Crispin Murray: What’s driving Aussie equities 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 Jonathan Choong

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THE first full week of 2026 was eventful. Geopolitical events in Venezuela and Iran created volatility in commodities, US macro data finally came through post-shutdown, and the RBA eased concerns of a near-term rate hike along with some large M&A developments.

Equity markets were strong outside of Australia, with most predictions for another good year with strong liquidity driving sentiment.

Commodities were up, with concerns over potential oil supply disruption leading to a bounce in crude. Gold was also up on geopolitical uncertainty and base metals and lithium lifted on improved global-growth expectations.

The US market is up calendar year to date (CYTD) with the S&P 500 returning 1.8%, led by more cyclical sectors metals, homebuilders and semiconductors. Software, REITs and the Mag 7 lagged.

The Australian market started the year flat, with the S&P/ASX 300 up only 0.1% CYTD. Resources outperformed yet were held back by banks and tech. Corporate activity also materialised with SGH bidding alongside Steel Dynamics for BlueScope Steel, which was rejected, and Rio Tinto entertaining a merger with Glencore.

Geopolitics

In trying to understand the implications of geopolitical developments, often there is too much emphasis put on the market consequences of these events.

For equities, unless there is a clear impact on global growth or corporate earnings, the default response is to wait and assess how conditions develop.

Most of the recent reaction to events in Venezuela and Iran were seen in commodities, with gold benefitting from a further rise in risk premiums.

Oil is also a focus with both the Venezuelan and Iranian situations potentially having material consequences, these are ambiguous and could go either way.

Venezuela, Iran and the oil market

Venezuela currently produces around 800,000 barrels per day and could add a further 400,000 in the coming months, which would return output to September levels. Most of the recent decline reflects the tanker blockade.

There is ongoing debate around Venezuela’s potential incremental supply. The consensus view is that capacity is limited over a three-year window due to underinvestment and operational constraints, implying an additional 300-400,000 barrels at most.

However, there is an alternative perspective from some in the US oil industry that production could rise to 2-3 million barrels per day over that period – an incremental 800,000-1.8 million barrels. An additional 1 million barrels are estimated to reduce the oil price by roughly US$8, which could be a medium-term headwind, yet this hasn’t showed up in the forward curve yet.

A more cautious factor for pricing is the increasing influence of the US. When combining US reserves with those of Venezuela and Guyana, the bloc now holds sway over more than 30% of global reserves, compared with Saudi Arabia’s 14%. This could allow the US to exert greater long-term control over oil prices.

The view is that they would guide pricing into the mid to high US$50s, as this ensures US shale remains profitable (breakeven in the high US$40s) but low enough to allay concerns on cost of living in the US. This may put them at odds with OPEC.

When it comes to achieving this production growth, US companies will have to lead with material capital expenditures ($50-100 billion) and there are three criteria for investment:

1. Security: Around 500,000 militia linked to Russia, Iran and Cuba operate within Venezuela. The view is these groups must exit the country before capital is deployed and the blockade is lifted.
2. Elections + stable government: The interim President is liked by the oil industry, but free elections may take longer than expected. This is partly because of the foreign militia and the Colectivos, which are armed Maduro loyalists who ride around on motorcycles with guns repressing dissent, making credible elections unlikely while they remain active. The formal Venezuelan opposition also appears to lack US backing.
3. Contracts terms: For companies that have been burnt before in Venezuela, they will need watertight contract terms before coming to the table.

If these conditions are met, the consensus view is that capital availability is not seen as a major constraint. The US government has indicated it may support investment to facilitate development.

There are concerns that the near-term effects may lead to some disruption to oil supply, specifically with the focus on stopping tankers which are flouting the blockade. This also runs the risk of escalating tensions particularly where Russian entities are involved.

Protests and unrest in Iran introduce another source of uncertainty for the oil market. While the direction of impact remains unclear, outcomes cut both ways – production could be interrupted, or the government could increase exports to bolster the economy.

