Graeme Petroni: What’s driving Aussie equities this week

Here are the main factors driving the ASX this week according to Pendal investment analyst GRAEME PETRONI. Reported by portfolio specialist Jonathan Choong

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LAST week’s news of a ceasefire agreement triggered a sharp relief rally, with Brent crude falling 13% and most major equity markets gaining between 3% and 5%.

The move was concentrated as virtually all the price action occurred within the first 24 hours.

There was little follow-through as attention quickly shifted to the practical difficulties of implementing any deal, and to the broader economic ripple effects that may persist even if a resolution is reached.

However, over the weekend we have seen another reversion, as it appears initial talks have broken down between the US and Iran.

Middle East conflict

The ceasefire brokered by Pakistan quickly revealed some key differences between the US and Iran positions.

The Trump administration announced a two-week suspension of hostilities, conditional on Iran agreeing to the immediate and safe opening of the Strait of Hormuz.

Iran’s response however stated safe passage through the Strait would be possible “via coordination with Iran’s Armed Forces” which is a materially different proposition. Iran had also expected Israel’s attacks in Lebanon to stop.

Moreover, there remains a wide gap between both parties on the 10 or 15 points for any extended deal.

Iran’s published 10-point framework – which the US described as a “workable basis for negotiation”, includes Iran retaining control of the Strait, acceptance of Iran’s right to uranium enrichment, the withdrawal of US combat forces from the region, and a cessation of hostilities on all fronts including Lebanon.

Several of these conditions appear fundamentally incompatible with US and Israeli redlines.

The US clearly wants an off-ramp, but the Strait of Hormuz needs to be re-opened at a minimum, which has become a key point of leverage for Iran.

Tanker transits through the Strait of Hormuz had started to lift in the week leading up to the ceasefire but remain 85-90% below pre-conflict traffic.

Following the ceasefire, little has changed. Traffic slowed on 8 April, before resuming on 9 April, but at a reduced rate.

There were also reports of Iran requiring vessels to pay a toll of US$1 per barrel – equivalent to approximately US$2 million per large tanker, to be settled in bitcoin to avoid confiscation and sanctions.

Safe shipping routes were also published by Iran, with suggestions that passage would be limited to 15 vessels per day, compared to normal traffic of ~140, across cargo and tankers, inbound and outbound.

Data continues to suggest exports from virtually every major Middle Eastern producer ex-Iran have collapsed to near zero since the conflict began, with Asia being the primary buyer.

Impacts on refined products

With the Strait remaining throttled, the key issue is the flow on to refined products, such as petrol, diesel and jet fuel.

Middle East refineries have been shut due to direct attacks and an inability to export.

Asian refineries source most of their crude from the Middle East, with the lagged impact of reduced supply only just starting to be felt given average voyage times of two to six weeks.

To date, global refinery throughput has reduced around 4 million barrels per day (mb/d) or around 7% of pre-conflict output.

The risk is that this deteriorates further as commercial crude inventories erode with some estimates suggesting refinery cuts could double by May if the situation does not improve.

If or when the Strait re-opens, it will take time for refinery throughput to recover, with market estimates ranging from three to six months.

Several factors contribute to that lag:

• The Strait is likely to reopen only partially, and potentially under Iranian coordination rather than freely.
• Middle Eastern refineries will need to rebuild operating rates from a low base.
• Product tankers which have largely repositioned away from the region, will need time to return and may be cautious about doing so until security conditions are clearly established.

This likely means prices of refined products will remain elevated for some time.

In Australia, fuel security remains a focus given low inventory and indirect reliance on the Middle East via Asian refineries.

At present, the situation remains manageable: Petrol stocks stand at approximately 39 days of consumption cover, diesel at around 30 days and jet fuel similarly.

The government announced funding to help operators secure supply, confirmed successful discussions with Singapore to keep trade flows open and expressed confidence in inventory levels through to mid-May.

Separately, seven diesel cargoes bound for Australia from the United States have been reported.

Nonetheless, the balance could become more difficult the longer the crisis lasts.

Macro and policy

The emerging energy crisis brings risk of increased inflation and reduced growth, as reflected in cash rate expectations.

The shift in the short end of the curve has been significant. Rate cut expectations have moderated by around 25 basis points (bps) in the US and Europe, and by approximately 50bps in the United Kingdom, though the implied path remains materially higher than it was before the conflict.

US

The first March inflation data came from the US, where the CPI rose 0.87% for the month, bringing the year-on-year (YoY) rate to 3.3% – in line with consensus.

Energy rose 21% for the month, but there was no meaningful spillover into food prices, with core CPI rising modestly by 0.20% month-on-month (MoM) versus 0.3% consensus, and 2.6% YoY.

