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Mutual Daily Mutterings

Quote of the day…


“I choose a lazy person to do a hard job.  Because a lazy person will find an easy way to do it”– Bill Gates







Chart of the day…offshore credit spreads drifting…




“The Old Ball And Chain…




Overview…”pressure building…”

  • A mixed trading session across Northern Hemisphere markets on Friday evening our time.  European markets closed in the red, still coming to terms with the recent hawkish tilt, which was enough to put markets into a bit of a tizz.  US markets opened a little unsure of themselves, but then stronger than expect payrolls got the party started and the S&P 500 and NASDAQ clawed back a smidge of their recently lost ground.  The DOW was a little ‘woe is me’, sitting all solemn like in the corner.  Credit spreads, offshore, continue to drift wider – local spreads on the other hand are showing some old-fashioned ANZAC resilience…for now.
  • US treasuries were smacked around the chops with a week-old rancid fish.  Two-year yields were +11 bps wider to 1.31% and ten-year yields were +8 bps wider, reflecting further adjustment to rate hikes expectations following the aforementioned ECB and BOE headlines, and also US jobs data that showed a surprisingly strong labour market.  Both the 2’s and 10’s are just 5 – 8 bps short of their pre-pandemic levels.
  • US payrolls came in at a three-month high as employers added more jobs than forecast last month despite a surge in COVID infections and related business closures. Average hourly earnings also increased more than anticipated, but they failed to keep pace with inflation again.
  • The week ahead includes US inflation data (Thursday) which is expected to do little to dissuade the Fed from starting its tightening cycle.  Consumer prices are forecast to jump +7.3% YoY, up from 7.0% in December, while holding at +0.5% MoM.  I was in 5th grade the last time US CPI was at +7.0% or higher (1982).   For comparison, AU CPI at the time was in double figures, at +10% – 12%.  In local data this week we have retail sales (consensus at +7.8% vs -4.4% prior), NAB Business Conditions and Westpac Consumer Confidence.
  • US Q4’21 reporting has passed the half-way mark (56% reported), with aggregate sales growth of +16.2% on the pcp, and aggregate earnings growth of +27.1%.  Some 84% of companies have reported sales growth, while 79% have reported earnings growth.  No sector left behind at this stage, in aggregate.  Q1’22 growth rates are expected to moderate given base effects and normalisation of economic conditions and spending patterns (post initial post lock-down surges).


The Long Story….

  • Offshore Stocks – while it was a positive session across most US markets, it wasn’t a broad-based rally with only 43% of the S&P advancing (obviously 57% retreated).  Discretionary (+3.7%) did much of the heavy lifting, which was in turn underpinned by strong gains in Amazon (+13.5%), Etsy (+5.3%), and eBay (+3.7%).  Financials (+1.7%) played their part in supporting markets, while Energy (+1.6%) also gained ground.  Down the back of the bus, we had Materials (-1.7%), REITS (-1.3%), and Staples (-1.2%).  Futures are in the green, just for the DOW, while the S&P 500 and NASDAQ are signalling decent openings.
  • Local Stocks – a rebound in US stock futures through the day on Friday our time put a bit of a spring in local markets step.  Towards market’s close, NASDAQ futures were up +2.0% (vs -3.7% down in actuals the night before) and S&P 500 futures were up +1.2% (vs -2.4%).  Consequently, the ASX 200 advanced +0.6%, with contributors evenly balanced, although Financials (+0.8%) delivered the best weighted return for the day.  Tech (+1.1%) and Industrials (+1.1%) topped the league tables for fastest growth on the day.  No sector failed to advance, although Telcos were flat.  While US futures were in the green, European were in the red, which has the ASX 200 looking to open around -0.6% down.





