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Mutual Daily Mutterings

Quote of the day…


“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive … Those who torment us for our own good will torment us without end for they do so with the approval of their own conscience”…C.S.Lewis








Chart du jour…




“Will the Fed F-up at Jackson Hole…?





Overviewanother week in Dan Andrews’ Stalag 13..”

  • An interesting week with a couple of softer risk days mid-week as the Delta variant occupied the hearts and minds of investors for a few days. Rising expectations that the Fed will whip out the taper-bat later this month also occupied market thinking.  By week’s end, however the tone had swung back to an optimistic footing and a decent rally across stocks closed out the week, but only a fraction of lost ground was clawed back – still tickling the under-belly of record highs though.
  • Treasury yields closed the week a fraction lower, while ACGB yields felt the full weight of its lockdown safe-haven status, dropping to almost six-month lows.  Oil puked it over the week, down -7.7% and almost -12.0% over the month as much of the post-COVID recovery euphoria has been stripped from pricing.  I have a hunch it has another -10% downside to go, which would put it back at pre-COVID averages.  With commodities under pressure, the little Aussie-Battler was, well battling, down -3.2% on the week.  Credit was moderately mixed, with nothing meaningful in any direction.
  • Initially the market reaction to the almost official confirmation that tapering was on the cards soon seemed relatively muted.  Certainly not the ‘throw-the-toys-from-the-cot-hissy-tantrum’ some may have been anticipating.  And then, Dallas Fed President Kaplan, who was one of the first to vouch for tapering sooner, said the next moves by the Fed could be at the whim of the Delta variant.  This was then taken as a dovish signal by the market, which kicked off a modest rally in yields.  Perhaps markets do care about the tapering after all.
  • The situation in Afghanistan was rapid in its escalation into the geopolitical risk category of market headwinds, and extreme in its tragedy.  A pull back in stocks was always on the cards given the frequency of record highs of late – almost a daily occurrence.  As terrible as the situation is, I suspect it the situation will fade into the background for markets.
  • A busy week of US data, relatively quiet for local markets.


  • Offshore Stocks – some respectability restored to the score board on Friday, with a broad-based rally, but it wasn’t enough to drag offshore markets into positive territory.  The S&P closed down -0.6% on the week, with five sectors in the green, six in the red.  At the top of the pile it was Utilities (+1.8%), Health (+1.8%) and REITS (+0.6%), while at the bottom of the heap, Energy (-7.3%) was bloodied and battered as oil continued fall.  Materials (-3.1%) and Industrials (-2.3%) both suffered also, reflecting broader growth concerns.  Stocks on Friday climbed after Dallas Fed President Robert Kaplan said he might need to adjust his views on policy “somewhat” should the coronavirus surge slow economic growth materially.  Kaplan, who isn’t a current voter at the Fed’s policy meetings, previously spooked markets when he became the first Fed official to say it should consider pulling back on its bond purchases sooner than expected.
  • Local stocks – a bit of a nothing day to end the week, if anything a very modest sell-off, driven almost entirely by Materials.  And, it was Materials that did the damage on the week – the broader ASX 200 closed -2.2% lower, with Materials (-9.6%) leading the market down the garden path, ably supported by Energy (-7.8%), and Financials (-2.8%) a distance third malfeasant.  Doing their best to keep the market’s head above water were Staples (+3.0%), Telcos (+2.8%) and Healthcare (+2.2%).  Positive leads from offshore, which has futures suggesting modest gains this morning, +0.5%.



