Peter Davidson: What’s driving Aussie equities this week?

Here are the main factors driving the ASX this week, according to head of listed property PETER DAVIDSON. Reported by head investment specialist Chris Adams

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“WHAT do you do if you’re driving in a fog? You slow down,” said Jay Powell Fed Chairman in late October.

And that is what markets have done in the past couple of weeks.

The S&P/ASX 300 fell 1.3% last week – its second weekly decline, having fallen 1.5% in the previous week.

Markets are no longer fully factoring in an interest rate cut during this cycle after the RBA maintained the current cash rate last Tuesday.

The S&P 500 market has fallen by 2.4% from the peak late last month and was down 1.6% last week.

The Nasdaq (-3%) racked up its worst week since April with sell off in Palantir (-11%), Nvidia (-7%), Core Weave (-22%) and Oracle (-9%). 

Bitcoin, the bellwether for speculative euphoria, has fallen by 8% in the past week, US jobs data – as reported by Challenger – was weak and a near-record low University of Michigan sentiment number added to the caution.

Meanwhile, prospects for a resolution to government shutdown seem to fade further. At 37 days, this is the longest shutdown in US history and is starting to impact the real economy with disruption to the SNAPS program (42 million Americans, or 12% of the population, are on food stamps) and air travel.

On the positive side, markets are holding key technical levels, and we are near a strong period in the equity markets with seasonal inflows in 401K accounts.

Oil (-15% CYTD) has been a positive for the equity markets.

US Treasury markets were relatively quiet last week, with 10-year yields unchanged.

On a calendar year basis, there has been a change in leadership so far this year with the UK and Japanese markets performing well.  At the margin these markets are also benefiting from a shift away from dollar assets with US dollar trade-weighted index (DXY) down 8% for the year.

US macro and markets

Consumer sentiment weakened

The University of Michigan Consumer sentiment index fell from 53.6 in October to 50.3 in November, nearing a record low in a series that goes back to 1980.

In terms of components, the percentage of respondents expecting a higher unemployment rate over the next year rose to 62%, up from 52% in October.

Consumers’ one-year inflation expectations rose slightly to 4.7% from 4.6%, with one third of respondents expressing concerns regarding weak income levels, marking the highest proportion since 2020.

While consumer sentiment is expected to improve following the eventual resolution of the US federal government shutdown, there are ongoing concerns that previous over-hiring, labour hoarding, and productivity gains related to artificial intelligence may contribute to a jobless economic expansion.

Jobs market: Mixed but soft

The Challenger Job Cuts report indicated continued weakness in the US labour market, reflecting the highest year-to-date job cuts since the onset of the pandemic.

Elsewhere, the October ADP employment report registered a modest recovery in private sector hiring; however, the three-month average remains below breakeven estimates for employment growth.

The Fed

The Fed served up another 25 basis-point (bp) rate cut but could not quite decide what to do next.

This is the fifth cut, so total rate cuts have amounted to 1.5% in this current cycle. The vote was 10–2, but the dissents were in opposite directions.

• Stephen Miran (Governor) wanted a larger cut of 0.50%.
• Jeffrey Schmid (Kansas City Fed President) wanted no cut at all.

With a US government shutdown weighing on economic growth, Chair Powell is treading cautiously and has clearly opted for the “let’s just see what happens” approach until more data arrives on his desk.

Tariff Troubles

The Supreme Court is currently examining the Trump Administration’s $195 billion tariff initiatives, which have broad implications for international trade.

According to betting agency Polymarket, there is a 75% probability that the court will impose restrictions on the emergency powers granted under the International Emergency Economic Powers Act (IEEPA), despite being stacked with Republican-friendly judges.

It is likely that the imposition of new tariffs would slow as a result, although the Trump Administration does have alternative avenues to pursue them.

Ultimately, the Supreme Court’s ruling will be critical, with a key question being how tariffs already paid would be treated and the US government potentially being on the hook for billions of dollars of refunds.

