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Mutual Daily Mutterings

Quote of the day…


“Be open minded, but not so open minded that your brains fall out.”.…Groucho Marx





Chart du jour…US inflation expectations



“Jay In A Box…




OverviewAnd, we have lift-off…”

  • The November FOMC kicked off overnight, so the offshore narrative was fully focused on who said what, when and why. And, as a surprise to no one, the Fed formally announced it would begin reducing bond purchases by US$15bn per month (currently buying at a clip of US$120bn).  As for rate hikes, Fed Chair Powell said the time for rate hikes will depend on the economy (employment especially) and the Fed can be patient.
  • Market reactions to the statement were generally muted initially, suggesting much of what was said was expected and priced in. Stocks rose to new record highs and bond yields inched higher (+2 – 4 bps), while curves steepened (bear) a tad (+1.5bps).  Oil tanked, down over -4.0%, with the blame spread across a handful of factors…”the burgeoning standoff between OPEC+ and consuming nations, a chunky build in US crude stockpiles and the possibility of tighter monetary policies.
  • Specifics on the path of tapering…“the Committee will likely reduce the pace of asset purchases in further measured steps…asset purchases are not on a pre-set course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labour market and inflation as well as its assessment of the likely efficacy and costs of such purchases.
  • The Fed’s stance on inflation….”the statement could be interpreted as giving a little ground by saying things like inflation factors are “expected to be transitory” instead of referring to “transitory factors,” and of course they have kept the window open to speeding up tapering.  But the inflation bogeyman hasn’t disappeared, and bond markets are reflecting that.  Breakeven rates on inflation-linked notes have climbed, suggesting that the market is not entirely confident that Powell & Co. have a tight enough rein on consumer-price gains.” (Bloomberg).
  • Talking heads…”Powell was very careful not to make any missteps today, sticking carefully to his script that their focus is on tapering, not raising rates…that’s a shame, because interest rate hikes are all that markets want to talk about!”




  • Offshore Stocks – a muted reaction to the FOMC statement initially with the DOW (+0.3%) up only marginally, and the S&P 500 also up only a smidge post announcement.  As the day wore on, a late flurry saw the S&P 500 gain some ground, closing up +0.6%.  The NASDAQ had more of a spring to its step (+1.1%), while the EURO STOXX (+0.4%) reported modest gains.  On the day, just under two-thirds of the S&P 500 gained ground, as did eight of the eleven main sectors.  Energy (-0.8%), Utilities (-0.3%), and Industrials (-0.1%) were the sectors that failed to perform.  Leading the performers were Discretionary (+1.8%), Materials (+1.1%) and Staples (+0.9%). Given the advance in the S&P 500 it has once again closed at a new record high with some very frothy valuations, and relative strength indicators well into the ‘overbought’ domain, 72.9.  This is the third time this calendar year that the index has broken through the 70.0 ’overbought barrier.  The prior two times were in April, after which the index lost -3.2% within the next 30 days, and then again in July, after which the index lost almost -3.0% in the subsequent two weeks.  Relative to these two dates, the index is currently up +11.0% and +6.0% respectively.
  • Local stocks – a decent bounce in local markets yesterday with the ASX 200 poking its beak back above its 50-day moving average.  The bounce was reasonably broad based with ~70% of stocks gaining ground, and only one sector stumbling, Tech (-0.2%).  Materials (+1.4%) gained most, followed by Financials (+1.2%).  Most banks advanced firmly, with ANZ (+2.3%) leading, followed by NAB (1.4%) and CBA (1.2%).  WBC (+0.1%) on the other hand continues to lose favour with investors following reporting of their full year results.  NAB is next (and last) to report, November 9.  The ASX 200 is hovering around its 50 day and 100 day moving average, underperforming global peers, likely on the back of rising yields and inflationary uncertainty – although both are factors offshore also.  Over the past week the ASX 200 is down -0.8%, whereas offshore markets are up +2.0% – 3.6%, while over the past month the local index is uo just +1.6% vs +5.0% – 8.0% for peer indices offshore.  Futures are pointingt to modest gains (+0.4%) this morning.