(Source: Bloomberg)



  • Offshore Credit – a quiet end to the week with nothing done on Friday and the week ending at US$8.4bn in the IG space for US primary markets, well below the US$10bn – US$15bn expected by forecasters.  Primary market activity this week will be slow but not dormant as opportunistic issuers are expected to move forward if conditions are right.  Forecasters have licked the forefinger, tested the winds and decided they’re expecting US$5bn of issuance this week.  EU IG markets were reasonably inactive also, just €7.4bn issued and another subdued week ahead.
  • Local Credit – the main event was the new NAB 5Y A$ senior deal, which launched at +47 bps, priced at +41 bps, and ended the week at +39.5 bps. Pilfering the usual trader’s comments…”a quiet end to the week, the highlight of which was the reopening of the major bank senior market in AUD.  Local credit spreads have held firm despite an escalation in COVID restrictions. Spreads modestly wider and whilst we have not seen much buying this week, we have not seen all that much selling either. Few would disagree that sentiment is weaker but local accounts seem content to hunker down and await better entry points.”  On the latter, my view is technicals will see investors hold their current holdings until the point that a meaningful correction across broader markets – mainly stocks – is either highly likely, or already underway.  For this, we’d probably need a meaningful pull-back in monetary accommodation, which is unlikely for mine. More from the traders, on the financials space, and in particular the NAB deal…”with an underwhelming amount of follow through interest (on the NAB deal). It is quite clear that the balance sheets are buyers up until a certain point whereas collective real money accounts have relatively little interest in major bank senior at current levels. As such we think the secondary curve will remain in a tight range pulled gradually tighter by front end demand from cash funds. Given the impressive book build on the NAB deal we do not think that the curve will drift far from current levels unless there is a dramatic change that removes or diminishes the balance sheet bid”.  I concur.  In the tier 2 space, a little bit of movement on the week with the NAB Nov-26 +3 bps wider on the week, while some of the other 2026 lines were -1 bps, some +1 bps, with the range at +125 – 131 bps.
  • Bonds & Rates – very little yield / price action in local bonds again on Friday, similar to Thursday, but on the week, it was a meaningful rally, falling from 1.217% to 1.079% as the Delta variant spread and associated lockdowns underpin a safe-haven bid.  ACGB 10-year yields are now -84 bps lower from their February reflation / reopen trade peaks. CBA have a 1.00% forecast on ACGB 10-year yields by the end of next month (Q3), which a few weeks ago was a massive outlier, with the next closest forecast at the lower end of expectations being 1.40%.  The median expectation is 1.53%, which is looking somewhat unrealistic at this juncture.  So, golf-clap Mr Whetton and team, well played sir, well played.  For the record, the range of forecasts for 10-year yields by the end of the quarter is 1.00% – 2.10%.  Probably safe to say some of these forecasts would be stale by now.  Very modest leads from US treasuries on Friday with 10-year yields just +1 bps higher at 1.255%.  The ACGB vs UST 10-year spread is at its pandemic highs, +17.7 bps with scope to go further as a) the US Fed edged closer to a tapering decision, and b) the lockdown debacle across NSW and Victoria continues supress economic growth hopes.



(Source: Bloomberg)



  • Offshore Macro – a pretty busy week for US macro data, including housing data early in the week, moving then into GDP with +6.7% QoQ forecast vs +6.5% QoQ last.  The Fed’s pet inflation measure, the PCE Deflator is out on Friday with a headline expectation suggesting a modest slow-down in inflation with consensus at +0.4% MoM (vs +0.5% last) and +4.1% YoY (vs +4.0% last).  Core is expected to come in at +0.3% MoM (vs +0.4% last) and +3.6% YoY (vs +3.5% last).  We’d need to see a meaningful miss here, in either direction, to really move markets – eyes seem firmly planted on the Jackson Hole Symposium as the next road marker.
  • Local Macro – no data of note to end the week, while this week we have a range of GDP partial indicators, including PMI’s, private capex, and retail sales.






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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: 0.36%
MIF – Mutual Income Fund
Gross running yield: 1.45%
Yield to maturity: 0.75%
MCF – Mutual Credit Fund
Gross running yield: 2.57%
Yield to maturity: 1.63%
MHYF – Mutual High Yield Fund
Gross running yield: 5.71%
Yield to maturity: 4.05%