Crispin Murray: What’s driving the ASX this week?

Here are the main factors driving the ASX this week, according to Pendal’s head of equities CRISPIN MURRAY. Reported by portfolio specialist Chris Adams

• Broader equity markets have been weak
• Market technicals don’t yet signal a more material selloff
• Find out about Pendal Focus Australian Share fund
• Tune in: register to watch Crispin’s Beyond the Numbers webinar

THERE has been some concern that the pace of policy actions in the US is creating uncertainty and deferring decisions among businesses and consumers.

This was reinforced by slight weakness in the University of Michigan Consumer Confidence Survey and the US Purchasing Manager’s Index (PMI) last week, as well as guidance from Walmart, which was 8% below consensus expectations.

Walmart pointed to currency headwinds, some pressure from mix shift as consumers “trade down” to cheaper items, and “geopolitical uncertainties” (also code for tariffs). The stock fell 9%.

Broader equity markets were also weaker, though there was no specific catalyst. The S&P 500 fell 1.6% and the S&P/ASX 300 was off 2.8%.

There was interesting rotation within the market, with a big unwind in momentum stocks such as Apollo (-7%), Citi (-6%), Goldman Sachs (-5%), Tesla (-18%) and Palantir (-15%) late in week.

The US Dollar is the other signal to watch; there is a building view that we may have seen the peak in the Dollar Trade-Weighted Index (DXY) for now and have reached “peak US exceptionalism”.

Market technicals look reasonable and are not yet signalling a more material selloff.

Liquidity also remains good, so our current read is that this is more consolidation and rotation as the earnings growth between growth and value converges.

This view is also reinforced by credit spreads remaining tight, as well as strong performance in European (Euro Stoxx 50 up 4% month-to-date) and Asian stock markets (Hang Seng up 16% and KOSPI up 5% month-to-date).

This would be consistent with a turn in the USD.

Australia saw its first rate cut (25 basis points (bps) to 4.1%) since November 2020, ending a 33-month up-cycle. However, the RBA’s message was that the market was too optimistic in expecting three cuts this year. 

That hawkish message meant the cut offered no support to the market, while a series of disappointing updates from the banks helped drive the ASX lower.

We have had just over 50% of companies by number reporting.

So far, the results are okay, with nothing suggesting any particular thematic issue. Stock-specifics are the main drivers of reaction.

We also saw M&A activity with the CoStar bid for Domain (DHG).

Australia

The RBA cut its benchmark rate 25bps to 4.1%, the first change since November 2023.

This was seen as a hawkish cut, as the RBA Governor talked down the prospect of further cuts in the next few months – specifically noting that the market’s expectation for three rate cuts in 2025 looks unrealistic.

Governor Bullock did note that the policy was restrictive – though we observe that most corporate trends suggest the underlying economic environment is marginally improving.

When asked about the catalyst for another cut, Governor Bullock noted that she is looking for:

• reduced concerns on an upside surprise in inflation
• easing in wages growth
• disinflation in services
• a sustained reduction in housing inflation
• improvement in the supply side.

The market only marginally shifted down expectations for future rate cuts.

The updated RBA inflation outlook envisages inflation falling into its target range earlier than before, but the expected trough in inflation is now higher at 2.7% versus 2.5% previously.

The forecast for inflation in December 2026 was also increased 20bps.

Pendal Focus Australian Share Fund

Now rated at the highest level by Lonsec, Morningstar and Zenith

Read more

US

There was not much in the way of data last week.

Minutes from the Federal Reserve’s most recent meeting reinforced a more cautious outlook for rate cuts.

The University of Michigan Consumer Confidence Survey deteriorated, with the Headline index falling to 64.7 from 71.7 in January.

The consumer expectations component, which is most relevant for spending growth, fell from 69.5 to 64.0.

We do note that the survey measures responses by political affiliation and that the fall has been driven by Democrat and Independent voters, while Republican voters were unchanged.

This survey may signal a weaker consumer, but we wouldn’t read too much into it at this point as other surveys we follow are showing some signs of improvement in February.

Flash PMIs for February were slightly soft. Manufacturing was better at 51.6 versus 51.2 in January, however, Services fell to 49.7 from 52.9.

Overall, the composite PMI fell to a 17-month low.

We may potentially be seeing the impact of Federal job cuts and concerns on tariffs affecting sentiment and deferring employment decisions.

Markets

We saw a material selloff in the US late last week, triggered by Walmart’s guidance being below market, and reinforced by softer consumer confidence data. But the price actions seemed too severe to be explained away by just that, suggesting positioning has become very crowded.

We are seeing selling in tech and consumer discretionary with rotation into cyclicals.

The overall market has been resilient despite all the noise on tariffs, DeepSeek and higher CPI.

Breadth has deteriorated, which suggests less fire power for the market to rise, but this has not fallen to concerning levels (63% of S&P 500 stocks are above their 200-day moving average).

Sentiment indicators such as futures positioning, put/call ratios and bull/bear ratios are relatively balanced now, which is an improvement from the extended positions at the start of the year.

ETF flows remain strong and in their 90^th percentile versus history, but are narrowly focused into specific sectors.

Credit spreads are still low and now correcting, which is supportive for equities and highlights that liquidity is fine and there are no fears building around economic deterioration. 

There is lots of focus on regarding the US Dollar and talk of a “Mar-a-Lago Accord” – akin to the Plaza Accord from the 1980s – designed to weaken the dollar to help support growth.

This would support liquidity and be broadly positive for markets.

It is clearly apparent that the Yen is strengthening.

Japanese economic growth and inflation data has improved, and this may be correlated with some of the other momentum trades as the Yen has been a funding source.

It also may be a signal that the US 10-year bond yield may be heading lower – there has been strong correlation between them and the Yen in recent years.

From a portfolio perspective, it is important to watch market rotation as an emerging theme, as momentum and growth stocks have been such big market drivers in the last 15 months.

Regions outside the US are beginning to perform better, and lead indicators on European growth are improving (e.g. performance of cyclical versus defensive stocks).

There are also signs of life in China, where the two-year bond yield has begun to move higher.

There has also been a large run in Chinese tech names, triggered first by DeepSeek and subsequently President Xi having a public meeting with key tech entrepreneurs.

There is a view this could be a catalyst for improved sentiment in China.

The key “Two Sessions” annual policy meeting of the National People’s Congress and Chinese People’s Political Consultative Conference will be closely watched in the first week of March.

We remain positive on overall on the market’s direction.

However, the rotation is giving us confidence that we may see some of the more extreme valuation premiums that have characterised the market in the last 12 months unwind.

Australian equities

The S&P/ASX 300 was down 2.8%, due to a combination of the broader global selloff, the hawkish statement from the RBA, negative earnings updates from the banks, an overhang from the Goodman Group capital raise, and a portfolio basket-trade selling Australia.

Financials (-6.9%) – specifically banks (-9.4%) – was the weakest sector as margins trends were worse than expected at National Australia Bank, Westpac, and Bendigo & Adelaide Bank.

Given their extended valuations, this triggered a selloff in the sector – similar to that seen during the late September Chinese stimulus and the August Yen carry trade unwind.

This was more fundamentally driven, with margin trends worse than expected and slightly lower capital ratios, which will limit the degree of capital returns.

The Commonwealth Bank buyback kicks in this week, which may put a floor under the sector short term.

Industrials (-3.3%) was also weak, which is partly tied to the RBA statement. 

We are just over the halfway mark of company reporting and earnings beats and misses thus far suggest a benign earnings season.

About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund has beaten the benchmark in 12 years of its 16-year history (after fees), across a range of market conditions.

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. 

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager