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Jack Gabb: What’s driving Aussie equities this week?

August 06, 2025

Here are the main factors driving the ASX this week, according to Pendal investment analyst JACK GABB. Reported by portfolio specialist Chris Adams

IT was a macro-heavy week, with the Federal Reserve’s expected decision to hold rates steady taking centre stage, while a subsequent data print revealed cracks in the labour market.

The bulk of US reporting season continued, with US tech stock earnings mostly exceeding expectations, further underpinning the push into AI.

It was also a big week for tariffs, with the overall rate now at 18% and implementation now being delayed to 7 August.

In Australia, CPI came in lower and cemented expectations for a rate cut on 12 August.

In China, the July Politburo meeting was muted, with potential stimulus measures deferred.

As a result, the S&P/ASX 300 fell slightly by 0.01% for the week, faring better than the S&P 500’s 2.34% decline.

US macro and policy

It was a big week on the macro front, with the Fed meeting front and centre. Rates were kept on hold, as expected, but commentary from Powell was interpreted as less dovish.

That initially drove down September rate cut expectations from 68% to 43%, before weaker-than-expected labour market data on Friday drove a sharp reversal back to 87%.

But bad news is good news for equities, as the expectation of a September cut is now well above 90%.

On outlook, there was little change to the FOMC statement and no change to forward guidance. In the press conference, Chairman Powell said that the economy “is not performing as though restrictive policy is holding it back inappropriately”.

He also mentioned the labour market is in balance (but with downside risk), inflation remains above target, and we are only at the early stages of tariff pass-through to inflation.

In summary, maintaining “modestly restrictive” policy “seems appropriate” for now, in his view.

Unfortunately, that view was immediately challenged by Friday’s labour market data. July payrolls were 73k versus expectations of 104k. More importantly, May and June saw large downward revisions (125k and 133k, respectively).

The unemployment rate, which Powell is more focused on than NFPs (non-farm payrolls), also ticked up to 4.25% from 4.12%. Most other data also came in weaker, which combined to drive September rate cut expectations sharply higher. The dollar also partially reversed its recent rebound.

The credibility of recent data came under scrutiny by President Trump, firing the head of the Bureau of Labor Statistics hours after its release. “Important numbers like this must be fair and accurate; they can’t be manipulated for political purposes,” Trump stated.

While this change is unlikely to have a significant impact, Trump has another opportunity with the Federal Reserve. Governor Kugler, who missed the July meeting, announced her resignation six months ahead of schedule.

This vacancy is seen as potentially accelerating the selection of the next Chair, with the appointee possibly acting as a shadow Chair until Powell’s term ends next year. This view is reinforced by Trump’s continued criticism of Powell over past weeks.

According to Polymarket odds, Kevin Warsh is the leading candidate for the next Chair, followed by Kevin Hassett and Chris Waller.

Whoever it ends up to be, the addition is likely to add to pressure to cut given the two dissenters at the July meeting are Trump appointees.

Interestingly it was also the first double dissent since 1993.

In other economic news, US GDP saw a beat, although the data was significantly influenced by fluctuations in net exports due to tariffs which reversed the trend seen in Q1.

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Tariffs

With the labour market showing some cracks, inflation remains the primary obstacle to a September cut, with two CPI prints due between now and the next FED meeting.

Tariff outcomes are crucial in the near term, as the current CPI composition has shifted towards goods and insurance rather than services.

Last week, Trump announced an updated list of reciprocal tariffs, with the overall rate expected to land at 18%, up from 2% at the start of the year and closer to 30% on Liberation Day.

The US market has largely shrugged off new measures, particularly given subsequent adjustments. Even Powell noted that tariff effects on inflation might be short-lived as “one-time base effects”.

However, with worsening jobs data and signs of a spending slowdown, the potential impact of tariffs cannot be ignored.

One challenge for the Fed is the lag between when tariffs are agreed and when they show up in goods prices. According to Powell, most tariffs are currently being paid upstream by companies rather than consumers.

This is unlikely to last however as based on Fed surveys, companies will eventually pass on the additional costs, meaning the full impact on consumers is yet to be seen. Budget tax cuts may help, partially funded by $30bn per month in tariff collections, but it is unclear if this will be sufficient.

It is also worth noting the risk that if/when the Fed next cuts rates, mortgage rates may not fall as Bloomberg has highlighted during last year’s cuts.

US reporting season

Outside of macro data it was a big week for US earnings, particularly within the tech sector.

We are now two-thirds of the way through Q2 reporting season with over 80% of companies having reported a positive EPS surprise. Year-on-year earnings growth is also averaging over 10%.

Despite the generally strong results, the S&P 500 finished down over 2%, with only the utilities and communications sector posting gains.

The overall drop in the S&P masked reporting beats by AI bellwether stocks Microsoft and Meta:

  • Microsoft beat expectations with EPS of $3.65 vs. $3.37 expected and projected next year’s capex to exceed $100bn, a 14% increase year-over-year.
  • Meta also exceeded expectations, driven by ad growth and AI, forecasting 2026 capex at $97bn vs. $68bn in 2025.
  • Amazon’s results were less impressive, but the company is increasing spending, citing the early stages of AI development. The CEO emphasised the need to build capacity to meet customer needs and highlighted electricity supply as a constraint for expanding cloud services.

