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 Chris Adams

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US FEDERAL Reserve Chair Kevin Warsh used his Jackson Hole speech to re-establish his inflation credentials, signalling a clear focus on the 2% target – as measured by the current favoured personal consumption expenditures (PCE) deflator.

He also noted that inflation needs to come down at sufficient speed and implied this was not yet the case.

The odds of a September rate rise rose as a result, driving up two-year Treasury yields.

The great bond debate continued, with Treasury Secretary Scott Bessent highlighting more mechanisms to hold yields down.

The bond market responded via high-profile investor Stanley Druckenmiller who, in a Wall Street Journal op-ed, pointed out that suppressing yields doesn’t solve the problem of unsustainable spending, which is a political issue.

The 10-year yield ended flat for the week.

Equity markets were relatively flat, with good corporate news (e.g. Nvidia and Salesforce in US) and lower oil prices (Brent crude -5.4%) being offset by rising bond yields. The S&P 500 finished +0.5%, the NASDAQ +0.9% and the S&P/ASX 300 +0.5%.

Australian reporting season reached its peak. Overall, we saw decent results in an economy that is slowing gradually.

The large supermarkets had decent performance and resource stocks continued to rally (although a tougher Warsh on Friday night may see this reverse).

Poor domestic consumer price index (CPI) data raised the likelihood of rate increases here and affected rate-sensitives like the REITs.

Macro and policy US

Kevin Warsh used his Jackson Hole speech to stop digging a hole on policy direction and restore confidence that he was committed to achieving the Fed’s inflation target.

He clarified two points, which had caused confusion in his last press conference. He noted:

1. The inflation target is 2% on the PCE deflator, i.e. he is not currently moving the goal posts, saying it was the “fixed, firm target”.
2. The active instrument of policy is the Fed Funds rate (“the predominant tool”), i.e. he won’t just let the bond market do the work of tightening policy if that is what is necessary.

He also set a moderately hawkish message on near-term rates, saying:

• The FOMC “must be confident that underlying inflation is moving to our objective, clearly at sufficient speed”.
• Underlying data trends over the summer, while better, did not indicate that inflation trajectory had meaningfully improved. He noted 54% of items in the PCE basket had price rises above 3%, which compares to an average 32% in the 20 years pre-pandemic. The inference is that more good news on inflation is needed to avoid a rate hike.
• He noted that the economy was proving resilient.
• He said that it would be hard to make a case financial conditions were restrictive.

His timeline is unclear, but the market conclusion is that the September meeting is ‘live’ and the market has priced a 57% chance of a hike, up from 40% last week.

He also provided more colour on his philosophy, notable points being:

• Avoid communication distorting the pricing signals from the market, which he views as being important inputs as to what is happening in the economy.
• More focus on trends in underlying inflation so policy can be more forward-looking.
• The need to understand supply-side factors to assess the consequences of demand.
• A view the Philips curve does not exist, i.e. there is no trade-off between employment and inflation.
• Money supply can provide a perspective on the inflation outlook.

Elsewhere, headline PCE inflation was a bit higher than expected at +0.2% month/month and 3.7% year/year, while core was in line +0.2% month/month and 3.3% year/year.

This didn’t budge from a level which is considered too high, so was no help for Warsh; but equally it was not any worse, so there was no incremental impact on policy.

Personal income and spending data showed a slowing in spending in July, with the savings rate bouncing to 3.0% from 2.7% but still well below the 4.5% in August 2025.

It appears consumers used savings to buffer the initial impact of the Iran conflict and were now using income growth to rebuild savings rate.

Bond market

We previously noted Secretary Bessent’s jawboning of the bond market, where he talked about how the Treasury can increase the level of buybacks at the long end on the yield curve.

The goal was to provide a cap on yields, however the one-day drop in yields was quickly reversed, leading him to escalate his commitment last week by pointing to their ability to draw upon the firepower of the Treasury General Account (TGA).

This is potentially material. The buyback is around US$15-20 billion per quarter, against US$400 billion+ of 20+ year annual gross issuance. It also compares to the QE run rate of $240 billion per quarter.

However, the TGA is currently US$967 billion compared to a Janet Yellen-era level of US$550-600 billion and policy floor of US$150 billion.

So they could credibly use up to US$200 billion i.e. US$50 billion/quarter.

There was what some saw as a rebuke of Bessent from Stan Druckenmiller in his WSJ op-ed, noting that intervening in the bond market was not resolving the fundamental problem that the US deficit is too large and unsustainable.

Given an apparently close relationship between Bessent and Druckenmiller (and Warsh, for that matter), the better reading of this was a message that the onus on solving this problem was on the political system, not the Treasury secretary, and may be an indirect signal Bessent wanted to give on that issue.

There are other tools available to Bessent, the most relevant being a shift in the issuance mix which currently has 24% slated to 10+ year maturities (11.6% being 20 and 30 year), which is US$924 billion gross issuance in the next 12 months.

Historical precedent suggests the 20- and 30-year issuance could be cut to 8%, which would reduce supply US$136 billion per annum i.e. US$34 billion/quarter.

