Jim Taylor: What’s driving Aussie equities this week

Here are the main factors driving the ASX this week according to Pendal portfolio manager JIM TAYLOR. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

THE market was in somewhat of a nervous funk heading into the Nvidia result and the September US payrolls data last week.

As it turned out, Nvidia was a “beat and raise” with positive commentary around accelerating compute demand.

The September payrolls data had a little something for everyone with a better jobs number and a worse unemployment rate.

We received confirmation that there will be no further jobs data (for October or November) nor November CPI data ahead of the next Fed meeting on the 9th and 10th of December.

This saw the implied chance of a rate cut in December reduce to about 33%, although this rose to nearer 70% late in the week following comments from Fed Vice Chair John Williams, who flagged a “rate adjustment in the near term” was on his agenda.

This helped the S&P 500 recover some of the steep losses from the 3.5% reversal experienced on Thursday, the magnitude of which (closing negative after being up 1.4%) had only happened twice before (April 2020 and April 2025).

The upshot was that outside of US bonds it was a sea of red across equities, gold, bitcoin (down 30% from October high), AI stocks and oil.

The S&P 500 finished down 1.9% for the week. The S&P/ASX 300 retreated 2.5%. The Nasdaq fell 2.7% and is now down for three straight weeks in its largest move down since the April tariff ructions.

Volatility is on the rise again with intra-day moves generating seldom-seen outcomes.

One area deserving of some extra attention could well be the correlation between crypto and the tech stocks.

Wall Street and Main Street had leverage at a record level of US$1.1 trillion at the end of October, and so it is highly likely that as crypto prices fall there will be some level of de-grossing occurring to keep gearing levels within required constraints.

We also note a degree of AI scepticism evident in the Bank of America fund manager survey, which showed that 20% of respondents feel that companies are overinvesting – this is the highest level since 2005.

Elsewhere, Treasury Secretary Scott Bessent suggested the US was at an inflection point regarding cost-of-living pressures, with the benefit of lower inflation and higher real income to come through in 1H CY26.

“It’s going to be through growth… In the first two quarters (CY26) we are going to see the inflation curve bend down and the real income curve substantially accelerate – and when those two lines cross, Americans are going to feel it,” he said.

US macro and policy

Fedspeak

Minutes from the October meeting were released last week and suggest the Fed is more divided than usual with regard to monetary settings.

Participants expressed “strongly differing views about what policy decision would most likely be appropriate” in December.

“Most” participants still expect a less restrictive policy stance over time.

However, only “several” saw a December cut as the right move, if the economy continued to perform as expected, while “many” thought that keeping rates on hold for the rest of this year would be the appropriate course.

That is consistent with recent comments from regional Fed chairs which urged a cautious approach to further easing – particularly in light of the announcement of no further jobs or inflation data before the next meeting.

In this vein, Chicago Fed President Austan Goolsbee reiterated the view that “when it’s foggy, let’s just be a little careful and slow down”.  

Fed Governor Michael Barr concurred. He sees inflation at around 3%, versus a 2% target, and emphasised the need for caution and making sure the Fed achieves both sides of its mandate. 

Boston Fed President Susan Collins said she was hesitant about further cuts, with monetary policy in the right place given economic resilience and the need to keep downward pressure on inflation.

On the other hand, Fed Governor Christopher Waller noted that US companies have begun talking more frequently about laying off workers to adjust for weaker demand and possible productivity gains from AI.

He suggested that, excluding the temporary impact from tariffs, inflation was perhaps less than half a percentage point above the 2% target and should decline further with the economy slowing. As a result, he thinks the Fed should be focused on a slowing labour market and ease policy accordingly.

Ultimately, the market seemed to take its cue from Fed Vice Chair John Williams who noted that monetary policy is “modestly restrictive” and he sees “room for further adjustment in the near term.”

There have been only five meetings with three dissents since 1993, most recently in 2019. There hasn’t been a Fed meeting with four dissents since 1992.

Jobs data

A surprisingly strong September payrolls report sparked market volatility last Thursday.

There were 119,000 new jobs added in September, versus 51,000 expected. This was caveated slightly by -33,000 net revisions for prior months and the unemployment rate ticking up to 4.44% — versus consensus which expected it to remain at 4.3%.

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Average hourly earnings rose by 0.2%, below the consensus 0.3%. Net revisions were +0.14%.

Initial jobless claims dropped to 220,000 in the week ending November 15, from 228,000 and below the consensus expectation of 227,000.

