP…although given all that is happening the data is probably more stale than usual.  Consensus is expecting Q3 GDP growth of -2.7% QoQ (vs +0.7% for Q2) and +3.0% YoY (vs +9.6% as at June).


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Scott Rundell, Chief Investment Officer

T: +61 3 8681 1907



Mutual Limited Daily Update

Mutual Funds

MCTDF – Mutual Cash Fund
Gross running yield: 0.30%
MIF – Mutual Income Fund
Gross running yield: 1.39%
Yield to maturity: 0.98%
MCF – Mutual Credit Fund
Gross running yield: 2.66%
Yield to maturity: 1.88%
MHYF – Mutual High Yield Fund
Gross running yield: 5.24%
Yield to maturity: 4.34%