US macro and policy

Labour data

Overall, the consensus view is that the recession risk in the US economy is receding and that the market is expecting an acceleration of growth.

This week there was a variety of labour market data which overall was mixed but did little to shift rate expectations.

December payrolls came in lower than expected at 50,000 versus 70,000 forecast, with private payrolls at 37,000 versus 75,000. November was revised down by 8,000 to 56,000 and October by 68,000 to 179,000.

The three-month average is now -22,000 from -3,000 in November and +22,000 previously. Adjusted for shutdown distortions, underlying payroll growth is estimated at 11,000, which is below the breakeven level to stabilise the unemployment rate.

The softer data explains Powell’s recent comments that payrolls may be overstated by about 60,000 per month. The inference here is that the data is not worse than the Fed expected.

The unemployment rate declined to 4.38% from 4.54% and below the 4.5% forecast, supported by a 232,000 increase in the labour force.

Average hourly earnings rose 0.33% month on month versus 0.3% expected and are up 3.76% year on year (y/y). Average weekly hours fell 0.1 year on year, placing underlying wage growth at 3.5% y/y.

Despite the worse payroll data, the fall in the unemployment rate was the signal the market put most weight on, with it reducing the likelihood of a Fed cut.

JOLTS job openings for November were weaker than forecast at 7.15 million versus 7.65 million and contradict other jobs data signals from sources such as from Indeed. The true direction of the labour market remains uncertain. The jobs worker gap has now fallen below 0, indicating limited wage pressure risk from the Fed’s perspective.

The hiring rate fell 0.2 percentage points (ppt) to 3.2%, layoffs declined 0.1ppt to 1.1%, and the quits rate rose slightly to 2.0%. Jobless and continuing claims remain broadly sideways, signalling no meaningful deterioration.

The overall conclusion is US companies are managing their cost structures through restricting hiring and limiting wage growth rather than shedding labour.

One consequence is that unemployment in young people is slowly rising due to a lack of job opportunities and this is not fully captured in the data.

Housing

Housing policy again featured in recent posts from President Trump, emphasising affordability.

The first proposal was a ban on institutional purchases of residential property, although institutions are estimated to own only 2-3% of rental housing stock.

The second was a proposal for Fannie and Freddie Mac to use their $200 billion cash to buy back mortgage bonds to drive down spreads and therefore reduce mortgage rates. This is a process that has already been happening and is unclear if it would have a material impact.

The broader affordability challenge still remains structural, and there is little the administration can do to meaningfully address supply constraints at this stage.

Productivity

The other impact of companies restricting hiring and limiting wage growth is higher productivity. Q3 productivity rose 4.9% annualised, lifting the 12-month rate from 1.3% to 1.9%.

In our view the reacceleration in productivity does not relate to AI directly. It is rather companies squeezing more out of their business as higher uncertainty makes them reluctant to commit to longer term investments, including labour hiring.

Historically, productivity slowed after the GFC to about 1.4%, following the strong 1995-2005 period. The recent improvement suggests the economy can sustain higher growth at lower interest rates – a constructive backdrop for earnings and valuations.

Market bulls argue AI could underpin an extended period of productivity gains, keeping trend growth in the low 2% range.

The other implication of higher productivity and constrained wage growth is that US corporates continue to increase the profit share in the overall economy, the corollary of this is a decline in labour’s share, which does have political consequences but remains supportive for margins.

Elsewhere, the Atlanta Fed GDPNow tracker surged to an estimated 5.1% Q4 GDP growth, well above the 0.9% consensus. The move was driven by trade data showing a sharp drop in the current account deficit, although this looks anomalous and may be tied to stockpiling ahead of tariffs being unwound.

The US ISM services index for December also rose 1.8 points to 54.4 versus 52.2 expected, the highest level since October 2024. Strength came from business activity, new orders and employment.

