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Mutual Daily Mutterings


Quote of the day…

“A new study found that people who take their coffee black are more likely to exhibit psychopathic traits.  And, people who order a quad shot, non-fat, vanilla soy, extra foam, light whip with caramel drizzle are more likely to be their victims” – random mem






“Raise Cash, Short Tech




“Tobin Brothers…”




Overview…”Back from the brink”

  • Moves: risk on, but not convincingly… stocks , bond yields , curve , credit spreads , volatility and oil ….
  • Markets saw more gyrations last night than at an Elvis concert…when he was young and fit, not pasty and bloated. European markets gave the US a decent positive lead, but markets were all over the shop with the S&P 500 down -0.8% at one stage, only to stage a comeback and close with its head just above water as investors digested a range of Fed speaker’s comments. In the end a welcome bounce after some brutal sessions that has the S&P 500, and other indices, down -16.1% – 25.0% YTD.  US treasuries bull flattened, although moves were modest in the context of recent trading ranges.  Credit retraced a few basis points and oil fell on growth concerns.
  • Fed speak…ahead of tonight’s US CPI print, Fed officials reinforced Powell’s message that +50 bps hikes are on the table for the next two meetings (June & July), but larger moves could be warranted later in the year. Cleveland Fed President Mester reinforced this on the wires, “we don’t rule out 75 forever.” Also, New York Fed President Williams guided that the Fed “will move expeditiously in bringing the federal funds rate back to more normal levels this year.
  • Talking heads…”positioning in the market is obviously very light right now and liquidity remains very challenged, so it won’t take much to move things a lot. I’d probably attribute this move mostly to position squaring ahead of CPI tomorrow. People don’t want to be short ahead of what is widely seen as a likely soft CPI print and a resulting squeeze higher.”  And…”stocks will likely find a bottom when the Federal Reserve signals a pause in its tightening campaign, inflation shows signs of moderation or stock multiples become very attractive.
  • I made a comment the other day on risk to flow of credit declining, which was in reference to a Bloomberg article.  This from the new kids on the block, Barrenjoey, touches on that theme further…”the Fed’s Senior Loan Officer Opinion Survey (SLOOS) for April reveals tightening of financial conditions via less easy lending standards, and weaker mortgage and commercial real estate (CRE) loan demand.  We think these developments bring the economy perilously close to recession. While investors debate US recession risks, we expect falling mortgage demand will exert a negative influence on world industrial production (IP) growth momentum. As IP growth slows, we would expect inflation to come off its highs as commodity prices fall and some of the sting comes out of rate hike pricing. For equities, we could see downside risk to cyclical earnings and a cap on how high real yields could go, with both developments supporting quality factor performance.


The Long Story….

  • Offshore Stocks – decent gains across European markets, while US markets explore various layers of losses and gains.  In the end, the DOW closed a smidge lower (-0.3%), while the S&P 500 (+0.3%) and NASDAQ (+1.0%) gained ground.  As reflected in these respective moves, it wasn’t a convincing rally, driven primarily by tech stocks.  Within the S&P 500 more stocks fell than gains (58% vs 42%), and only four sectors closed higher.  Key amongst these for the greater good was Tech (+1.6%), followed by Energy (+0.9%), Telcos (+0.8%) and Healthcare (+0.3%).  At the bottom of the gene pool we had REITS (-2.3%), Utilities (-1.3%) and Financials (-0.8%).  Traded volumes were marginally up on recent averages.


  • S&P 500 Relative Strength Indicators…

Source: Bloomberg


  • Local Stocks – a down day yesterday, as expected.  The ASX 200 dusted -1.0% by the end of the trading session, although at one stage the index was down -2.6% in the first hour of trading.   Just under two-thirds of the index retreated and only one sector, Telcos (+0.4%), was able to advance.  Materials did all the damage, dropping -2.4%, accounting for two-thirds of the broader index’s decline.  Energy (-2.1%) and Utilities (-1.0%) rounded out the podium of shame.   Relative to recent trading patterns, the broader index is close to ‘oversold’.   However, given uncertainties around inflation, monetary policy and potential for tighter financial conditions to slam the breaks on growth, I doubt we’ll see any dip buying, nothing in scale anyway, and not yet.  Futures are down a smidge, -0.1%.