Continuing claims rose to 1.974 million in the week ending November 8, from 1.946 million, above the consensus 1.950 million.

Payroll data did not materially move expectations about the likelihood of a rate cut in December – however the market had already moved materially lower.

It is also notable that payroll strength has been concentrated in a few sectors – notably the non-cyclical heath care sector.

The move in the unemployment rate is perhaps of more interest. While it only rose 0.1% from August, it has risen 0.3% over the last three months, which has to be a number that is gaining the Fed’s attention.

Much of the rise in unemployment over the past year or so had reflected new workers or re-entrants to the labour market failing to find jobs quickly. But the increase in recent months has also reflected many workers losing their jobs.

So where to from here? Leading indicators of labour demand remain modest to weak in aggregate.

• The hiring intentions index of the NFIB survey has improved marginally over the last three months.
• The employment intentions indices of regional Fed surveys have remained weak.
• Indeed’s measure of job postings has continued to trend down.
• Challenger job cut announcements and WARN layoff notices both picked up in October.
• We may see an emerging boost to layoffs from AI over the next six months.

The upshot is it feels like hiring is too weak to absorb both new worker and increased layoff activity as the labour hoarding post-Covid thaws, with added impetus from AI-generated productivity.

Macro and policy Australia

Minutes from the recent RBA meeting emphasise the hawkish pivot of the last few months.

They noted that while there were some temporary factors at play in the recent rise in inflation, “strength in several components pointed to the possibility that some part of the increase might prove persistent”.

They also considered whether an increase in corporate margins might be playing a role, which implies less capacity in the economy than previously thought.

On the labour market, the minutes noted the rise in unemployment in September and slowing employment growth, but flagged forward-looking indicators that suggested employment growing in coming months as economic activity recovers.

In some good news for the RBA, wages grew 0.8% quarter-on-quarter – in line with consensus – to be up 3.4% year-on-year.

While the quantum was as expected, the drivers were not. Public sector wages rose 3.8% year on year, from 3.7%, but private sector wages slowed from 3.4% to 3.2% year on year and annualised at a rate of 2.8% for the quarter

This is the slowest pace of growth in private wages in over three years and the slowest annualised pace since late 2021. 

Macro and policy China

There was some commentary suggesting that Beijing is looking at nationwide mortgage subsidies for first-time homebuyers, higher income tax rebates for borrowers and lower transaction costs to coax wary buyers back into the property market.

October data indicated house prices were still falling, impacting the confidence and wealth of the consumer.

This prompted a short-lived rally in the Australian mining sector.

There were also reports that the EU is considering taking stakes in Australian miners that may include offtake agreements and joint investments similar to those between Australia and the US, as part of a move to reduce dependence on China.

Markets

US earnings season to date is running at the best levels for a couple of years.

While Nvidia’s result had no red flags, the market continues to fret about the circularity of the AI ecosystem. This is evident in the surge in Oracle’s credit default swap in recent weeks.

Nevertheless, Nvidia CEO Jensen Huang noted the three trends he saw underpinning sustained growth in AI investment. First is a shift of non-AI software – such as engineering simulations and data science – away from traditional processors. Second is the invention of entirely new categories of software such as coding assistants. Third is the shift of AI from virtual applications to the physical world of cars and robots.

Elsewhere:

• Home Depot (5.3%) delivered a miss and a cut to expectations, noting ongoing consumer uncertainty and continued pressure in housing affecting demand.
• Lowes also delivered a cut but was more positive on the trends quarter to date.
• Target was soft, with analysts focused on concerns around traffic deceleration and share loss.
• Walmart was upbeat on the holiday season, calling out strong Halloween and Thanksgiving trends. Upper and middle-income households are driving growth, while lower-income families remain under pressure.
• TJ Maxx beat expectations and management highlighted strong momentum into Q4.

The market is unclear on whether these latter results indicate consumer resilience or consumers trading down to deeper value options.

We will get some Thanksgiving holiday spending data which should provide some more colour over the next week or so heading into Christmas.

About Jim Taylor and Pendal Focus Australian Share Fund

Drawing on more than 25 years of experience investing in top-performing Australian companies and a background in accounting, Jim manages our Long/Short Fund and co-manages our Imputation Fund. He is a Chartered Accountant with membership of the Australian Institute of Chartered Accountants.

Pendal Focus Australian Share Fund is managed by Crispin Murray. The fund has beaten its benchmark in 14 years of its 18-year history (after fees), across a range of market conditions. Find out more about Pendal Focus Australian Share Fund here.

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