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Mutual Daily Mutterings

Quote of the day…


“My mother-in-law has come round to our house at Christmas seven years running. This year we’re having a change. We’re going to let her in.…” – Les Dawson, Jr






Chart du jour… AU GDP vs AU CPI








Overview…”Touch down…”

  • European markets woke up on the ‘omicron is not a problem’ side of the bed overnight staging a meaningful rally.  US markets took the lead and ran with it early, walking tall with a spring in its step.  Then things went a tad awry with the CDC announcing the first case of omicron on US soil (it was only a matter of time) – the patient was vaccinated, and showed only mild symptoms.  The tone turned south, with the day’s early gains erased as markets digested the new vaccine headlines, and some hawkish comments from Fed Chair Powell didn’t help the cause either.  All in all though, markets took the twin shocks in their collective stride.
  • Bond yields were initially higher, by around 5 bps across the US 2’s and 10’s, but then rallied back to largely unchanged on the omicron case in the US headline.  Fed speak… Powell warned the risks of persistent elevated inflation have “clearly risen,” but investors — unlike the day before — took his message in stride. The Fed chair stressed that policy “will continue to adapt” to keep rising prices in check, while reiterating that officials will consider speeding up the tapering process. He also said he didn’t expect the winding down of asset purchases to disrupt markets because the Fed has “telegraphed it.”
  • Talking heads…”‘Shutdown risk’ is the main reason, but there’s more at work…the rally (in stocks) this morning never had a lot of conviction behind it, and investors are still trying to sort through not just Omicron, but the Fed’s new reaction function too.” Fed Chair Powell reinforced his earlier message that they would keep inflation in check and said for the second time in as many days officials should consider accelerating how quickly they withdraw policy support.  The ECB on the other hand is looking to halt any decision on when to adjust their bond buying because of the omicron outbreak.
  • A survey of US CEO’s revealed a general sense of optimism.  The Business Rountable’s Economic Outlook Index rose 10 pts to 124 in Q4, the highest reading in twenty years of data – although the survey pre-dates omicron headlines.  The report indicated expectations for hiring capital investment and sales had all improved.


The Long Story….

  • Offshore Stocks –whipsawing in the US (cue Beach Boys music).  Europe started on the good foot and stayed there, with the Euro STOXX 600 up +1.7%.  US markets took the lead and looked for all intense and purposes to be forging on, but then the new Hawkish Powell spoke and omicron made its presence known in the US.  At its intra-day peak, the S&P 500 was up +1.9%, the DOW was up +1.5%, and the NASDAQ up +1.8%.  By market close, we had witnessed a >2.0% turn around.  In the end, around 80% of the S&P 500 stocks retreated and only one sector was able to hold on to their gains, Utilities (+0.2%).  Telcos (-2.0%), Discretionary (-1.9%) and Industrials (-1.4%) were the main trouble makers.
  • Local Stocks – modest loss on the day as markets continue to digest omicron headlines, with a mix of global monetary policy pontificating…i.e.  will the new variant outbreak materially alter the expected trajectory of policy settings?  In a word (or two), no, it doesn’t look likely at this stage.  It was a relative shallow, yet broad based sell-off.  Three in four stocks closed in the red and all bar three sectors retreated.  Materials (+0.6%), Healthcare (+0.2%), and Financials +0.1%) were the only sectors to gain ground.  Leading the ‘no-fun-club’ at the bottom of the tables, we had Staples (-1.9%), Utilities (-1.4%), REITS (-1.1%).  With the gains in offshore markets losing momentum and actually heading the other way, local futures are signalling a moderately weak opening for the ASX 200.





