Anthony Moran: What’s driving Aussie equities this week

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

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MUCH of the gain in global equity markets this year can be attributed to the step up in AI expenditure, US GDP acceleration and Fed interest rate cuts – and in the short term these narratives are running out of steam.

But we need to be careful about getting too bearish, given financial conditions remain loose and US GDP growth should reaccelerate in CY26.

Equity markets were volatile last week. They started stronger on the announcement of a deal to end the longest US federal government shutdown in history.

But then they gave gains back of an increasingly hawkish view of the Fed and a savage rotation away from the AI/tech sector midweek, to the benefit of resources and defensives.

The S&P 500 finished up +0.1%, while the NASDAQ was off -0.4%.

The Australian market was quite a bit weaker after being spooked by a strong jobs number that put hopes of further rate cuts to bed. The S&P/ASX 300 finished down 1.3%.

Macro data out of the US continues to be in short supply due to the shutdown, but the Australian market saw a lot of news from September reporting companies and AGMs.

US macro and policy

The big news was an end to the federal government shutdown as a spending package law was signed by President Trump on Wednesday night.

The deal only funds the government through to January, but restores SNAP funding for low-income earners and provides retroactive pay for furloughed government workers.

We should now get a catch-up on economic data releases over the next month which, given the direct and indirect impacts of the shutdown, may come in on the weaker side.

Elsewhere, the market was concerned by an increasingly hawkish tone out of the Fed.

The Wall Street Journal – regarded as being plugged into Fed thinking – reported a major divide on the Board of Governors regarding a December rate cut, reflecting a tug-of-war between softening employment fears and still resilient inflation. 

Four different Fed members spoke last week, and all noted a high bar to cutting rates in December given slower progress in reducing inflation.

The probability of a December cut fell to 50% – a material move from the 100% implied probability a month ago. 

Amidst the shutdown’s data vacuum, proprietary surveys are showing further softening in labour markets.

Goldman Sachs’ job growth tracker slid to 50,000/month in October – from 85,000/month in September – and it anticipates a 50,000 decline in nonfarm payrolls in October. This would be the weakest print since 2020 and would likely lead to the probability of a December cut rebounding.

The challenge for the doves looking to cut rates is that alternative measures of consumer spending suggest a pick-up in October, following September weakness.

Given the lack of official data and mixed signals from alternative measures, it is understandable why the Fed is considering skipping a cut in December.

Data points in the next few weeks will be critical.

Tariffs

The Supreme Court’s ruling on the legality of the bulk of the Trump tariffs is a wildcard to watch for December and January.

Oral arguments were held last week and suggest a majority of Justices are sceptical of the President’s authority to impose these tariffs under the International Emergency Economic Powers Act (IEEPA).

Prediction markets are implying only a 25% probability that the tariffs are upheld.

The Trump Administration does have other avenues to pursue but this issue, along with how tariffs are treated retroactively, is a significant source of uncertainty.

Given a poor performance from Republicans in the gubernatorial, state legislature, and New York mayoral elections held in November, the Trump Administration is making some moves to ease tariffs. 

A range of agricultural imports including beef, tomatoes, coffee and bananas are now excluded from reciprocal tariffs.

This could reduce pressure on CPI; for example, Brazil – the largest supplier of coffee to the US – has faced tariffs of 50% since August and this flowed through to a nearly 20% rise in coffee prices in the September CPI.

The Administration also announced a new trade framework with Switzerland, lowering tariffs on goods to 15%, from 39%.

So there is also progress on country-by-country deals. These developments may also play into the Fed’s deliberations.

Australia macro and policy

The key news was a surprisingly strong October employment print with +42,000 jobs added versus consensus expectations of +20,000. The growth as high-quality, driven by full time employment rising +55,000.

Unemployment fell to 4.34%, from 4.45%, and underemployment also fell.

This moved unemployment below the RBA’s year-end forecast of 4.4% and, alongside the much stronger Q3 CPI print, makes it very difficult for the RBA to make near-term rate cuts.

We do note that, despite this month-on-month rebound, the longer-term trend remains of a steadily rising unemployment rate.

In the last month, two-year bond yields have risen 50 basis points (bp) in response to the macro data, while the market has shifted from pricing two cuts to just one by June 2026.

There is puzzling dynamic in Australia where the Westpac consumer confidence survey is quite strong, rising above 100 for the first time since Feb 22, but expectations for unemployment are also rising.

The explanation is likely the positive wealth effect on homeowners from rising house prices.

Australia’s variable rate mortgage system provides a rapid transmission mechanism for rate cuts. The RBA has cut 75bp since February – and capital city house prices have risen 7% in the same period.

Scentre Group’s quarterly sales data last week showed this positive wealth effect flowing through. Quarterly sales grew 3.7% for the September quarter, up from 2.7% in the June quarter.