(Source: Bloomberg)


  • Local Credit – trader talk…”two-way flow and evidence that recent spread widening is starting to catch the eye of domestic real money.  We retain the view that A$ senior supply before year end remains unlikely, however, we also have concerns that this very absence is contributing to the ongoing drift wider. Could it be that a domestic senior benchmark is what is needed to provide the circuit breaker? A well-received deal with strong participation from domestic real money may provide the clarity that appears absent at the moment…easier said than done, not least on the clearing level, with the situation conflicted further by the fact that the majors do not necessarily need the funding.  Regional banks adjusting to the moves on the major bank curve, the recent BQDAU 5yr deal continues to trade around dm+80 reoffer”.   Major bank paper drifted wider selectively yesterday, while in the tier 2 space it was a universal basis point drift wider across the curve.  From the traders…”better offered again as the market braces for new supply. As we intimated with seniors, we think new supply may actually help clean the air. Some nibbling nonetheless, particularly in the short calls.
  • Regarding the likelihood of a major bank senior deal this calendar year, we are also dubious.  Not necessarily because the banks don’t need the funding, and they don’t seem to.  But rather, funding remains cheaper offshore.  On a straight-line basis, major bank 5-year senior paper is pricing around +60 – 61 bps in local markets, perhaps a touch wider yesterday following the NAB Aug-26 widening to +60 bps.  Major bank US$ paper, with similar maturities, is swapping back around +50 bps on average, with WBC’s Aug-26 line, the closest maturity to NAB’s A$ Aug-26 line, swapping back around +53 bps, still 6 – 7 bps inside local markets.
  • Bonds & Rates – minimal follow on from Tuesday’s RBA statement, with yields across the curve dropping a couple of basis points.  Some commentary form CBA’s rate strategists yesterday…”we certainly felt for a long time that markets were overpriced but trying to fade that move was nigh on impossible given the mark to market risks. Now, as the dust settles, the outlook for the rates market should be seen that the RBA is coming around to the view of the market, but remains adamant that it doesn’t have the same inflation issues seen in other places. That’s true, as wages growth in Australia has not been as strong as expected. We get an update on that in a few weeks. Three hikes before the end of 2022 might still be generous, but it’s not likely to drift much lower than this.”  Offshore leads suggest a modest drift higher in yields today.


(Source: Bloomberg)


  • Local Macro – main data of note yesterday was building approvals.  Market was expecting a monthly decline of -2.0% MoM, instead it was -4.3% MoM.  “The detail was very much on the weak side with a spike in Sydney high-rise approvals the only thing preventing what would have otherwise have been a double-digit monthly decline.” (WBC).   Today we have Q3 retail sales, with consensus expecting a fall of -5.0% QoQ vs a +0.8% QoQ gain last month.
  • Offshore Macro – some additional commentary on the Fed statement (from NAB)…”a key takeaway from the FOMC statement is that the Committee are giving themselves flexibility to shift with incoming data – i.e. slow down or quicken the pace of taper and be more agile on the outlook for tightening (i.e. bring forward if data dictates – key being inflation, employment and wages). In his speech Powell notes that “should see inflation move down by Q2 or Q3” and that the Fed thinks they can be patient. He also noted that it is possible that “maximum employment could be achieved by 2H 2022”. These comments can be seen as a possible push back to market pricing for rate hikes before end 2022”.


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: 0.29%
MIF – Mutual Income Fund
Gross running yield: 1.38%
Yield to maturity: 0.89%
MCF – Mutual Credit Fund
Gross running yield: 2.69%
Yield to maturity: 1.82%
MHYF – Mutual High Yield Fund
Gross running yield: 4.91%
Yield to maturity: 3.98%