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Mutual Daily Mutterings

Quote of the day…


“Why do psychics have to ask you for your name?…” – Steven Wright








Chart Du Jour:  US breakevens…








OverviewLimited news flow, and a volatile week…”.

  • News and events were limited on Friday, although there was some focus on University of Michigan sentiment data, which undershot consensus estimates.  Consumer sentiment fell from 71.7 to a decade low of 66.8 in November (survey: 72.4). The number of job openings fell by 191K in September to 10.4 million (survey: 10.3 million). The number of Americans voluntarily quitting (the quit rate) rose by 164K in September to a record high of 4.4 million.  Nevertheless, risk assets drifted higher, onwards and upwards on the day with solid gains across US stocks – volumes were light, while bond yields did not much at all.
  • Over the week, however, US stocks closed modestly in the red – breaking a five-week streak of consecutive gains, while European stocks trended in the opposite direction (the sixth straight positive session).  The Europe STOXX 600 is now sporting ‘overbought’ relative strength indicators and ripe for a modest pull-back.   Bond yields globally reflected rising inflation concerns, +5 – 7 bps, with a meaningful steepening of curves.
  • Talking heads…”the risk-on trading stance remains, however, markets are likely to remain volatile as investors will need to have more clues on where both the economy and monetary policies are going.” And… “inflation concerns have moved into the pole position for investors and will likely stay there for the next few months.  The +0.9% rise in the consumer price index last month could be followed by similar readings in November and December. It’s holiday shopping season, and consumers are flush with cash and willing to pay up. And the post-Delta wave increase in airfares, hotel prices, and travel categories still hasn’t kicked in.”
  • Fed speak…despite last week’s surprise upside surprise to CPI data, Fed of Minneapolis President, Neel Kashkari is warning the Fed not to overreact to elevated inflation even though the pain on households was real.  He again referred to “temporary factors” in his rhetoric.   Former Treasury Secretary, Lawrence Summers, on the other hand said “inflation’s momentum has built up to a point where it’s going to take some significant policy adjustment or some unfortunate accident that slows the economy before inflation gets back to the 2.0% range”.  Despite the official insurances that they have the situation in hand, I’m increasingly of the view the Fed is behind the curve.


  • Offshore Stocks – a positive end to a negative week with all key US indices clawing back some of their weekly losses, which were in themselves, modest.  Just under two-thirds of the S&P 500 advanced on Friday, led by Telcos (+1.6%), Tech (+1.2%) and Industrials (+0.8%).  Only two sectors floundered, Energy (-0.3%) and Utilities (-0.2%).  On the week, Materials (+2.5%) did most of the heavy lifting, with Healthcare (+0.6%) a distant second.  Discretionary (-3.2%) and Energy (-1.7%) did most of the damage on the downside.  At risk of sounding like a broken Mariah Carey Christmas Carols record, valuations remain frothy.  S&P 500 forward PE’s are north of 22.5x, which is +1.0x over the past month despite mounting inflation concerns.  Pre-pandemic historical averages are in the order of 19.0x.  The higher growth NASDAQ is sporting a forward PE of 34.5x vs a pre-pandemic historical average of 22.2x, so even frothier than the S&P 500.  For closure, the DOW is at 18.7x vs historical averages of 16.6x.
  • Local stocks – a solid close to the week for the ASX 200, +0.8% on the day, with strong gains from Materials (+2.3%) Tech (+1.8%) and Energy (+1.4%) driving gains, although Financials (+0.6%) was the second most significant contributor to the broader index gains behind Materials.  Healthcare (-0.2%) was the only sector failing to fire.  On the week, it was a different story however, with only one sector able to hold its heads up, Materials (+4.7%).  Elsewhere it was a sea of red, largely in response to rising inflation concerns globally, which have seen a meaningful steepening of yield curves.  The ASX 200 is sporting the fashionable frothy forward PE also, 18.7x, well ahead of pre-pandemic historical averages of 16.1x.  Futures are pointing to another solid day, +0.9%.




