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Mutual Daily Mutterings

Quote of the day…


“You can’t be a real country unless you have a beer and an airline. It helps if you have some kind of a football team, or some nuclear weapons, but at the very least you need a beer”…Frank Zappa





Chart du jour…RBA QE…



“Inflation Dragon…




Overviewa sense of fragility…”

  • A softer session in offshore risk markets with stocks down on the day (moderately), and extending recent losses.  Bond yields ticked higher, and oil jumped. Concerns about the path of economic growth and the ongoing spread of COVID are increasingly weighing on sentiment and risk appetite. Potential confidence boosters on the near-term horizon look elusive, with the weight of liquidity in the system really all that’s keeping valuations so buoyant.  It won’t take much to tip markets over into a more meaningful sell-off.  Credit markets continue to shrug off these concerns, with strong primary activity in US markets and resilience in spreads.
  • The Fed’s Beige Book report indicated that economic growth downshifted a touch to a more moderate pace from early July through August, largely because of a pullback in dining out, travel and tourism because of consumers’ safety fears – nothing surprising given prevailing real-world conditions.
  • Talking heads…”equities continue to trade on the back foot, possibly as punters book a few profits ahead of looming event risks. It remains to be seen if this sets up another shallow, buyable dip or something more significant, though there is a superficial resemblance to the state of the market before the sharp February 2018 decline”.
  • St Louis Fed President, James Bullard, was on the wires earlier in the week stressing that the FOMC should go ahead and taper.  He said as long as job gains average about 500K a month over 2020, then the FOMC should taper before the end of the year.  Job growth has averaged 586K a month so far.  Then, John Williams (NY Fed), last night seemed to express some uncertainty on whether the Fed will start tapering in 2021… “assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year,”…a bit cautious.  The Fed has met its “substantial further progress” threshold on inflation but not jobs, he added.  All eyes now turn to the ECB tonight.



  • Offshore Stocks – generally a softer session as growth concerns and lingering COVID cases weigh on sentiment on the eve of the Fed likely (consensus) commencing its long-telegraphed tapering run.  For the S&P 500, a somewhat narrow sell-off, with 50% of the stocks retreating, while at the sector level it was similarly balanced – with a slight skew to the down side, six sectors down, five up.  The daily winners included Utilities (+1.8%), Staples (+0.8%), and REITS (+0.6%), while the class clowns for the day were Energy (-1.3%, despite a rise in oil prices), Materials (-1.0%), and Telcos (-0.4%).  Over the past four months, the S&P 500 has exhibited weakness around mid-month, recording dips anywhere between 2.0% and 4.0%.  Usually starting any day between the 13th and the 16th.  Why? Expiry of monthly options.  Today being the 9th, so if recent trends persist, a bearish tone will emerge next week.  Will dip buyers emerge?  Sentiment certainly feels fragile, and there are enough growth and valuation concerns swirling around with no expected sources of potential risk-on counter-weights or accelerants.  Accordingly, I’m wary.  So to are Morgan Stanley who has “lowered its view on U.S. equities to underweight, citing “outsized risk” to growth through October. The firm sees a number of potential headwinds, including rising cases of the delta virus strain and a tension between elevated inflation expectations and low yields. These factors are coming into play at a time “that has historically poor seasonality,”
  • Local stocks – a modest down day in the ASX 200, off -0.3% on slightly lower than average volumes.  Around two thirds of stocks lost ground, and seven of eleven sectors retreated.  Worst of the worst was REITS (-1.3%), followed closely by Staples (-1.2%), and Materials (-1.0%), the latter placing the most downside pressure on the broader index.  A somewhat meaningful fall expected this morning, with futures down -0.5%.  All other things being equal, the day will probably end up being worse given Financials, Materials and Energy all had weak days in US markets, the ASX 200’s three largest sector weights.


(Source: Bloomberg)


  • Offshore Credit – corporate borrowers stormed US IG primary markets again, bringing another 17 deals after yesterday’s record 21 deal haul.  Walmart led the deluge with a US$7bn, five-part bond sale that included a record-setting $2bn green security – to be used to fund projects involving solar and wind, energy efficient refrigeration, electric vehicles and waste reduction.  September is historically a busy month, coming on the back of the summer vacation seasonal lull (August).  US high yield markets are also expected to have a busy time of it, with forecasts of US$10bn being bandied around – making it one of the busiest periods in years.  CBA also issued into US markets overnight, a three tranche deal including US$500m Jun-26 (4.75 years) FRN, a US$1.2bn Jun-26 (4.75 years) Fixed and a US$800m Sept-31 (10 years) fixed.  By my calculations, the Jun-26 line swaps back at BBSW+40 bps, marginally higher than the A$ curve I would think.
  • Local Credit – traders…”primary was the focus today as Suncorp Metway (A+/A1) priced $750m 5yr FRNs at 3mBBSW+48 bps. With the deal pricing late in the day we are yet to see any flow on the break however we close on the bid at +47 bps”.  Note, we were surprised to see the deal launch with guidance of +52 bps (we expected +50 bps), so our adjusted issue spread was +47 bps, with fair value around +45 bps.  We observed no meaningful change to secondary spreads in major bank senior or tier 2 paper on the day.  Here and now, immediate spread risks are low-to-modest.  At a macro level the biggest risk is policy error, i.e. the Fed kicks off tapering and markets throw a tantrum a la 2013, although in my mind the market ‘shouldn’t’ tantrum in this instance, tapering will not come as a surprise.  The other risk is micro, or specifically technical, with supply to normalise over the next 18 months.  As we head into the latter half of 2022 ADI’s will have to start looking at refinancing a shed load of TFF funding.  So, depending on the mix of loan and deposit growth within ADI’s, we could see outsized issuance for the year ahead, which would likely cause some spread widening pressure, at a time when underlying yields should also be on the rise.  A compelling story for FRN’s I should think.
  • Bonds & Rates – local bonds followed the leader (US treasuries) higher yesterday, but given growing fragility in risk markets overnight, and safe haven assets being in demand, we’ll likely see a rally in local bonds today, with yields to drift lower.


(Source: Bloomberg)


  • Offshore Macro – ‘the Beige Book’ was released overnight.  This report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources.  I haven’t read it yet, I have a life…who am I kidding, no I don’t.  Either way, some comments from one of my preferred macro guys on Bloomberg, who has read it…“the Beige Book noted a “downshift” in the pace of economic activity, albeit only a slight one. The culprit was a decline in leisure and hospitality, which you probably could have guessed given the stagnation in hiring. The rationale was Covid, naturally, as well as travel restrictions (still no European tourists!). Supply shortages and bottlenecks were also a factor in some other industries. Indeed, concerns about these sorts of disruptions are “widespread.”…and….”As for prices, inflation was characterized as “steady at an elevated pace,”i.e., roughly 5% per annum by official statistics. Some districts reported that it is easier to pass along price rises, while several reported plans for “significant” price hikes in the months ahead. Does that still qualify as transitory?”…and lastly…”All in all, it paints the sort of picture that we’ve been describing recently: an economy downshifting because of supply constraints rather than a shortfall of demand. That’s a recipe for higher prices. The question is whether financial assets or the Fed will care if they can keep convincing themselves it’s transitory”.
  • Local Macro nothing of note out for the remainder of the week, with next major data printed not until next Tuesday, house price data and NAB business conditions and confidence.


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%