Based on this data, market estimates for core PCE are ~3.1%, reflecting the PCE’s lower weighting to housing and higher skew to services inflation.

When read alongside the prior-week’s non-farm payrolls report, the Fed likely remains on hold in the next meeting.

This data had also indicated the US labour market was on a firm footing heading into the war.

Looking through monthly volatility (driven by strikes and weather effects), non-farm payrolls increased by an average of 68,000 over the past three months and 15,000 over the past six months. The unemployment rate declined 18bps to 4.26%.

Europe

European CPI data for March will be released this week. Flash data suggests a lift in headline inflation from 1.9% to 2.5% YoY, driven by energy, but with core inflation moderating from 2.4% to 2.3% YoY.

Europe has more exposure than the US to global energy markets, but the CPI basket is more skewed to household energy than motor fuel so the pass through is delayed given regulated tariffs.

Nonetheless, composite PMI data pointed to pressures on input prices for the UK and Europe.

China

China released its own March inflation data. Energy inflation was evident in PPI at +0.5% YoY, which is the first positive print since late 2022.

But there was little pass through to CPI which moderated to +1.0% YoY in March, down from +1.3% in February. This missed consensus for +1.2% and remained well under the National People’s Congress inflation target of 2%.

Australia

There was little new data in Australia, however the PMI data sent a cautionary signal in March indicating that business activity is slowing and input prices have spiked.

This represents the largest month-on-month increase since March 2022, the period of the last major global oil shock.

AI

Over the week, there was some news flow on Anthropic, with annual recurring revenue (ARR) lifting 58% in three months to $30 billion, overtaking OpenAI.

Further detail also emerged on Anthropic’s Mythos product, with preview access provided to 11 core partners and 40 additional organisations, to help identify cybersecurity flaws in operating systems and browsers.

US Treasury Secretary Scott Bessent subsequently summoned bank leaders to Washington for a meeting on AI cyber risks.

The market also continues to grapple with the potential longer term economic impact of AI adoption on employment.

While still early days, it is encouraging that use cases to date are predominantly focused on coding.

A recent report surveying around 6,000 US companies was also published suggesting relatively few companies (8%) expect a large negative impact on employment (>5%) over the next three years.

Instead, the focus seems to be more on productivity gains.

Private Credit

Despite the recovery in markets, global private equity stocks remain under pressure, reflecting continued uncertainty in private credit portfolios.

The most immediate focus has been on retail redemption requests which have risen sharply in Q1 2026 relative to prior periods and are now running above the 5% quarterly cap that most funds impose to manage liquidity.

Blue Owl has been hit particularly hard, with redemption requests of 41% on its technology income fund and 22% on its direct lending fund.

In the medium term, the bigger debate is the extent to which asset quality might deteriorate, given private credit’s skew to smaller companies, particularly in the software industry.

To date however, there is little evidence of defaults. Funds typically quote default rates sub-1%, although this excludes restructurings which likely understate the true level.

Taking a broader view that includes restructurings, there are some signs of stress. Payment in Kind (PIK) loans have been increasing, with Fitch’s broader view of defaults lifting from 4.6% to 5.8% between December 2024 and January 2026.

Within the direct lending subset specifically, (Fitch’s Privately Monitored Rating or PMR dataset) defaults lifted from 7.8% to 9.4% over the past year ending January 2026.

The rising risk profile for software is also evident in publicly traded syndicated loan markets, where secondary trading implies a spread of >700bps for the software sector.

Concerns are also evident in the price for public BDCs, which are trading at a ~20% discount to NAV. This implies a ~10% markdown in loans, after allowing for leverage.

Overall, while there will likely be some issues in private credit, the risk of financial contagion appears low.

There are potential issues around bank lending to private credit which is estimated at US$410–540 billion, and uncalled investor commitments at a further US$310 billion. Questions have also been raised about capital backing insurance investments, given offshore reinsurance subsidiaries. 

However, these are modest relative to US bank balance sheets of US$33 trillion, pension fund assets of US$28 trillion and insurance company balance sheets of US$14 trillion.

Markets

It was a strong week for the Australian market with the S&P/ASX 300 rising 4.5% for the week, with little differentiation by market cap.

However, there was significant rotation by sector.

Financials outperformed, driven by gains in banks and diversified financials alongside Materials with gold stocks also leading. Select growth names also moved higher.

On the other side of the ledger, Energy was the worst performing sector down 3.7% for the week after the crude price reversal.

Defensives, which previously outperformed, gave back ground, and healthcare and software names were mostly softer.