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Mutual Daily Mutterings

Quote of the day…

 

“Thanksgiving is an emotional holiday. People travel thousands of miles to be with people they only see once a year. And then discover once a year is way too often.” – Johnny Carson

 

 

 

 

Chart du jour…UST vs PCE Core Deflator

 

 

“Surving Turkish Inflation…


Source: www.hedgeye.com

 

 

Overview: ”mixed views…”

  • Resurging COVID rates continue to weigh on investor sentiment, particularly across Europe.  Parts of the continent are debating new measures to cope with the continue pandemic.  US stocks wobbled a bit in early trading, mainly after the release of the FOMC November meeting minutes and a slew of data prints, but then clawed back lost ground on better-than-expected macro prints, closing marginally mixed.  Volumes were light heading into the Thanksgiving Day long weekend (and Black Friday Sales).  A slew of US macro-data out overnight points to growth upside through Q4, which gave markets a bit of a pick-me-up.
  • Talking heads…”there are hints that the job market is pretty good in today’s numbers.  If there are signs that the job market is going to heal itself faster then let’s say than the second half of next year, rate hikes are going to be live. But having said that, we’re already pricing in mid-2022 and starting to think about May of 2022, so I don’t see how much more we can get from an aggressive side of things.
  • FOMC November meeting minutes highlighted some diverging views amongst the committee members around the pace of policy normalisation (tapering & rate hikes).  Nevertheless, the key theme appeared to be the recognition that policy around tapering and the pace thereof needed to be flexible to macro conditions.  US 2-year yields rose +3 bps, while the 10-year dropped -3 bps.  Rate hike pricing shortened.
  • Talking heads…”we need to be careful here about loading up on risk…we want to own some cyclicality to play this continued rebound and this continued unfolding of the recovery here, but we want to just pump the brakes a little bit.”
  • Oil…following the US (and others) releasing strategic oil reserves (50m barrels) in a bid to ease price pain at the bowser, markets are holding their breath on what OPEC+’s response will be.  OPEC+ delegates have intimated that even the modest increase of 400K barrels-a-day they have pencilled in could be called off if it looks like the reserve release will overwhelm the market. The group meets on Dec. 1 and 2.  Oil dropped -0.2%.

 

Details….

  • Offshore Stocks – the DOW lost some ground by day’s end, while the S&P 500 and NASDAQ gained some.  Absolutely no thematic change across the main US indices, while in Europe COVID is coming back into play as a variable to watch.  Within US markets, moves were very modest, in either direction.  Within the S&P 500 uppers vs downers were largely even at a stock and sector level.  REITS (+1.3%), Energy (+1.0%) and Tech (0.7%) dominated the uppers, while Materials (-0.7%), Staples (-0.3%) and Financials (-0.2%) slipped.  The Tick Index, which measures the number of stocks going up, trade-by-trade, versus those going down on the New York Stock Exchange, rose above 1,000 on yesterday — a reading that’s typically viewed as signalling an urge to invest. In doing so, it snapped a 10-day streak, the second-longest since January 2020.  US markets closed tonight for Thanksgiving.
  • Local stocks – the ASX 200 is stuck in a funk, neither coming or going, trading sideways in a relatively time range (7300 – 7475) for over a month now.  Yesterday it eased back a smidge, closing down -0.1% with 59% of stocks in the red and only four sectors able to gain any ground, namely Energy (+1.2%) and Utilities (+1.0%) the dominant two, while REITS (+0.1%) and Healthcare (+0.1%) had bit-parts.  At the bottom of the table, Tech (-0.6%), Industrials (-0.5%) and Discretionary (-0.4%) dominated.  Futures are pointing to more of the same tomorrow, very modest change, but up a smidge.

 


(Source: Bloomberg)

 

  • Local Credit – another mixed session with primary again in play – mainly in the corporate space, but a bank or two also.  AMPOL began taking IOIs for a 60-NC-5.33 year Subordinated FRN, spreads marketed at +325-350 bps.  SGSP Australia Assets (SGSP) (A-) held investor calls yesterday for their inaugural A$, green-bond transaction. Elsewhere BNG Bank mandated banks for a potential new AUD 10.5yr Kangaroo Sustainability Transaction. In secondary, major bank spreads are largely unchanged across most of the senior curve, with the Aug-26 the exception, +1.5 bps wider to +61 bps (per Bloomberg).  In the tier 2 space, a little bit of selling pressure into an already full street saw spreads drift wider – mainly reflected in the 2026 call lines.
  • Bonds & Rates – quite a choppy day yesterday in local bonds with 3-year yields up +4 bps in the first half of the day, but then began clawing back lost ground post construction work done data (details below under ‘Local Macro’, but fell much less than expected).  At day’s end 3-year yields were -3 bps lower on the day at 1.00%, and the 10-year yields fell also, although it was marginal.  Some meaningful moves in swap rates though with 3-year -7 bps and 10-year -10 bps.  Meanwhile, in offshore markets overnight, traders have started to price in a faster taper with rate hike odds hitting 30% for a March lift-off…”the premium for a March hike is now starting to build, with around 8bp — or 30% of a 25bp hike — now priced into the March 16 meeting next year. There are broadly three hikes now baked into the front-end of the curve for 2022, one each in June, September and December, if you like. Should the Fed want to keep optionality for a more aggressive path of hikes, then expect more rhetoric on a faster tapering pace — similar to what we saw today from San Francisco Fed President Mary Daly — over the next couple of weeks”.  Nevertheless, treasury yield moves on the back of the higher PCE deflator print were modest.

 

 

  • Offshore Macro – a raft of US data points out overnight.  Consumer spending jumped +1.3% in October, beating expectations, even as Americans confronted the fastest inflation in three decades. A raft of pre-Thanksgiving data mostly exceeded forecasts, setting the stage for a year-end growth spurt.  Jobless claims fell to 199K, the lowest in over 50 years.  The PCE deflator – the Fed’s go-to inflation measure – accelerated to +5.0% YoY and +0.6% MoM from +4.4% and +0.4% respectively, both slightly less than expected.  Q3 GDP was revised up to an annualised +2.1% from +2.0%, below the +2.2% estimate.
  • FOMC meeting outtakes and commentary…”on the labour market, on-the-ground contacts noted difficulties in attracting workers, and ‘some’ participants noted a number of signs that the labour market is ‘very tight.’ ‘Several’ suggested that participation rates would be lower than in the past, while several others cited temporary factors restraining participation.  The perceived timeline for supply bottlenecks to clear up was extended, and by extension it could take longer for inflation pressures to ebb than previously thought. While most seemed to retain the transitory view, uncertainty clearly increased. ‘Many’ pointed to factors that could make inflation more persistent. ‘A number’ cited the risk that expectations could become elevated.  On the taper, ‘some’ preferred a faster pace of reduction in asset purchases, and ‘various’ members cited a possible need to taper and raise rates more quickly than previously expected, should inflation threaten to persist above target. ‘A number’ stressed patience, however”
  • Local Macro – construction work done fell much less than estimated, -0.3% for Q3 vs +0.8% for Q2 and consensus estimates of -2.9%.  Private capex data scheduled today with -2.0% for the quarter (Q3) the expectation (vs +4.4% in Q2).

 

Click here to find the full PDF from our Chief Investment Officer’s daily market update.

 

 

Contact:

Scott Rundell, Chief Investment Officer

T: +61 3 8681 1907

E: Scott.Rundell@mutualltd.com.au

W: www.mutualltd.com.au

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%