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

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THE key building blocks of the positive investment backdrop remain in place.

First, the US labour market continues to hold up very well, with minimal signs of AI disruption leading to job shedding.

Second, April retail sales suggest the consumer remains resilient with tax refunds bolstering economic activity.

Absent the Iran conflict, it is highly likely we would have been upgrading economic growth on the back of consumer strength, the uptick in manufacturing, and the stimulus from AI spending.

The main dark cloud is the prospect of higher inflation as surging energy prices flow into the far corners of the economy.

An incredibly strong 1Q26 US reporting season – where earnings grew 28% – reflects the strength of underlying activity and the commensurate ability of corporates to pass through higher costs into the consumer base.

The hottish US producer price index (PPI) data last week partially undermined the positive narrative and saw the market shift to expectations towards an interest rate hike over the course of the year. US 10-year bond yields rose 23 basis points (bps), while the S&P 500 gained 0.2%.

Domestically, the budget was well flagged but does have the possibility of stifling housing activity. On an economy-wide perspective, this could overwhelm the benefits to the first homebuyers the government is attempting to assist. The S&P/ASX 300 was off 1.2% for the week.

US President Donald Trump’s visit to Chinese President Xi Jinping has come and gone with pronouncements on Boeing sales, a Board of Trade and Investments, and some additional agricultural and energy purchases. But there was nothing conclusive on Nvidia chips and a resolution to the Middle East standoff.

Trump is contending with approval ratings among Republicans at all-time lows, on the back of a foreign war and rising domestic inflation.

It is hard to see his Administration allowing the current situation to drag on; it feels like something needs to give in the near-term. At the moment rising yields, rate expectations and the oil price move all point to a market that expects hostilities with Iran to renew now that Trump is back in the US.

Macro and policy US

Inflation

The consumer price index (CPI) rose 0.64% month/month in April, versus +0.87% in March and a median forecast of +0.60%. The Core measure was +0.38% for April, versus a median forecast of +0.3% and a 0.20% gain in March.

On an annual basis, the CPI was +3.81% for April, up from +3.26% in March. Core was +2.75% year/year, a touch ahead of the median forecast (+2.70%) and up from +2.60% in March. 

The three-month annualised CPI has dipped below the Fed’s 2% target a few times, but the six-month annualised and the 12-month rate never got there – and are now rising again on the back of energy prices and cost-pass through.

The greater surprise was in PPI, where headline rose 1.4% month/month in April well ahead of the +0.5% consensus expectation. It is at +6.0% year/year.

The Core measure rose 1.0%, up from +0.2% in March, the largest gain since March 2022 on the back of a concentrated energy price shock. Consensus was expecting +0.3%. It is at +5.2% year/year.

April’s rise was also driven by a 0.7% rise in the core goods prices component and +1.2% in prices for services, excluding trade services. Transportation and warehousing services prices jumped by 5.0%. 

Trade services prices, which reflects the difference between the cost for distributors to buy goods and the price they charge to customers, rose 2.7% in April. Retailers seem to have been able to take advantage of consumer strength, driven in turn by tax refunds.

The big question is whether this is a material, one-off step-up in the PPI – or the start of a sequence of big increases.

Retail sales

Headline retail sales rose by 0.5% (+0.7% ex-autos) in April, in line with the consensus.

February and March sales – already strong – were also revised up a further 0.2% and demonstrate consumer resilience despite the energy shock.

There was a 0.8% gain in food and beverage sales, driven mainly by higher prices.

However non-store sales rose 1.1%, also driving the headline gain, but suggesting demand also remains strong given that consumer prices for core goods ex-autos didn’t change much last month.

Individual income tax refunds in April were US$22 billion higher than in the same month last year. This is equivalent to roughly 3% of monthly retail sales. That said the rise in total spending on gasoline is estimated to be only slightly less.

Tax refunds are likely to fall away sharply after May, meaning that the consumer loses the buffer against higher energy prices. The market will be focused on consumer activity levels from here.

The Fed

Boston Fed President Susan Collins said that while she still expects inflation linked to the conflict to subside – and that underlying inflation was still heading lower – “the probability around that has declined”.

She noted that there were other “less benign” scenarios that would require rate hikes.

She is watching:

1. Most importantly, households’ and businesses’ expectations of future inflation, which have drifted to the high end of their historical range.
2. Whether price pressures spread beyond energy to other goods and services.
3. The extent to which tariffs continue to pass through the price chain.

Wages aren’t a significant source of inflation, she said.

Macro and policy Australia

The Federal budget flagged more spending on defence and public hospitals, funded largely by changes to the NDIS.

It was interesting to note on the revenue side that a material amount of projections (~$15 billion between FY26 and FY30) is assigned to “decisions taken but not yet announced and not for publication”, suggesting a new policy waits in the wings.

There is risk of unintended consequences from the proposed changes to capital gains tax and negative gearing – potentially from first home buyers being crowded out of new builds by investors and/or reduced renovation and remodelling activity from lower turnover in investment properties.

We saw how policy changes can have unintended effects in Victoria, where increased land tax rates, taxes on vacant homes and windfall gains, increased stamp duties and the short stay accommodation levy resulted in material declines in confidence and activity levels in the state’s property sector.

Investors have been the key driver of accelerating bank sector mortgage growth. New investor loan commitments for purchases of established and new dwellings fell in the quarter, while growth slowed for dwelling construction.

With interest rates higher and changes to CGT and negative gearing announced, investor loan commitments are likely to fall in the coming months, sharpening focus around the outlook for banks.

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Pendal Focus Australian Share Fund

Crispin Murray, Head of Equities

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Markets

US earnings

US Q1 earnings season observations:

• The blended earnings growth rate for Q1 S&P 500 earnings per share (EPS) currently stands at 27.7%, versus 13.2% expected at the end of the quarter.
• The blended revenue growth rate is 11.4%.
• 91% of S&P 500 companies have reported, with 84% beating consensus EPS expectations (the one-year average is 79% and five-year is 78%.)
• 80% have surpassed consensus sales expectations (73% one-year average and 70% five-year.)
• In aggregate, earnings are 17.9% above expectations, above the 7.2% one-year average positive surprise rate and the five-year average of 7.3%.
• In aggregate, sales are 1.8% above expectations, above the 1.6% one-year positive surprise rate but below the five-year average of 2.0%.

Much of the recent US equity market momentum has corresponded with surging near-term earnings estimates.

Bottom-up consensus estimates for S&P 500 EPS in 2026 and 2027 have each risen by 8% YTD.

That said, increasing expectations for AI capex spending and higher energy prices have driven the majority of the positive revisions. Excluding AI infrastructure and Energy companies, S&P 500 2027 EPS estimates have been flat YTD.

In small caps, the median stock in the Russell 3000 is delivering 10% EPS growth – the strongest rate in four years.

EPS revision breadth during the past month has been positive in every S&P 500 sector. The sectors and stocks with the strongest earnings revisions have generally outperformed.

Australian bank reporting and updates

Bank reporting season flagged a couple of things worth thinking about.

There was a surprising decline in sequential revenue growth rates from the December 2025 quarter to the March 2026 quarter.

In February the banks reported strong revenue growth and benign credit issues resulting in ~4-6% EPS upgrades.

In the recent crop of updates the revenue line weakened, asset quality turned down and the banks began rebuilding collective provisions.

This has now fully unwound the EPS upgrades from the Feb 2026 reporting season.

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.

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.