So, on paper he has tools that could equate to reducing supply US$100 billion/quarter – which is significant.

We believe the goal is not to meaningfully drive yields lower, but to hold the line at 4.70% and flush the shorts out of the market, taking away a left tail ‘bond crisis’ risk to the economy and the Presidency.

Our view is that they are likely to achieve this and bond yields won’t derail equities.

Macro and policy Australia

July monthly CPI data was worse than expected with headline +1.02% month/month and 3.5% year/year (versus 3.3% expected) and trimmed mean +0.49% month/month and 3.6% year/year (versus 3.5% expected).

The monthly trimmed mean number was the highest since July 2025 and puts pressure back on the RBA to raise rates.

Anecdotally through reporting season companies have said they are subject to cost pressures, be it wages (4.75% set by Fair Wage Commission), regulatory and/or construction costs and are looking to pass these on to consumers.

Markets

The US market was focused on the Nvidia result, which was well received, although the stock only ended up 1.3% for the week, with semis overall down 2%.

The key news was:

1. Revenue growth was strong. The July quarter was 5% more than expected, growing 18% quarter/quarter and 106% year/year. It was the third quarter of acceleration in the year/year number.
2. The company provided revenue guidance for its FY28 (February 2027 to January 2028) at +70%, which was at the optimistic end of market expectations. It says this is supply constrained and understates true demand.
3. Nvidia clarified gross margin outlook for FY28 of 72-73%. This had been a concern for the market given input cost inflation and was down on current year (75% in Q2), but the certainty it provided alleviated downside concerns.
4. The company provided more detail on the breakdown within its data centre business between Hyperscalers and AI clouds/industrial & enterprise (ACIE). The former is slowing and more vulnerable to substitution, the latter is growing faster driven by neoclouds and is more reliant on NVDA.
5. There was more clarity on financial arrangements to address the circular financing concerns. Nvidia disclosed investments of US$50 billion in frontier AI labs. Also, it has now provided US$366 billion of financial commitments for customers, the clear largest proportion is US$279 billion for supply commitments (mainly memory) up from US$119 billion in Q1. There is also US$29 billion for cloud service agreements, US$25 billion for DC leases, US$25 billion for equity investments and US$5 billion for capex. There is an additional US$108 billion for other guarantees. The company is forecast to make pre-tax profit of US$269 billion in the current FY and US$456 billion next year.

The relevant inconsistency coming out of this result is the gap between Nvidia’s revenue growth expectation of 70% in CY27 and the market’s forecast hyperscale AI capex spend growth of 36%.

Bears will say that the customers will not have the cashflow to fund the 70% forecasts of Nvidia. The bulls say the acceleration in revenue and profitability we saw in Q2 suggests that they are getting the pay-back and will spend the money.

Looking at the rest of the US market, we continue to see the recovery in healthcare, which is transmitting across to our market, with the sector leading the ASX +18% for August.

We are also seeing a continued move in software (+6% for the week), with a catalyst from the Salesforce (+22%) result, at which the company launched its Claudeforce product with Anthropic. This sees Claude become the reasoning layer inside Salesforce products.

The message is that by embracing the models Salesforce preserves its franchise, as enterprise (large, complex businesses) finds it too difficult to build the tools over Claude to get the insights that Salesforce provides.

Many will see this as a potential stay of execution; however it highlights that the most extreme concerns for software have not materialised.

The iShares Software ETF (IGV) has almost recaptured its November 2025 highs, while Salesforce is 70% off its June lows and within 3% of its level on 1^st January 2026.

We have not seen the same recovery in Australian software names. Xero (XRO) is still -25% calendar year-to-date, while Wisetech (WTC) is -40%.

Part of this is stock specific issues at WTC, but for XRO the concern is the type of business. XRO focuses on small companies rather than enterprise, suggesting there is less complexity to shift software vendors.

However, we believe a similar benefit exists in utilising AI through the software vendor – particularly the one acting as your system of record and understanding your workflow processes.

Australia

The market ground out a small rise (S&P/ASX 300 +0.5%) over the busiest week of reporting season, which was a good outcome given the shift in the outlook for interest rates.

Resources (+2.2%) and Consumer staples (+1.5%) led the market, with REITS (-1.8%) underperforming, mainly on the increased probability of a rate rise.

Themes from results last week were:

1. Supermarkets had solid performance, managing costs and see reasonable sales momentum.
2. Strong dividends out of the resource sector and fuel refining/distribution stocks, highlighting good capital discipline.
3. Some industrials are managing a tough environment on higher input costs relatively well; Ansell (ANN) beat expectations, Qantas (QAN) and Virgin (VGN) are containing the fallout from higher fuel, while Nine Entertainment (NEC) is dealing with subdued advertising.
4. Some companies are struggling to adapt to structural challenges and revenue headwinds (e.g. Endeavour (EDV) and Sonic Healthcare (SHL).

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 flagship Pendal Focus Australian Share Fund is a high-conviction equity fund with a two-decade track record 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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