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Mutual Daily Mutterings

Quote of the day…


“My career was sputtering until I did a 360 and got headed in the right direction.”.…NBA guard Tracy McGrady…obviously a trig0nometry major at college







Chart Du Jour…US CPI vs rates…




“Zero To Hero…And Back Again




OverviewHolding fast, for now…”.

  • The S&P 500 is on a ‘heater’, a hot streak, the likes of which we haven’t seen since 2017.  The index clocked up a new record high overnight, and while the NASDAQ was up also, it would have been higher if not for being dragged down by Tesla (-4.8%).  The stock came under some selling pressure after its founder and major shareholder, Elon Musk, ask his Twitter followers if he should sell 10% of the company.  They said yes.  Not to worry, he can afford the marked to market losses. Tesla is up +170% over the past year with a market cap in excess of a trillion.  The company is the third largest within the NASDAQ, trading on a LTM PE of 375x, or 190x on a forward basis.
  • The narrative behind the general buoyancy across US stocks was the lingering after flow of a reasonably robust reporting season, last week’s strong hiring data, approval of Biden’s infrastructure spending bill, and continued improvement in COVID treatment methods.  Broadly, companies set to benefit from a normalising world and economic reopening, benefited most on the day.  Potential speed-humps to upend the apple cart is largely centred around policy error, although at this stage there is no evidence of a taper tantrum.  Nevertheless, bond yields edged higher ahead of tonight’s US PPI and tomorrow’s US CPI.
  • Talking heads…”fear over inflation and supply chain headwinds have been replaced by fear of missing out in the record-high rally.  Robust demand and economic momentum continue to drive earnings growth. Coronavirus concerns have also dissipated amid vaccine developments and widespread inoculation rates”.  Ah, FOMO is back.  In other markets, oil advanced as markets weigh up the odds of a release of crude from the US’s strategic reserves after OPEC+ thumbed their noses at a plea from President Biden to boost supplies.
  • Fed speakers were out and about ahead of US CPI…James Bullard (a known hawk) signalled that in his mind the Fed may have to “end the taper somewhat sooner” to control inflation.  He has two hikes pencilled in for next year, which is where the market is at. Richard Clarida was more circumspect, saying the “necessary conditions” to raise rates will probably be in place at the end of next year.  Patrick Harker doesn’t expect any tightening before tapering ends “but we are monitoring inflation very closely.” Others to speak later in the weak.



