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Mutual Daily Mutterings

Quote of the day…


“As yesterday’s positive report card shows, childrens do learn when standards are high and results are measured”… George W. Bush on education







Chart du jour…US CPI vs 10Y Yields

Source: Bloomberg, Mutual Limited


“Full Moon…




Overviewslow out of the blocks…”

  • A sluggish start to the week for offshore markets, but they did enough for stocks to halt their recent slide.  News and data flow was relatively muted.  Stock gains were hardly convincing with the intra-day lead changing multiple times, before the core indices finally closed with their noses slightly above water.  Energy companies smashed it, leading all comers as oil prices extended its rally to a six-week high.  OPEC has predicted stronger oil demand on a combination of rising global fuel consumption and output disruptions elsewhere.  Bonds yields retreated a few basis-points
  • US CPI out tonight, with today’s wishy-washy performance in stocks suggesting some last-minute positioning.  The Fed has the taper bullet chambered and has its finger twitching over the trigger, just waiting for the right moment to fire.  Traders will use CPI data to assess expectations about the timing of stimulus withdrawal and interest-rate hikes, and position accordingly.
  • Last night’s action in markets, specifically the S&P 500, was counter to my expectations.  Not to say markets were wrong, markets are never wrong, I was wrong.  For now.  Rather, given recent trends around option expiries and other building headwinds, I expected some continued softness in stocks.  Although, it was a close thing with markets oscillating between gains and losses on the day.
  • US Fiscal update…”House Democrats slimmed down Biden’s tax proposals. They’re seeking a top corporate tax rate of 26.5%, up from 21.0%, but short of the 28.0% the president sought. They also want to raise the top rate on capital gains to 25.0% instead of 39.6%, and seek a 3.0% surtax on the wealthiest individuals. New cryptocurrency and tobacco taxes are also part of the plan” (Bloomberg).
  • Talking heads…”since the beginning of last week, realism has started to set into global equity markets as a long list of shocks percolate through the markets leading to an accelerated slowdown in economic activity in the US, a more subdued rebound in Europe and an unknown slowdown in China where the regulatory crackdown and its impact on investments are yet to be measured.”


  • Offshore Stocks – the DOW performed best of the US indices, up +0.8%, while the NASDAQ lagged, down -0.1%.  The S&P 500 split the difference, closing somewhere in the middle with just under two-thirds of its stocks advancing.  Energy (+2.9%) led from the front, followed by Financials (+1.1%) and REITS (+0.5%).  Only two sectors failed to fire, Health (-0.6%) and Utilities (-0.2%).  On the option narrative that I’ve been harping on about, I found this nugget on Bloomberg yesterday…”when comparing put-call ratios for equity and stock-index contracts…options show there’s plenty of love for equities, but not necessarily the indexes. Less than one put option changed hands for every two call options in the 20 trading days as of Thursday (last week). For index options, the comparable 20-day average exceeded 1.6 puts for every call. The resulting gap between the ratios was the widest since August 2007.”  On the outlook for the S&P 500, some street analysts have been tweaking their outlooks, the latest being RBC…they’ve revised their end of year target to 4,500 from 4,325.  Optically, it’s hardly a stretching call given the index is at 4,468 at the moment. Nevertheless, what does offer some interest, especially to someone like me who see’s monsters under the bed, is that RBC also expect a major pullback is on the horizon. They also said that’s the dip you want to buy.
  • Local stocks – a bit of a bounce yesterday following last week’s softness.  It wasn’t overly convincing though, with an equal number of stocks retreating as advancing.  Energy (+1.3%) and Materials (+1.0%) did the heavy lifting, with Discretionary (+0.6%) ably assisting.  At the other end of the tables, REITS (-0.4%), Tech (-0.3%), and Financials (-0.1%) tried their best to bring markets back down a peg, but failed.  While offshore markets finished largely in the green, it was hardly a convincing rally, which is reflected in local futures.  A modestly soft open is on the cards this morning.



(Source: Bloomberg)




  • Offshore Credit – US IG primary markets picked up where they left off last week with another 13 borrowers pricing US$18.8bn overnight, bringing the September tally to US$98.8bn from 70 borrowers in just six active sessions.  Despite the heavy primary load, secondary spreads have shown considerable resilience, largely unchanged on the day and a couple of basis points tighter over the week and month.  CDS was mixed, but very mildly so with key indices within a basis point or two of 3-month lows.
  • Local Credit – traders comments….”mild pressure mid-week on Major Bank Snr as ongoing selling in the mid curve, however Offshore Financials remained well supported due to both the spread pickup vs Major Bank Senior and the RV vs offshore issues on a XCCY basis”. And this on the APRA CLF changes last week…”a muted response from real money investors, with activity focused in the interbank market”.  On the outlook for major bank spreads “given the low levels of major bank supply in the last 18 months, we believe any widening in 2-3 year spreads will be anchored by cash fund interest. Any impact to spreads may come at a later date if and when Major Banks return to funding markets on a regular basis. Currently in the 4-5Yr bucket sits a lonely NAB 5Yr 2026 bond, which traded as wide as +42 bps on the day, from a new issue print of +41 bps and a low print of +38 bps”. Volatile in the context of recent tight trading ranges, but not really going to have a meaningful impact on valuations.  I’m increasingly sanguine on the consequences of APRA’s announcement, certainly not enough to materially change our positioning.
  • Bonds & Rates – a decent sell-off in local bonds with 10-year yields rising +5 bps to 1.277%, which is the level consensus expectations had pegged for the end of the quarter, so two weeks early.  Let’s see if it can hold around these levels or, we have an overshoot, or even an undershoot.  Much will depend on macro data prints and monetary policy changes.  If US CPI data kicks up a notch, and the Fed provides more clarification around its tapering intentions at its September 22 meeting, then we could see an overshoot (my base case).  On the RBA’s tapering activities…from CBA’s Daily Wrap yesterday…”the RBA bought only $A1.6bn of the Nov 24 to Nov 28 ACGBs.  The first reduced tender was last Friday and so far the tapering seems of curiosity value only.  There has been little noticeable effect on pricing.”  Treasuries bull flattened last night (long end yields fell faster than front end yields) ahead of tonight’s inflation print.




(Source: Bloomberg)




  • Offshore Macro – the main event over the next day is US CPI data.  While August consumer prices are expected to moderate a tad, rising +5.3% YoY after July’s +5.4% YoY advance, they remain elevated and leaves Fed Chair Jerome Powell and his monetary policy setting crew wrestling with high prices and subdued job’s growth.   Core CPI is seen slowing to +4.2% YoY from +4.3% YoY.  A key component to watch is housing costs, which has been garnering more attention in the narrative.
  • Local Macro today we have house prices and NAB Business data, both out at 11:30am.  On the former, consensus is expecting +6.2% QoQ (vs +5.4% QoQ last) and +14.0% YoY (vs +7.5% last).  I doubt this will be market moving, although as I’ve put my Sydney house on the market, the higher the better.  Also out today is NAB Business Conditions and Confidence indices.  Conditions are running slightly ahead of average, although readings over the past year have been all over the shop for obvious reasons.  The confidence index is in the red, negative, again for obvious reasons.






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: 0.26%
MIF – Mutual Income Fund
Gross running yield: 1.40%
Yield to maturity: 0.74%
MCF – Mutual Credit Fund
Gross running yield: 2.51%
Yield to maturity: 1.59%
MHYF – Mutual High Yield Fund
Gross running yield: 7.33%
Yield to maturity: 5.51%