  • ASX 200 Relative Strength Indicators

Source: Bloomberg


  • Offshore credit – a slight sniff of constructive conditions and the floodgates burst open.  A dozen deals hit the market overnight in US IG land for a total of US$9.7bn priced.  “Despite a substantial backup in credit spreads Monday, borrowers forged ahead in what could be qualified as a tight funding window, riding the tailwinds of a constructive broader macro backdrop. After all, Wednesday’s April CPI print brings the possibility of an even harsher future funding landscape, encouraging issuers to execute sooner rather than later.” (Bloomberg).  While the volume was sizeable, issuers had to pay up with concessions more than 20 bps on average (vs 10 bps YTD average), although order books were reasonably robust at 2.9x (vs 2.8x YTD average).  Demand dropped 20% on average, from peak to final pricing.
  • Local Credit – drifting, drop the mic.  Traders reporting no change to existing themes from their perspective, a lot of investors just sitting on the sidelines with a virulent strain of aversion to risk.  Weakness across stocks and the volatility in rates isn’t helping the cause either.  In major bank senior paper we’re seeing spreads a basis point wider across the curve with 5-year at +97 bps, some +12 bps wide of long run averages (2012 – now) and 3-year at +77 bps.  Traders do note however that “we hear a handful of accounts are considering re-engaging around these levels.”  I would almost guarantee, with my first born as collateral, that investor tone would change should 5-year spreads crack the tonne.  Further down the capital stack and we’re seeing tier 2 drifting also, +2 – 3 bps across the curve.  The CBA Apr-27 (last deal done) is at +208 bps, while the 2026 calls are at +195 – 197 bps and the 2025 calls are at +185 bps.  We see value at these levels in tier 2, but at the same time recognise risk of overshoot on the way up remains given the uncertain risk backdrop and constrained liquidity conditions.  Having said that, we’re closer to the wides than not.
  • Bonds & Rates – some relief for long bond holders yesterday at the front of the curve with a modest rally.  The back end edged a smidge wider, but there was less than a basis point in it.  Three-year yields are at 3.0% (-4 bps CoD), down from recent highs of 3.12%.  Ten-year yields remain at their recent highs, 3.65%, as at close of trading, intra-day highs have been higher.  A punchy rally across European markets overnight, with GILTS -11 bps, OATS -10 bps and BUNDS -10 bps also.  US treasuries closed -5 bps out the back end (ten-years) at 2.99%, while two-years were inched a smidge higher, +1 bp to 2.61%, ahead of tonight’s CPI print.  Suspect local bonds will hover around existing levels today, perhaps yields will decline a touch.  No data of note due out and leads have been modest.


  • A$ Fixed Income Markets…

Source: Bloomberg


  • Macro – local retail sales…”quarterly retail volumes rose +1.2% QoQ in Q1, extending the +8.2% bounce in Q4 that came after the delta lockdowns in 2021. Real retail sales are now +10.7% above pre-pandemic Q4 2019 levels. Cafes, restaurants and takeaway food services had the largest rise in the quarter, up +8.3% QoQ to be +4.8% higher than Q4 2019. This is the first quarter that café/restaurant spending has returned to pre pandemic levels. Food retailing in contrast declined -1.5% QoQ, on the back of higher grocery inflation and a switch back towards in-person dining as seen in growth in café/restaurants.” (NAB)
  • Also…”while retail spending has remained strong, consumer confidence measures have fallen sharply and price inflation has accelerated. Today’s NAB Business Survey showed input cost pressures and retail price rises are at historically high levels, while according to the W-MI survey consumer attitudes to buying a major household item have fallen to their lowest level since August 2020. A slowdown in real retail spending is a clear risk to the outlook, though so far the evidence is households are continuing to spend. Business conditions in April well above average for retail, while there has been a sharp recovery in conditions for recreational and personal services.” (NAB)
  • In addition to US inflation, China CPI is due out today also…”Chinese lockdowns probably drove up the cost of food in April — and energy was more expensive — but prices of most other consumer goods were likely sluggish on weak demand, Bloomberg Economics said. Consensus is for CPI to pick up to +1.8% from +1.5%. The gain in factory gate prices may ease to 7.8% year on year from 8.3% as cement and some metals costs slowed. New lending and money supply numbers may also come.” (Bloomberg).  Back to US inflation, “CPI will probably slow to 8.1% as durable goods prices steadily decline, offsetting strong gains in core services. It’s still not enough to keep the Fed from hiking by 50 bps at each of the next two meetings, according to Bloomberg Economics. Joe Biden said he’s weighing tariff cuts on foreign imports to try to fight inflation.” (Bloomberg)


  • 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: 0.50%
MIF – Mutual Income Fund
Gross running yield: 1.57%
Yield to maturity: 1.66%
MCF – Mutual Credit Fund
Gross running yield: 2.85%
Yield to maturity: 2.44%
MHYF – Mutual High Yield Fund
Gross running yield: 5.93%
Yield to maturity: 5.89%