China macro and policy

China’s trade engine hit a speed bump in October, with both exports and imports slowing down.

Exports decreased by 1.1% compared to the previous year, contrary to analysts’ expectations for an increase. Headline exports dropped for the first time since February. Shanghai port activity hit its lowest level since April.  

Imports were also subdued, falling short of expectations with growth of just 1% year-on-year (consensus: 3%, prior: 7.4%). China’s imports from the US declined at the fastest pace since September 2019.

The figures probably don’t capture the US-China trade de-escalation.

Commodity imports remained resilient, while high-tech goods were the main drag.

Agricultural imports showed improvement and could continue to recover in the coming months, supported by China’s resumption of purchases of US farm products

Australia macro and policy

The RBA kept the cash rate at 3.60%, as expected.

The latest Statement on Monetary Policy indicates lingering inflation pressures, prompting cautious policy and higher CPI forecasts, with trimmed mean inflation staying above 3% until mid-2026.

Unemployment projections edged up, but labour market tightness persists. The RBA trimmed GDP estimates.

Analysts now expect a prolonged rate pause, seeing May 2026 as the earliest possible cut. The RBA’s hawkish tone shifted rate cut odds from 97% by June 2026 to 74%.

The recent Q3 inflation print (+3.2% versus +3.0 expected) might well be considered transitory, reflecting the removal of government electricity subsidies (with the housing component accounting for approximately 20% of the CPI) and increases in council rates. These factors might well reverse in Q4.

However, RBA Governor Michelle Bullock noted that “just below three per cent is not good enough for the board.

“The question we should be asking is – if we ease much further, do we think inflation will continue to come down?” she said. “If you take our forecast at face value, I think that’s a bit marginal.”

Australian home prices climbed at the fastest pace in more than two years in October, underscoring how a resurgent property market threatens to complicate the RBA’s efforts to cool inflation.

Markets

US

Over 80% of S&P 500 companies have reported Q3 results, with 82% beating earnings estimates (above the recent 73% average) and 67% surpassing sales projections.

Despite robust performance, US stocks saw limited gains for positive surprises and sharper declines for misses.

Major AI hyperscalers such as Microsoft, Google, Amazon, and Meta reported earnings and increased their annual capex guidance, indicating greater investment in AI infrastructure.

The tech giants are on a capex spree, each trying to out-build the others for AI domination.

• Microsoft plans a 59% jump in FY26 spending.
• Google will spend $91–93 billion on AI hardware next year, a 75% leap from the previous year.
• Meta aims to spend $115 billion by 2026.

This is all despite unclear payoffs from generative AI.

These are cashflow-rich companies; however, the high-grade bond market is also helping to fund DC rollout.

The Beignet Investor LLC’s – a joint venture between Blue Owl Capital and Meta – is issuing US$27.3 billion in debt to fund a 2.064-gigawatt data centre campus in Louisiana.

This is the largest US corporate bond deal in history for a single project financing.

Australia

The S&P/ASX 300 finished the week -1.3% with weakness in small caps (-3.7%), materials (-3.1%) and tech (-4.3%).

Financials (+0.3%) were muted but outperformed, buoyed by strength in the Banks (+1.6%) amid a busy reporting season, despite a notable drop from Macquarie Group (MQG) owing to an earnings miss.

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About Peter Davidson and Pendal listed property strategies

Pete Davidson is Pendal’s head of listed property.

Peter has held financial markets roles spanning portfolio management, advisory and treasury markets over more than three decades.

Specialising in the Property, Retail, Insurance and Infrastructure sectors, he has previously held roles with Midland Montagu Australia, Daiwa Securities and has served as the non-executive director of the Industry Superannuation Property Trust.

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

Pendal Property Securities Fund invests mainly in Australian listed property securities including listed property trusts, developers and infrastructure investments.

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About Pendal Group

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

Contact a Pendal key account manager