(Source: Bloomberg)




  • Offshore Credit – this from Bloomberg caught my eye (paraphrased)…”Morgan Stanley strategists estimate pensions will buy $150 billion to $250 billion more fixed-income securities than they sell in the next 12 months, the biggest full-year inflow since the 2008 financial crisis. And, they say, a net $650 billion may pour in within three to five years….because many pension plans have become fully funded during the current low-rate environment, the transition to bonds should be easier, since yields have nowhere to go but up. In the past, pension funding levels have dropped in periods of falling bond yields, forcing a rotation into other assets…investment grade credit should be the primary beneficiary, with pension demand providing an anchor as rates rise, and an offset to outflows from total return investors“.  Moving on, eagle eyed investors may have noticed some wild swings in US Corp spreads – per the above table.  I finally got to the bottom of it, from Bloomberg “Effective Nov 1st, USD/GBP bonds had the default swap curves switch from IBOR to OIS for OAS spread calculations. This was reflected in FICM and its related indices on the monthly rebalance date, effective November 8th”.
  • Local Credit – traders comments…”a patchy day with spouts of activity across senior financials, tier 2 and SSA’s. Our outlook for the run into year-end is positive, the week has seen accounts begin to reengage with major bank senior and tier 2 as the prospect for further issuance grows slim.”  We also have a constructive view on major bank senior paper and expect spreads to grind tighter into year end. Major bank senior paper closed unchanged on the day, but closed the week -2 – 5 bps tighter with the Jan-25’s the outperformer.   In the tier 2 space, some buying reported by traders with spreads unchanged on the day and -2 bps tighter on average over the week.  The 2026 callable paper is now +134 – 138 bps, and the 2025’s at +125 – 129 bps.



  • Bonds & Rates – inflation expectations are rising, hitting 15-year highs in the US.  The so-called breakeven rate on 10-year Treasury inflation-protected securities rose more than five basis points to 2.76%, before closing at 2.72%. Breakeven rates have surged this week following a hotter-than-expected reading on the US consumer price index.  This move reflects conviction that the inflation we have seen is proving less transitory than initially presumed.  Consequently, this is driving markets to the conclusion the Fed will be forced to accelerate both tapering and rate hike timing.  More than half of respondents to a Bank of America survey said they expect the Fed’s tapering of asset purchases — which Fed officials have said is a precursor to raising rates — to end in the second quarter of 2022 and rate hikes to begin in the third quarter. Inflation was cited as one of the biggest market risks for 2022 by the respondents.  Little action in local markets on Friday, negligible moves given no leads from offshore (US Veterans Day holiday).  Leads light again, so expecting minimal movement in yields today.



ACGB Curve, weekly change…

Market rate hike pricing…

(Source: Bloomberg)



  • Local Macro – the week ahead sees the all important Q3 wages report (Wednesday) and the RBA Guvna is speaking on “Recent trends in Inflation” (Tuesday), which should be well covered.  Some commentary on wages from NAB’s economists (slightly edited for flow)…”the market is likely expecting upside surprise for Aussie wages this week but a below expectations wages print may well be ignored.  As we head into this week’s Aussie wages report the OIS market prices close to 50 bps of tightening by the RBA by August 2022 and 100 bps by end 2022. The market median for this week’s wages print is +0.6% (average is +0.55%). This result would put the annual rate up at +2.2%.  It is rare for the miss on the wages print to be greater/lower than +/-0.2ppt.  Given current market sentiment investors could well look through a weaker than expected wages number as inflationary pressures around the globe surprise to the upside and expectations of central bank tightening is brought forward.  Anecdotes of wage increases point to upside surprise to this week’s wages report. However, for the annual rate to be at +3.0% or above by mid-2022 (and potentially justify market pricing for the RBA) we will need to see the next three quarterly wage prints coming in at +0.8%/+0.9%. We have not seen consistently strong prints like that since 2011/12.
  • Offshore Macro – from NAB again (first in best dressed)…”US University of Michigan survey surprised to the downside with both current conditions and expectations falling. The headline index is now at its lowest level in 10-years. Commentary suggests that the Michigan survey may be more sensitive to inflationary pressures (32% of respondents expect gas prices to rise in the year ahead, up from 22%) but it is unlikely to result in lower consumer spending given households are awash with cash. On inflation expectations, 1yr inflation expectations lifted to 4.9% (from 4.8% and in line with expectations) but interestingly 5-10-year expectations held steady at 2.9%.”  For the week ahead, UK unemployment and CPI, Eurozone GDP and for the US there is retail sales, Philly Fed index and several FOMC speakers, none of which should be market moving in their own right.





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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%