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Mutual Daily Mutterings

Quote of the day…


“Five out of four people have trouble with fractions”.…Steven Wright





Chart du jour: S&P Forward PE…



“Cloud Bound…




Overviewoh so close…”

  • Modest gains across global stock indices on the back of earnings confidence, marginally outweighing persistent inflation fears.  Yields took a breather with little change out the back end of the curve, while the front end clawed back some recent losses.  The gains in stocks add to the S&P 500’s best start to an earnings season in the last two years with the index gaining about +3.6% since the season kicked off.  On an intra-day basis, the index tickled the under belly of record highs.  Oil and commodities were higher, while offshore credit was mixed.
  • US reporting season advanced with a further 3% – 4% of the S&P 500 releasing their Q3 results.  Aggregate sales beat expectations by +1.7%, while aggregate earnings beat by +12.9%.  Only Energy (-11.0%) and Discretionary (-16.6%) missed by any noticeable degree.  Aggregate sales growth was solid at +13.3% vs pcp, while aggregate earnings were up +36.6% vs pcp, with no sector left behind on the latter.  At this stage of proceedings, 82% of companies have beaten analyst expectations, up on the usual % of 60% – 70% (on average).
  • On the macro front, the Fed Beige Book was released.  The book, referred to formally as the Summary of Commentary on Current Economic Conditions, is a qualitative review of economic conditions.  More deets below, but in general the growth outlook is described as “modest”, inflation is “significantly elevated,” input costs “widespread”, and wage growth is “”  When read in conjunction with the S&P 500 on the cusp of setting new record highs, with such lofty valuations, one would be calling for the market to be place in a straight-jacket and put into a padded cell.
  • ‘Lofty valuations’ you say…the S&P 500 is trading at forward PE’s of 22.2x, well ahead of pre-pandemic averages of 17.7x, which represents 1.5 standard deviations above average, so somewhat statistically meaningly.  Put differently, valuations are in the midst of the right hand fat tail of the bell curve (see chart du jour).  Caveat emptor, I failed quantitative methods first time around at university, but at 19 and in my first year out of high school, my interests were in areas more fluid than academia.



  • Offshore Stocks – modest gains as the various indices headed toward new record highs, but just fell short on the day.  Assuming reporting season continues on its merry way, with the same tone, then record highs are just a matter of time regardless of the array of headwinds before markets.  That’s investing in the modern world for you, with low interest rates and unprecedented and extraordinary volumes of QE providing persistent tail winds.  On the session, over three-quarters of stocks within the S&P 500 advanced, as did eight of the eleven main sectors.  Healthcare (+1.6%) led, followed by Utilities (+1.5%) and REITS (+1.3%), so value stocks favoured.  At the other end of the gene pool, we saw Tech (-0.3%), Discretionary (-0.1%), and Telcos (-0.1%).
  • Local stocks – a modest up day with 63% of the ASX 200 gaining ground on not much news flow.  Two sectors failed to fire, Energy (-1.0%) and Telcos (-0.5%), while the remainder got shots off, closing higher on the day.  Tech (+1.1%) performed best, followed by Financials (+1.0%) and Industrials (+0.9%).  The index is still toppy for my liking with valuations well up on historical averages – but today is not reflective of average historical times, so the elevated valuations are explainable…an abundance of liquidity in the system.  Futures are indicating modest gains this morning, +0.3%.


(Source: Bloomberg)


  • Global credit – a post reporting season issuance blitz from the major US banks has seen weighted average credit spreads within the US IG Financials credit index gap +4 – 6 bps wider month to date, to +71 bps vs a 90-day average of +70 bps, so nothing really meaningful in a slightly longer-term context.  Elsewhere, spreads are +2 – 6 bps wider across offshore indices.
  • Local Credit – the main event yesterday was the Bank of Queensland A$ 5-year senior deal, which came with guidance of…..wait for it….+85 bps!  Cray-cray.  This is or was +20 bps above BOQ’s secondary curve at the time of announcement, so I am boggled as to why it started with such high guidance, although I note it was the first post-CLF deal.  Perhaps the syndicate teams just wanted to ensure a successful deal, post CLF and all…and maybe BOQ was desperate for a big deal, although it’s certainly doesn’t look like they need the funding.  Their loan book has been sluggish over the past three months, more than sufficiently covered by deposit growth.  In the end, the book was just shy of $1.2bn, with a final print of $800mn – $675m FRN (large by BOQ standards) and $125m fixed, pricing at +80 bps, which represented a +17 bps pick up to BOQ’s May-26 open this morning.  Traders views…”we were surprised by the launch price and are of the view that final pricing offers investors a generous NIC, even after taking into consideration the CLF cessation and lack of real money participation within the asset class. Nonetheless, we have used this forum to express our view that the major bank curve will widen and steepen further and believe that today’s BQDAU print now accelerates this process”. Traders also noted some regional switching, in the shorter lines across BEN and BOQ, with the new deal quoted at +77 bps in early trading.   On the back of the BOQ deal, traders also reported a repricing of regional bank curves, up to +12 bps in BOQ and BENAU, SUNAU and MQGAU roughly +6bps. Major Bank Snr also pushed wider on the day with 3-5 Yrs +3 bps however limited activity going through.  I’ve been expecting some widening of spreads, but not on the back of one deal…..interesting times.
  • Bonds & Rates – bond markets under pressure again yesterday, although most of the yield action was in the back end this time.  From CBA…”the RBA’s repo moves to keep the Apr 24 at the target of 0.10% appear to have worked – at least in the short term.  The bond dropped to around 0.115% at the open and has been below 0.14% for most of the day.  That’s probably still a little higher than the RBA wants it, but not troublingly so.”  I’m not willing to call tops or bottoms, or mid-points in the latest yield gyrations, but I suspect at some point we’ll see a pull-back of sorts.   From a pure selfish perspective, I’m loving the march higher in yields, it just highlights how appropriate our funds are for the prevailing conditions – they’re all FRN based.  Offshore was muted with nothing really done in US ten-year treasuries – largely unchanged, while at the front of the curve, a modest rally.  Accordingly, I’m expecting a day of consolidation in local bonds, subdued price action likely with no meaningful leads and no data of any significance out.  Markets can just breath.


(Source: Bloomberg)


  • Local Macro – tumble weeds and donuts, take your pick…nothing really happening here today, or tomorrow for that matter.  The main event, tactically at least, is next week’s inflation data.
  • Offshore Macro – paraphrasing Bloomberg here…the Beige Book characterized growth as “modest to moderate,” though in truth it’s hard to know what that even means any more – the report has been generally blasé in characterizing growth during the entire post pandemic recovery.  Manufacturing appears to be pretty solid, characterized as “modest” to “robust” across districts, whereas nonmanufacturing activity was cited as “slight” to “moderate.” Expectations evidently downshifted a degree. With the report citing “increased uncertainty and more cautious optimism” than in prior months.  The labour market saw high turnover and low supply, with childcare and vaccine mandates cited as causes for the latter. Wage growth was generally cited as “robust,” in line with other official and anecdotal reports.  On inflation, most districts cited “significantly elevated” prices, with demand cited as a rationale. Input cost increases were “widespread,” and firms evidently had some success in passing along these costs to end users. There was little consensus on the inflation outlook, with some expecting more upward pressure and others looking for moderation.


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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: 0.26%
MIF – Mutual Income Fund
Gross running yield: 1.40%
Yield to maturity: 0.78%
MCF – Mutual Credit Fund
Gross running yield: 2.62%
Yield to maturity: 1.70%
MHYF – Mutual High Yield Fund
Gross running yield: 5.49%
Yield to maturity: 4.24%