REITs and consumer discretionary stocks have had a good run this year on the back of rate cuts. With the cutting cycle looking to have an extended pause, these sectors could now take a breather.

China macro and policy

The dour state of the Chinese property market continued with floor space sales falling 19% year-on-year in October and new starts down 30%, taking them to the lowest level since 2003.

Property has now declined to less than a fifth of steel demand in China, so the incremental impact for iron ore demand is less material.

Markets

Tech pullback

The AI/tech/datacentre space saw a healthy pullback last week, coming after a strong run year-to-date

There wasn’t any individual catalyst, but there has a been a steady drumbeat of concerns about the economic viability of the AI/datacentre boom over the last few weeks, raising anxiety in a bit of a news vacuum ahead of the key Nvidia results this week.

Talking points during the week included:

• Neocloud provider CoreWeave fell ~30% after cutting its revenue guidance. We note that the downgrade was driven by supply chain issues, not demand.  
• Softbank selling its entire stake in Nvidia (to fund other AI investments).
• Commentary questioning the sustainability of OpenAI’s economics.

It was no surprise that the higher beta parts of the tech space – such as the “Unprofitable Tech” basket – have seen the biggest pullback. Bitcoin has broken below US$100,000 and kept falling on Friday despite the Nasdaq stabilising.

Concerns are also spreading to the credit market, as seen in a spike in the spread of Oracle’s credit default swaps.

On a technical basis, the Nasdaq has been hanging onto the support of its 50-day moving average and finished there on Friday, adding to the importance of Nvidia’s result this week.

Pulling back and focusing on the medium-term picture, Goldman Sachs published a piece last week highlighting that the current AI boom is not showing the macro and market imbalances that were visible in 1999/2000.

Instead, Goldman Sachs argues the current conditions have more in common with the earlier-stage tech boom in 1997/98. 

On factors such as investment as a share of GDP, contribution of tech to real growth, corporate debt as a proportion of profit and equity returns, the current AI boom has not reached the levels of 1999/2000, suggesting that despite concerns and the inevitability of short-term corrections, the story could have further to run.

Resources

The resources sector benefitted from the rotation out of tech and the broader market sell-off last week.

The iron ore producers benefitted from resilient pricing as Chinese steel exports remain elevated, and supply is relatively disciplined.

Energy similarly benefitted from looking like it is recovering from its floor, while gold benefitted from its safe haven status.

Notably, there was a sharp recovery in sentiment towards lithium prices and equities.

The last few years saw an implosion of the lithium bubble as global supply ramped up and demand disappointed due to weaker-than-expected penetration of EVs.

However, there has been a potentially material change in the story on renewed growth in Chinese lithium demand driven by utility energy storage systems.

China’s rapid renewables rollout, stimulated by government incentives, has led to a “duck” curve in prices – where power prices are negative in the middle of the day.

This has made battery storage projects profitable and is driving a ramp up in investment.

Market technicals

The S&P 500 is right back to the bottom of the channel it has been occupying for six months and so approaching a meaningful resistance level.

This week will be important for indicating any change in trend.

The turnaround in investor positioning sentiment from positive to negative has been pretty sharp but is not at a level that suggests there is little downside.

On the positive technical side, markets historically trade weaker immediately after government shutdowns end, but then trend positively over following months.

US financial conditions also remain at reasonably loose levels, while the bar for markets in terms of consensus quarterly earnings expectations eases materially – from just over 10% in Q3 to just over 5% in Q4.

Australian equities

The Australian market underperformed US markets during the week.

We saw the same rotation out of tech and into the resources and defensive sectors. We also had the additional drag of a sharp pull back in the banks, driven by a poorly received CBA result.

The rise in rates following the jobs data dragged down REITs and consumer discretionary stocks. The insurance sector outperformed as a beneficiary of higher rates.

Stock moves reflect the market rotation, sector specific themes and a continuation of the trend this year of relatively modest earnings misses being heavily punished by the market.

So resources dominated the top performers – particularly lithium and gold stocks.

On the flip side a range of tech companies were heavily sold off, as well as disappointing reporters including Xero, CBA and Aristocrat.

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About Anthony Moran

Anthony Moran is an analyst with over 15 years of experience covering a range of Australian and international sectors. His sector coverage has included Australian Industrials and Energy, Building Materials, Capital Goods, Engineering & Construction, Transport, Telcos, REITs, Utilities and Infrastructure.

He has previously worked as an equity analyst for AllianceBernstein and Macquarie Group, spending a further two years as a management consultant at Port Jackson Partners and two years as an institutional research sales executive with Deutsche Bank.

Anthony is a CFA Charterholder and holds bachelor’s degrees in Commerce and Law from the University of Sydney.

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