  • Offshore Stocks – modest gains across the board in US markets, while European stocks edged lower.  Within the S&P 500 it was an even split between the winners and losers at the stock level, while across the main sectors, more gained than retreated.  Materials (+1.2%) led, followed by Energy (+0.9%), and Tech (+0.6%).  Utilities (-1.5%), Discretionary (-1.4%) and Staples (-0.9%) brought up the rear.  Relative Strength Indicators at 77.0 are thumping the table and screaming ‘overbought.’  Valuations are elevated vs historical averages, with forward PE’s at 22.7x vs 17.7x pre-pandemic averages.  But, there is some explainable rationale for these elevated metrics…talking heads…”equity markets continue to ride the wave of retail flows, seasonal strength and institutional FOMO. While this is very much in line with our thinking over the past few weeks, we have been surprised once again at the magnitude and speed of the move higher,” yep, agree with that, but I don’t like it. I think there is some downside risk here, especially if PPI and CPI surprise to the upside.
  • Local stocks – a slightly softer session in local markets yesterday with more stocks down than up, just.  Sectors were almost evenly balanced with Energy (+2.0%) at the top, followed by Industrials (+1.0%) and Materials (+0.6%).  Meanwhile, bound and gagged in the cellar we had Tech (-1.7%), Healthcare (-1.2%) and Telcos (-0.8%).  Futures are pointing to very modest gains.
  • Offshore Credit offshore issuance was solid, with US11bn of IG paper priced, including a US$5.5bn five-tranche deal from Westpac – discussed below.  Note, the ‘At a Glance’ table above shows US Fin (OAS, bps) at +84 bps, up +19.4 bps on the day.  I suspect this is a fat thumb situation at Bloomberg, or there has been a signficiant change to the index.  The move is certainly not reflective of what’s happening in the market.
  • Local Credit – we’ve been quietly beating the drum that we won’t likely see any A$ senior issuance from the majors over the remainder of the year.  Supporting this call, WBC announced a new USD mandate for senior and sub paper, which priced last night.  It was a five-tranche deal, including a fixed and floating 3-year senior leg (US$1.25bn & US$750m respectively), a 7-year fixed senior leg (US$1.25b), a 15-NC-10 sub leg (US$1.25bn), and lastly a 20-year sub bullet (US$1bn).  All up, US$5.5bn or A$7.4bn, including A$3.0bn of tier 2 paper, which is about three-quarters of WBC’s stated yearly requirement.  I expect the balance will come via A$ issuance.  The decision to hit the US$ market makes sense from the bank’s perspective, US$ is cheaper despite recent increases in the basis (10Y +15 bps over the past month or so).  Prior to launching, WBC had a Feb-25 US$ line that was swapping back at +31 bps, vs the existing pre-pandemic A$ Jan-25’s, which are pricing around +45 bps (-2 bps yesterday).  Further, if you look at WBC’s maturity profile there is a meaningful gap in the bank’s FY’25 maturity profile, so the three-year maturity also makes sense.  For FY’22 through to FY’24 WBC has $27bn, $38bn and $40bn of maturities, much of which will be TFF related, whereas FY’25 has only $13bn of wholesale maturities.  The new 3-year lines launched at T+50 bps (SOFR equivalent for FRN), and priced at +30 bps, which swaps back at around +30 – 32 bps depending on when the deal actually priced.  Either way, still very cheap funding vs A$ markets.  The 15-NC-10 priced at T+153 bps (ASW+193 – 195 bps) and the 20-year bullet at T+123 bps (ASW+150 – 152 bps).  That’s not a typo either, long-dated bullets of this nature are popular with US life companies for ALM purposes, generally pricing inside shorter dated callable lines.  They’ll go in the bottom draw and rarely see the light of day.  The other three majors will be looking at the success of this deal and could also be staring longingly at the US market, ignoring A$ funding for the near term. Accordingly, I’m calling the top in major bank A$ spreads for this cycle.
  • Bonds & Rates – given the leads provided by treasuries, ACGB’s did as we expected yesterday, putting in a decent rally, -6 bps on average across the curve as the market continued to adjust its rate hike expectations – in turn following some dovish cooing from the RBA last week.  Today, however, we’ll probably see a sell off following a +4 bps increase across treasury curves last night.



(Source: Bloomberg)



Offshore Macro – US PPI out tonight with markets expecting core PPI of +0.6% MoM vs +0.5% MoM in September.  Annual PPI is expected to be up an eye-watering +8.6% YoY, flat on September’s run-rate, but running at 10-year highs and 4x average. CPI is out tomorrow night with markets forecasting core CPI of +0.6% MoM (vs +0.4% MoM in September), or an annual growth rate of +5.9% YoY (vs +5.4% last month), or 30-year highs.  Ex-food and energy inflation is running at an annual rate of +4.0% to September, and is expected to advance to +4.3% YoY as at the end of October.  The biggest debate in markets at present is whether inflation is transitory and short-lived, or something more sustained and entrenched.  Team transitory gained a supporter overnight with Citigroup putting their chips on black.  Citi’s strategists are recommending investors start prepping for the other side of the inflationary trade, specifically “investors should consider reallocating their money into sectors that are negatively correlated with changes in consumer prices, the bank’s strategists say. They admit their call is a bit contrarian with most on the Street focused on present-day supply-chain snarls that have led to a global shortage of goods and pushed prices on everything from computer chips to construction equipment higher”.





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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: 0.29%
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%