  • Local Credit – from the traders…”a renewal of cross market volatility with offshore rates and equities projecting onto the local landscape.  We expect this volatility to persist with the picture clouded further by the expected onset of primary supply. Spreads remain resilient, we remain in a tight range and whilst secondary flows remain light, we have not seen any exodus or material shift in investor strategy.”  Specifics…major bank senior paper was unchanged on the day, although a modest flattening of the curve over the week (by 1 – 2 bps) could tweak the interest of some bank treasury teams (i.e. the prospect of some supply perhaps?).  The recent 5-year lines are averaging +66 bps (-2 bps on the week), while the 4-year and 3-year lines dropped a basis point to +57 bps and +43 bps respectively.  In the tier 2 space, a bit all over the place on the day, some up a smidge, some tighter a tad, but on the week, +1 – 2 bps wider in general.  Street inventories still a touch on the full side.  The 2026 callable cohort is ranging +139 – 143 bps, while the 2025 cohort is at +131 – 135 bps and the 2024’s at +97.5 bps.
  • Offshore credit – I’ve just lifted a snippet from Bloomberg here, on rising high yield stress, which to date has not influenced local credit markets.  Nevertheless, historically there as been a reasonably frequent occasion where local spreads throw the toys from the cot when offshore high yield spreads widen…”Inflation Worries Are Taking a Toll on Credit Markets: The iShares High Yield ETF is now at its lowest level since September 2020, demonstrating how expected rate hikes are beginning to amp up worries about credit stress. This continues to pressure a market that lost -2.73% in January, the worst January ever.  Yields are still low by historical standards. For example, yields in the late 2018 selloff were 5 percentage points higher for CCC rated bonds than they are today. Nevertheless, the stress is spreading. It hasn’t been this expensive to buy credit-default protection on U.S. bank in derivatives markets since June 2020.
  • Bonds & Rates – following on from some hawkish comments out of the ECB and rate hikes by the BOE last Thursday evening our time, local bonds were offered with a meaningful spiked in yields and a modest bear steepening of the curve.  It’s unlikely we’ll see any easing up today given Friday’s moves.  It’ll be another interesting day in the bond trenches today.  Rising yields aren’t all bad though.  Over the past few years there has been a lot of discussion around the volume of negative yielding debt in the world (mainly EUR), which peaked around US$18 trillion.  It dropped US$2.8 trillion last week alone, and is down to ‘just’ US$6 trillion, levels last seen in four years ago.  To quote the understatement of the year, at least for credit people…”this is excellent news for anyone who thinks you should be paid to lend money.”  Floaters are the way to go…just saying, again.





  • Offshore Macro – I’ve borrowed some words from NAB here (selectively), mainly because they referenced Shaggy (the singer, not Scooby Doo’s offsider….”In the words of Shaggy, the January US nonfarm payrolls report was nothing but Boombastic! In addition to the much better than expected January print of 467K new jobs vs a consensus of 125k and a very wide range of estimates from -400k to +250k, the release also revealed net revision to the previous three months of an additional 709K new jobs, amazing!  The US Labour Department noted that payrolls might have been even stronger if not for the surge in Omicron cases with nearly 2m workers unable to look for work last month because of the pandemic. While some analysts have highlighted the sharp declines in high frequency data over January could imply some payback will be due in February, overall it is hard to disagree with the assessment that the US economy and its labour market are currently exhibiting big resilience and strong momentum.
  • Local Macro – the RBA released its Statement of Monetary Policy on Friday, which included revision to their forecasts, although most of these were referred to earlier in the week when Guvna Lowe spoke at the National Press Club.  Underlying inflation is now expected to peak at 3.25% in June 2022 before falling back to 2.75% by the end of the year – compared to the 2.25% which was forecast to hold throughout 2022 in the November Statement.  The outlook for 2023 is for underlying inflation to hold at 2.75% throughout compared to a gradual increase to 2.5% in the November SOMP.  The Wage Price Index (WPI) is forecast to lift by 2.75% in 2022 (compared to 2.5% in November SOMP) while still “only” reaching 3.0% increase in 2023, as in the November forecasts.  The forecast for 2021 WPI increase is 2.25%.  The unemployment rate is forecast to reach 3.75% by end 2022 compared to the November forecast of 4.25%- that will be the lowest unemployment rate since the 1970’s.   That record low rate is forecast to be sustained through 2023 yet wages growth only lifts from 2.75% in 2022 to 3% in 2023, (the same pace as in the November forecasts despite the much lower trajectory for the unemployment rate.)  Employment growth is forecast to lift to 3.5% from the November forecast of 2.75%.  Strong underlying demand is certainly signalled by the GDP forecast which although lowered from 5.5% to 4.25% in 2022 is mainly because 2021 growth has been lifted from 3% to 5%.  Most strategists in the market are still calling rate hikes in the second half of this year given these forecasts.
  • Charts…





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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: 0.31%
MIF – Mutual Income Fund
Gross running yield: 1.37%
Yield to maturity: 1.00%
MCF – Mutual Credit Fund
Gross running yield: 2.73%
Yield to maturity: 1.90%
MHYF – Mutual High Yield Fund
Gross running yield: 5.04%
Yield to maturity: 4.23%