Crispin Murray: What’s driving the ASX 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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AT THIS point the market expects the US government shutdown to last two weeks, taking about 20bps out of Q4 GDP growth, and not affecting the outlook for two more Fed rate cuts in 2025.

In combination with the run-up to the Chinese Mid-Autumn festival, this has made for a quieter time on the macro front, with limited economic data releases.

Last week US bond yields fell, reversing the previous week’s move, while oil prices dropped sharply (Brent crude -8%).

This combination supported risk assets with gains in equities (S&P 500 +1.1%), gold (+2.8%), and copper (+7.3%), while bitcoin (+13.2%) reached a new all-time high of more than US$125k.

This all highlights the ample level of liquidity and appetite for risk.

The Australian market was particularly strong, with the S&P/ASX 300 gaining 2.3%, led by gold and copper stocks.

Financials (+3%) and Health Care (+4.8%) did well, while small caps also continued to perform (S&P/ASX Small Ordinaries +4%).

US macro and policy

With no US payroll data due to the government shutdown, the market looked for other sources of insight.

September payroll data from Automated Data Processing was softer at -32k jobs, reinforcing a perception that employment growth has stalled, which in turn supports the case for a 25bp October rate cut.

Lay-off data from Challenger remains benign, indicating there is not a rapid deterioration in jobs market and therefore no need for a 50bp cut.

The issue remains the lack of hiring, which is at cycle lows.

The September US ISM manufacturing survey, a sentiment indicator, was one of the few data releases for the week.

• The manufacturing index was at 49.1, versus 49.0 expected. The production sub-component was better than expected, while the new orders were weaker. Hiring intentions improved off a low base but continue to signal a weak labour market.
• The services component fell by two to 50, versus 51.7 expected, but remains in the range it has been for months.
• New orders reversed their August spike back to 50.4.
• The employment component did improve +0.7 to 47.2, however this remains consistent with a weaker labour market, albeit this has not been a good lead indicator in this cycle.

In aggregate, survey data continues to indicate that while growth in the US remains sluggish, it is not yet at a tipping point.

US Government shutdown

To summarise the stand-off, Republicans say they proposed a clean extension of government spending authority with no strings attached, which runs to the middle of November.

Democrats say a clean extension isn’t good enough, because health subsidies are set to expire at the end of the year, while the premiums affected are announced November 1. This is the last opportunity to resolve that issue, the Dems say.

In addition, they see a risk that any bipartisan spending deal – of the type Congress typically relies on to get these Bills done – can be undone by the Republicans, either because the Trump Administration doesn’t end up spending the money, or the Rescissions process which means the president can submit spending cuts to Congress that can be implemented with a simple majority.

The resolution is believed to be some commitment from Trump regarding health policy and potentially some form of subsidies.

The market is remaining reasonably sanguine as the political battle plays out. Consensus expects a two-week shut-down, with October 15 a pressure point. This is when payments to the military are due, and history indicates governments want to avoid defaulting on this.

A two-week shutdown would have a minimal effect on growth, but reinforces the likelihood of a Fed cut.

US growth outlook

Our view remains that the US economy begins to re-accelerate in Q2 2026, on the back of the fiscal stimulus from the Big Budget Bill (which is expected to contribute about 0.9% to growth in 2026 plus rate cuts.

Consumption is set to slow from the recent strong pace – probably driven by a greater wealth effect than economists expected – but should remain reasonably supportive of growth.

Investment spending – particularly AI-related – will also slow, but again provides a base level of support for the economy.

Japan

The Liberal Democratic party’s leadership race was won by Sanae Takaichi, who will become Japan’s first female PM.

Her skew is expected to be towards growth, more fiscal stimulus and dovish monetary policy.

The Bank of Japan may defer a potential October rate hike as they get clarity on policy direction and hold back in case a snap election is called.

Markets

Liquidity is one of the four factors we are watching to see if the market can sustain current levels. The others are growth, long-end bonds and AI.

Liquidity barometers continue to look supportive for markets. ETF flows are picking up, Bitcoin reached new all-time highs and we are entering a seasonally strong period.

AI bellwether stock Nvidia is creeping to new highs after a three-month consolidation.

The S&P 500 has seen a fall in the proportion of stocks above 200-day moving average and at 20-day highs, which suggests there is some loss of momentum near term.

The most meaningful move in the US market last week was in health care, which has materially lagged the overall market on concerns relating to pricing and tariffs.

The sector has fallen from about 16% of the S&P 500 in early 2020 to under 9%, converging on the weighting for the industrials sector and only just above the market cap of Nvidia.

It bounced and outperformed on the announcement of an indicative deal between Pfizer and the Trump administration relating to tariffs.

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The key component relates to the risk of a most favoured national (MFN) clause, which could force pharma companies to realign pricing in US with other developed markets, reducing their margins.

The proposal limits any MFN to Medicaid, which already has lower prices and at less than 10% of the market is relatively small in scope.

There was also a commitment to price new products in line across developed markets and to invest more into US.

This move helped the Australian health care sector, which rose 4.8%. The tariff issues here are different in nature given most ASX-listed companies are not pure pharma stocks, but it highlights the impact of sentiment on sector performance.

Health care has lagged the S&P/ASX 300 by 26% in 2025. A significant part of this is CSL, driven in part by the US health care sector de-rating, though Ramsay Health Care, Cochlear and Sonic Health Care have also underperformed.

We also saw good performance from financials, helped by the prospect of fewer rate cuts which supports bank margins and insurers’ investment income.

Resources were strong (+1.8%) led by gold stocks with Northern Star (NST) up 7.3% and Evolution Mining (EVN) +6.8%. Copper names such as Sandfire Resources (SFR, +9.5%) also did well.

Small caps also continued their outperformance.

Part of this is index composition with gold a much larger weighting. However it also reflects higher beta names in the index with stocks like Droneshield (DRO, +52.3%) and Zip (ZIP, +10.3%) continuing to re-rate and Eagers Automotive (APE, +19.4%) benefitting from an accretive deal.

Defensive sectors such as utilities (-0.5%) and consumer staples (-0.1%) lagged, as did energy (-2.0%) on the fall in oil.

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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