Outside of tech, the earnings were more mixed:

  • UPS missed earnings and withdrew FY guidance amid macro uncertainty, with Q2 volumes falling 7.3% to 16.6 million packages – worse than Q1.
  • United Health continued to struggle with rising medical costs. This trend prompting Trump to ask 17 major pharmaceutical companies to slash prescription drug prices to match those overseas. Companies have until September 29th to respond.
  • Southwest Airlines lowered FY profit guidance to $0.6-0.8bn from $1.7bn at the start of the year. However, domestic leisure travel stabilised in Q2, though business travel remains down due to government spending cuts.

This tale of two markets was underscored by the underperformance of the Russell 2000 which was down -4.2%.

While the AI narrative appears on firm footing, consumer and tariff exposed sectors appear more fragile. As such a two-tier market appears likely to persist for some time.

Commodities

Moving to commodities, materials was the weakest sector, reversing much of the previous week’s gains.

Energy was the one bright spot, with LNG benefiting from pledges to buy more from the US as part of trade deal negotiations.

Oil also gained, but over the weekend, OPEC+ agreed to a 548k barrels per day increase in September. This move appears aimed at reclaiming market share but likely adds to a forecast global surplus later this year.

Most metals retreated, with copper on Comex seeing the most dramatic fall after Trump reversed tariffs on refined products, which constitute the vast majority of copper imports.

Lithium also saw a sharp reversal of recent gains, with equities following suit. Speculation around material supply interruption in China has, thus far, not been substantiated.

China

China equities ended the week lower, with the key July Politburo meeting offering little new information. 

Rather, it emphasised the implementation of existing policies, which arguably reflects the fact that growth YTD has exceeded the official target and US-China tariff risks have reduced.

The so-called ‘involution-style’ competition did not attract much comment, with official guidelines deferred to later in the year. However, subsequent releases quoted Xi as vowing to “break involution,” indicating that policies to reverse deflation are likely to continue.

As a case in point, we saw announcements from Meituan and Alibaba aiming to curb disorderly price competition and GCL Technology to shut a third of its solar-related production capacity during the week.

There was no boost to real estate, which was a slight surprise given weakness has re-emerged since April. The commentary there was centred on delivery of high-quality urban renewal programmes, which the market believes are unlikely to deliver meaningful change.

Overall, the meeting contained few surprises, with the shift towards structural rebalancing (anti-involution; boosting consumption) still in progress. As such, expectations for additional stimulus are likely pushed back to late Q3/early Q4, coinciding with the 4th Plenum in October where the next five-year plan with be detailed. 

Similarly, expectations for additional rate cuts have been delayed, with the Politburo statement removing the April meeting’s wording about cutting policy rates and reserve requirement ratios at the appropriate time.

This has been interpreted as pushing the timing of additional cuts to Q4 when growth pressures are expected to re-emerge, which could see the resource sector remain stagnant until then.

Backing up the wait-and-see approach is a likely further delay in the implementation of US-China tariffs, with a meeting in Stockholm agreeing a 90-day delay (to mid-November), albeit this remains subject to Trump approval.

The risk here is that there could be degradation over August/September – similar to 2024. Factory output remains weak with manufacturing PMI down 49.3 in July from 49.7 in June, and port traffic is coming off highs – potentially indicating an end to front-loading ahead of tariffs.

Property also remains weak, with China’s top 100 developers seeing their combined value of new home sales dropping 24% year-over-year in July. Sales also fell 38% from June.

Australia

Domestically, the main news was the softer than expected CPI, leading to a ~100% chance of a 25bps cut later this month and over two cuts by November, up from the start of the week.

Q2 CPI printed at 2.1% year-on-year vs. 2.2% expected and 2.4% prior. June CPI was 1.9% year-on-year vs. 2.1% expected.

Quarter-on-quarter CPI was 0.7% vs. 0.8% expected and 0.9% prior. Tobacco added 2% due to biannual indexation which was last applied 1 March, with alcohol and tobacco comprising 6.58% of the CPI weight.

Support for a cut this month looks more assured after the Reserve Bank deputy governor noted the previous shock decision should be viewed as an unusual occurrence. He also said cash rate decisions should be predictable and in line with market expectations.

Australian equities ended largely flat with the S&P/ASX 300 returning -0.01%, reversing the sector moves from the previous week.

The strength in Consumer Discretionary (+2.4%), Industrials (+1.5%), and Financials (+1.5%) offset the weaker Energy (-1.9%) and Materials (-4.0%).


About Jack Gabb and Pendal Focus Australian Share Fund

Jack is an investment analyst with Pendal’s Australian equities team. He has more than 14 years of industry experience across European, Canadian and Australian markets.

Prior to joining Pendal, Jack worked at Bank of America Merrill Lynch where he co-led the firm’s research coverage of Australian mining companies.

Pendal’s Focus Australian Share Fund has an 18-year track record across varying market conditions. It features our highest conviction ideas and drives alpha from stock insight over style or thematic exposures.

The fund is led by Pendal’s head of equities, Crispin Murray. Crispin has more than 27 years of investment experience and leads one of the largest equities teams in Australia.

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

 



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