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Mutual Daily Mutterings


Quote of the day…

“How is education supposed to make me feel smarter? Besides, every time I learn something new, it pushes some old stuff out of my brain. Remember when I took that home winemaking course, and I forgot how to drive?” – Homer Simpson







“Snail In The Coffin…




“Lettuce is the new truffle…”




Overview…”growth concerns are,…well growing!”

  • Moves: risk off… stocks , bond yields , curve , credit spreads , volatility and oil ….
  • A sideways bent for much of the US trading day, in stocks, down a touch, not too much, but then in the last hour of trading it all went to custard and markets charged headfirst over the cliff.  Algos to blame by all accounts.
  • Growth concerns were in focus as the ECB joined the burgeoning ranks of central banks around the world to head down the tightening path.  Strange to peg the move on the ECB, which seems to be the case across the offshore narrative.  The ECB was expected to table its tightening agenda, which it did, indicating its preparedness to hike by +25 bps next month, and again in subsequent months as required.  QE will also cease within the month.  Economic forecasts from the ECB are signalling a weaker rebound from the pandemic and inflation above target in 2024.
  • Oil slid lower as renewed lockdowns in parts of Shanghai could dampen global fuel demand and ease pressure on tight markets.  Bond yields moved higher, particularly across European bond markets were 10-year yields were +7 – 10 bps higher in key markets, while in US treasuries edged higher also, holding firm above 3.0%.  Cash (credit) markets remain resilient in the face of broader uncertainty with spreads drifting wider, but only modestly.
  • Talking heads…”if the ECB are even considering an outsized rate hike, I think that sort of says quite a lot about how concerned central banks are and should be about levels of inflation.  Central banks are showing a willingness to act aggressively to get inflation back under control, and that is going to make the growth environment much more challenging.” Nevertheless, the ECB is lagging offshore peers by a good couple of months despite inflation running hot at +8.0% YoY
  • One more…”to rein in surging prices the Fed has to increase rates, which can result in a recession. However, the pandemic-induced supply-chain shock and the Ukraine conflict are beyond the central bank’s control. In this environment we need to be lucky to avoid stagflation that could last for a long time.”
  • Tonight, it’s all about US CPI with consensus at +0.7% MoM (vs +0.3% MoM in Apr) and +8.3% YoY (unchanged).  The FOMC is also next week.


The Long Story….

  • Offshore Stocks – all the action came in the last hour of trading with selling accelerating with early volumes light – suggesting traders were sitting on their hands ahead of tonight’s US CPI print, and FOMC rate decision next week.  Many likely not willing to place any meaningful bets until the trajectory of interest rate hikes beyond next month is known.  Most of the day’s volatility appears to have been driven by algo program traders.…”the TICK Index — which represents the number of NYSE securities trading on an uptick minus number trading on a downtick — drifted lower in the afternoon, hitting session lows 10 min before the close. It may indicate some algorithmic activity ahead of a CPI report, which may surprise to the upside.”  In the end, 95% of stocks in the S&P 500 retreated, and no sector got out the gates.  Telcos (-2.8%), Tech (-2.7%) and Financials (-2.6%) did all the damage, while the best of the worst was Staples (-1.5%), Discretionary (-2.0%) and Industrials (-2.0%).
  • Local Stocks – down -1.4%, led by the ASX 200’s two largest sectors, Materials (-2.2%) and Financials (-2.1%), and only one sector gaining ground, Energy (-0.6%).  All told, 83% of the index fell on the day.  Major banks again taken behind the woodshed for the old “trousers down, six of the best across the bare buttocks.”  I was watching CBA’s share price intra-day out of morbid curiosity and while it closed down -2.6%, intra-day it was swimming in a sea of blood, down as much as much as -4.9% in the first hour or so.  Most banks were belted, not just CBA…it just happened to be the one I was watching….in fact it wasn’t the worst of the majors, that honour goes to WBC (-3.7%), followed by BEN (-3.4%).  No one was really spared the ‘whoopin’ with NAB (-2.3%) and ANZ (-2.3%) in amongst it also.  The ASX 200 Bank index is down over -10.0% over the past week with relative strength indicators signalling the sector is ‘oversold’.  Futures are signalling a weak opening (-0.8%).
  • The headwinds for banks have been well covered over recent days, and yes there are some uncertainties and challenges, but personally I think the sell off is overdone.  Not to say they’ll bounce back, they won’t, not today at least given offshore leads, but I’ve learned to see these sharp pull-backs as long-term buying opportunities…but you need patience.