Overall, market consensus expects US GDP growth to be 2.1% in 2026. Given current economic momentum – supported by lower rates, ongoing fiscal support, continued AI related investment, improved trade dynamics and a pickup in private sector capex – we see upside risk to forecasts, with growth potentially exceeding 2.5%.

Equity markets are moving in this direction, which explains the strong start to the year and the rotation to cyclicals.

Australia macro and policy

Australia’s November monthly CPI came in softer than expected, with headline inflation at 3.4% versus the 3.6% forecast. The number was helped by seasonal discounting in clothing and travel.

The monthly trimmed mean number was also in line at 3.2% year on year. Given this is still early days for the data set, the RBA is putting more emphasis on the upcoming Q4 quarterly print, releasing on 28th January. Both the market and RBA expecting 0.8% quarter on quarter.

There are different perspectives on the underlying trends. Hawks argue that stripping out volatile components shows inflation pressures remain elevated.

Housing related categories remain firm, with rents running at a 4.8% annualised pace and construction costs at 6.2% on a three-month annualised basis.

Market services, including restaurants, insurance and car maintenance, also remain sticky. This could see the Q4 trimmed mean land between 0.9% and 1.0%, potentially keeping a February hike on the table.

Late in the week, Deputy Governor Hauser signalled the RBA may be seeking flexibility to avoid a move on 3 February, noting that the quarterly CPI print is not the only factor they will look at. The rate curve responded by shifting down 9-10 basis points (bp).

The probability of a February hike now sits at 25%, while implied odds for a move by the 5^th of May meeting are around 75%.

One of the challenges for the Australian economy is lower productivity growth which leads to higher unit labour costs – a driver of services inflation which is key to core inflation.

Comparisons with the US highlight Australia’s weaker productivity trend, which acts as a cap on potential growth and is forcing the RBA to slow growth down even from historically lower levels.

Consensus currently has Australian growth for CY26 at 2.1%. This is probably reasonable, as the risk to the upside is limited by the focus of the RBA to stop growth fuelling inflation.

Markets

Market sentiment remains broadly positive, supported by the outlook for growth, rates and earnings.

The key risk is elevated valuations and strong positioning, which leaves the market vulnerable should fundamentals shift – similar to the pattern seen early last year.

However, unlike last year, the risk appears lower in CY26 given the Trump administration’s focus on the mid-terms, making it unlikely they introduce policies that would materially impair earnings as tariff actions did previously.

The other issue to watch is where the leadership in the market is. We have seen in the US a rotation back to value and this is consistent with the improving economy and is also tied to the uncertainty around whether AI investment is sustainable.

Australia has seen an even more stark rotation away from growth and tech names to resources given the strength in commodity prices.

US earnings season kicks off next week. Consensus has 7% EPS growth year on year in Q4 25, compared to >10% across the first three quarters.

CY25 performance was underpinned by actual earnings materially exceeding expectations. For CY26, the market is looking for 12% EPS growth to US$305, implying a forward P/E of 22.8x.

Breaking down the US between the Mag 7 and the remaining 493 companies of the S&P 500, the market expects EPS growth to widen in Q4 but then narrow through CY26.

Revisions continue to favour the Mag 7, though this is not currently translating into continued outperformance.

Australia has had a more muted start to CY26, following on from reasonable performance in CY25 with the S&P/ASX 300 up 10.7%, although performance lagged most major global markets. The December quarter fell 0.9%.

Sector dispersion in CY25 was significant. Materials led with a 37.5% gain, driven primarily by gold. Industrials rose 17.2% on broad based strength, while banks gained 16.7%. Technology (-19.1%) and healthcare (-23.9%) were the major laggards, with CSL the key detractor, though the rest of the sector also underperformed.

So far in CY26, the escalation in geopolitical risk from Venezuela supported a rally in associated proxies, particularly defence and rare earth names. Lithium and copper stocks also outperformed, supported by firmer underlying commodity prices.

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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. 

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