  • Offshore Credit – given market ructions, supply (<US$5bn) has been muted this week vs expectations (>US$35bn).  Nevertheless, a raft of brave souls stuck their heads above the parapet and rush out a few deals overnight.  A dozen companies priced just shy of US$15bn, including Bank of America. T-Mobile, BlackRock, and Goldman Sachs.  I found this interesting, and somewhat counter to recent commentary in the credit space (in the US)…JPMorgan Asset Management’s CEO has been urging investors to dump Treasuries and snap up corporate debt, both in the U.S. and Europe. BlackRock begs to differ on JPMAM’s optimism, with the firm boosting its exposure to government debt because they’re “actually working” to counter market turmoil. And omicron’s spread still justifies “a holding pattern for markets in terms of risk sentiment.”
  • Local Credit – a modest sense of calm yesterday.  Traders comments…”heightened volatility has reduced client interest and interbank liquidity remains patchy at best. With the primary taps drying up into year-end we see scope for spreads to perform, although this does rest on the evolving Omicron situation and subsequent impact to risk appetite. We close cash spreads mostly unchanged on the day, bar T2 which drifted wider across the complex.”  The 2026 callable lines are now out to +144 – 147 bps, and looking pretty attractive to be honest.  Having said that, we are cautious on adding risk under these conditions. We’re not witnessing any panic in the disco in a flow or redemption sense, with most investors content to wait and see.
  • Bonds & Rates – a sell-off in local bonds yesterday as markets continue the inner mental tussle of weighing the potential growth impact of the omicron variant and the final recognition by Fed Chair Powell that inflation may be a problem, and setting policy accordingly.  As John McClane said in the classic Christmas movie, Die Hard…after throwing a terrorist out the window onto a police car, “Welcome to the party, pal!”  I’m not too sure which was yields will go tactically (the next 30 days), but suspect it’ll be range bound, but with some meaningful swings as new omicron data comes to light.
  • In offshore markets, US treasuries started the day in risk on mode, with the 2’s and 10’s both +5 bps higher (yields).  Then the headlines around the first case of omicron in US soil hit and that took some of the confidence out of markets…selling strength and buying dips remains the preferred theme in Treasuries until further notice.  Yields on the 10-year remain between the important 100-DMA and 200-DMS, which is also fuelling the range trade idea.
  • More on Powell’s testimony…”during testimony before the Senate panel yesterday, Fed Chair Powell for the first time shifted his emphasis away from jobs, focusing more so on inflation and that it will be higher for longer. For fixed income investors, acknowledging inflation is not really transitory could mean a move away from the bear flattening trade that has dominated discussion of late and rather shift curves, especially in the belly higher.





  • Offshore Macro – Fed’s Beige Book report was released overnight, characterising “the growth backdrop as ‘modest to moderate’, similar to the prior report in late October. Growth was seen as constrained by supply and labour shortages in several districts, meaning that strong demand was unable to be filled. This was a theme across a number of industries. The report painted a mixed picture on real estate, noting that some districts had seen activity decline — suggesting a deceleration from the red-hot housing market from earlier this year.  Labour shortages were seen as widespread, with a concomitant robust rise in wages that was nearly universal across districts. Price rises were characterized as ‘modest to robust’, with widespread input cost rises, though there was some easing of semiconductor and steel price pressures. It seems price increases were generally easy to pass through, which doesn’t provide much comfort that the inflation theme is about to end”. (Bloomberg).
  • The OECD dialed back its global growth outlook for 2021 to 5.6% from 5.7% in September, mainly because of slower expansion in the U.S., China and Japan than previously predicted. It stuck to the forecast of a 4.5% increase in world GDP for next year, raising the outlook for the U.S. and Japan while trimming it for the euro area and China.” (Bloomberg).
  • Local Macro –  AUSTRALIA 3Q GDP -1.9% QoQ vs EST. -2.7% QoQ, AUSTRALIA 3Q GDP EXPANDS +3.9% YoY vs EST. 3.0%….BAML commentary…”this is above our higher than consensus view and reflects better than expected net exports and income support measures. Domestic demand drove the fall, with prolonged lockdowns across NSW, Victoria and the ACT resulting in a substantial decline in household spending. The fall in domestic demand was only partly offset by growth in net trade and public sector expenditure. GDP in the September quarter 2021 was 0.2 per cent below the December quarter 2019 pre-pandemic level.”  Some thoughts from CBA…”the headline number is ugly.  But it could have been worse and there’s no need to be concerned.  The big decline in production over the September quarter was the inevitable consequence of the decision to shut down large parts of the economy to stop the spread of COVID 19 as the vaccine was rolled out.  In many respect the fact that the economy ‘only’ shrank by 1.9% over the quarter indicates a lot of businesses were able to adapt over the lockdown and keep production running.  It may seem strange to say it, but the 1.9% fall in output was a decent result all things considered.





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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%