  • ASX 200 Banks relative strength indicators…

Source: Bloomberg, Mutual Limited



  • Offshore credit – muted supply in US IG ahead of US CPI data and next week’s FOMC meeting, while the action in US HY was a little more aggressive as issuers looked to price deals ahead of CPI and the FOMC on the belief that yields will spike post both.  Cash spreads drifted a couple of basis points wider. In synthetics, CDS is +3 – 4 bps wider across the core indices, while in Senior Financials CDS is +3.5 bps and Sub Financials are +5.5 bps higher.  Despite the sell off in stocks and rising bond yields, cash spreads are 5 – 10 bps tighter over the past 30 days and showing good resilience amidst conflicting macro cross-winds (inflation vs growth vs policy tightening).



  • Cash spreads proving somewhat resilient to volatility elsewhere…

Source: Bloomberg, Mutual Limited



  • Local Credit – trader’s EOD thoughts…”another constructive session with an uptick in volume, especially across the OpCo space. Cash spreads continue to grind tighter, with flows skewed towards offers wanted…and thinner liquidity in the Tier 2 space following an active session yesterday, with clients still bidding bonds.”  I’m seeing the WBC May-27 senior line quoted at +98 bps on Bloomberg, so -7 bps to issuance and so far, supporting my “the market has peaked at +105 bps” call.  Never mind the fact that I said the same thing at +100 bps, that was just a warm up.  NAB’s May-25 senior line is quoted at +82 bps, -8 bps to issue levels.  In the tier 2 space, CBA’s Apr-27 call is quoted at +210 bps, largely unchanged.  Major bank senior curve for 5-year paper is at +104 bps, suggesting any new deal would likely come around +107 – 110 bps, while the 3-year level is +78 bps and inside the curve, so need to add a bit for primary, say +85 – 87 bps.



  • Major bank 5-year vs Bloomberg AusBond Credit FRN Index…and Major bank senior curve…

Source: Bloomberg, Mutual Limited



  • Bonds & Rates – ACGB’s continue to adjust to the RBA’s more hawkish policy stance with yields pushing higher and curves bear steepening.  In recent past I’ve call any 10-year yield above 3.50% as buying territory given growth concerns, which at the time was appropriate and proved profitable.  I’m less enamoured with that call at this stage – I still think it’s the right call, but if I overlay market psychology and broader terchnicals, there is scope for yields to run higher over the near term given expectations around future rate hikes.  Safest at this stage to stay on the short side of duration.  Offshore leads are slightly bearish with treasuries drifting higher again.  All eyes will be on tonight’s US CPI, which I’ve touched on below.



  • Terminal cash rate – market vs consensus…

Source: Bloomberg, Mutual Limited



  • A$ Fixed Income Markets…

Source: Bloomberg



  • Macro – US inflation data is due out this evening with another bumper number expected, +8.3% YoY, flat to the prior month.  Monthly CPI is expected to come in at +0.7% MoM, well ahead of April’s +0.3% MoM reading.  Many respected market watchers are predicting that US inflation has yet to peak, which is easy to agree with given all the evidence.  As a consequence, the Fed is likely needs to hike rates, with multiple (3 – 4) +50 bp moves, and will likely have to tolerate a recession – according to some, other’s have more faith in the Fed and assign a reasonable probability to a soft landing.  The consensus outlook (median) for CPI doesn’t necessarily support these comments, with consensus picking Q2 this year as the peak, at +8.0%.  The same pool of economists predict CPI will be back under +3.0% YoY (+2.7% YoY median) by the end of 2023….possible given base effects, CPI wont keep going at +8.0% year on year….will it?  The same pool of economists forecast GDP slowing to +1.8% YoY.  Only 4 out of 64 surveyed economists are predicting recession, and those that do expect it to begin as early as Q1’23.
  • If you’re wondering how US CPI compares to AU CPI, see chart below…



  • US CPI vs AU CPI…

Source: Bloomberg, Mutual Limited



  • Charts:

Source: Bloomberg, Mutual Limited



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: 0.78%

MIF – Mutual Income Fund
Gross running yield: 2.07%
Yield to maturity: 1.78%

MCF – Mutual Credit Fund
Gross running yield: 3.34%
Yield to maturity: 2.99%

MHYF – Mutual High Yield Fund
Gross running yield: 6.00%
Yield to maturity: 6.02%