Julia Forrest: What’s driving Aussie equities this week?

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

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Earnings optimism, easing trade tensions and expectations of US rate cuts continue to support equity markets.

The S&P 500 gained 1.9% last week and the Nasdaq added 2.3% – their 34th record highs for the year.

While equity markets are responding positively to strong earnings, overall investor sentiment remains mixed.

Investors are hoping we’re at the early stage of the economic cycle, especially with the US Federal Reserve beginning to cut rates.

But there’s anxiety we might be late in the cycle – particularly if AI-driven returns fall short, capex doesn’t broaden out or more credit defaults emerge.

Despite markets hitting all-time highs, sentiment still reflects a degree of caution and fear.

While the government shutdown continues to limit US data releases, the Consumer Price Index was published on Friday night, since it’s a critical reference point for federal and financial contracts.

September CPI rose 0.3%, with the core measure up 0.2% month-on-month. The consensus forecasts were +0.4% and +0.3%, respectively.

The yield on US 10-year Treasury bonds finished the week at 3.99%, down 20bp since the government shutdown began almost a month ago.

CNN polling suggests President Trump’s approval rating has lifted a tad since the shutdown began. Another poll shows most Americans favour the shutdown.

Markets continue to expect two US rate cuts in 2025 – 25bp next week and 25bp in December.

In Australia the ASX200 gained 0.2%. Energy (+5%) led the market on a jump in oil prices (Brent crude +7.6%), assisted by US sanctions on two large Russian producers.

Gold had an interesting week, suffering its biggest drop in five years, though it’s still up 57% this year.

US macro and policy

Available data points painted a mixed picture.

The September CPI miss versus consensus was mostly driven by shelter – particularly Owners’ Equivalent Rent (OER) – a measure of how much rent a homeowner would pay to live in their own property.

OER rose 0.13% while rent increased 0.19%. These are the smallest monthly increases since November 2020 and March 2021, respectively.

OER seemed like a large historical outlier compared to 0.38% in the prior month and the 12-month range (+0.27% in May and +0.41% in July).

It’s a huge component of the index, accounting for 26% of overall CPI, 33% of core CPI, and 44% of core services CPI.

The headline CPI gain was the third-biggest sequential increase this year (behind January and August), but the details do not give cause for concern about a persistent reacceleration in inflation.

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Among the components that rose the most in September, the majority look as though they were one-offs – for example a 4.1% gain in petrol prices contributed 12bp to the headline.

Meanwhile we saw the October Philadelphia Fed Non-Manufacturing Activity index at -22.2, weaker than the prior month (-12.3).

• This index of general business activity for firms in the Philadelphia region slowed as new orders and sales fell into negative territory.
• The new orders index fell to -17.4, the first negative reading since June. Sales fell to -2.4, the lowest level since May.

Elsewhere, a weekly index of US mortgage applications fell -0.3%, edging lower for the fourth consecutive week.

House purchases were down 5.2% after falling 2.7% the prior week, according to the Mortgage Bankers Association survey.

The average 30-year fixed rate was 6.37%, versus 6.42% in the prior week.

US housing activity is still subdued, despite lower mortgage rates and a cumulative underbuild of an estimated 2-to-3 million since 2010.

Credit

Credit stress is easing, despite some high-profile company failures over the past few weeks.

Bankruptcy filings in the US – a leading hard-data point for credit – are turning down quite sharply.

There are some areas of weakness, in particular autos where 90-day delinquency rates on car loans are picking up. We note the recent credit issues were related to autos (ie First Brands, Tricolor).

However General Motors delivered a stronger result last week and raised EPS guidance. The stock was up 15%, its second-best day since emerging from bankruptcy in 2009.

US GDP and rates

At a broader level, US GDP growth estimates continue to be solid. The Atlanta Fed GDPNow measure is tracking Q3 GDP growth at a seasonally-adjusted annual rate of just under 4%.

Rising stock and property prices have significantly boosted household net worth from $56 trillion in 2009 to $167 trillion at the end of June.

This surge in asset values has been a major driver of the current economic cycle.

Notably, the top 10 per cent of earners now account for nearly half of all consumer spending, highlighting how wealth concentration is shaping demand.

Another area of concern is around the narrowness of US capex. There is basically no growth in corporate capex outside of AI.

With weaker employment growth – and notable areas of weakness such as housing / ex-AI capex – the Fed has shifted its focus from inflation to underpinning the economy. It’s expected to be supportive with rates policy, even with stocks at all-time highs.

At the same time the current strategy for managing the US fiscal deficit and large debt burden appears to be “running the economy hot”, aiming to increase tax revenues at a faster pace than interest payments and overall debt growth.

All else being equal, this is a generally positive set-up for US equities, with strong earnings, broader support, low supply and favourable policy settings.

Australia macro and policy

It seems the economy has evolved differently than the Reserve Bank forecast in August, with stronger household consumption and stickier inflation.

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This has brought into question where the neutral rate lies, but the labour market is clearly slowing with unemployment up 50bp to 4.5%

Data from recruitment website Seek shows softness in the labour market with applications per job advertisement at elevated levels, albeit leveling out.

And in a surprise to nobody, data shows house prices continue to rise, now up eight months in a row.

At the five-city aggregate level, values have risen 0.9% over the past 28 days – the strongest growth since October 2023 – assisted by the federal government’s 5% deposit scheme and the prospect of further rate cuts.

China macro and policy

China’s Q3 GDP beat expectations at 4.8% year-on-year, driven by strong exports and industrial production.

But domestic demand remains soft as retail sales and investment lag.

The property market continues to weigh on sentiment, with house prices falling in most cities except Beijing and Shanghai.

China held its 15th five-year policy plenum, covering 2026 to 2030.

The high-level snapshot shows a focus on enhancing technological self-reliance and growing the domestic market in the next five years, to insulate the economy from foreign pressures while building a sustainable engine for growth.

Further detail is likely following the “Two Sessions” in March next year.

Japan

Japan elected its first female prime minister, Sanae Takaichi.

She is seen as a market friendly, right-leaning figure, likely to increase government spending including a plan to increase defence spending from the current 1.2% of GDP to 2% by 2027.

While a positive, it will add to Japan’s already high debt levels.

Commodities

Rare earths

The US and Australia signed a $8.5 billion rare earths deal designed to reduce reliance on China for critical minerals.

The deal includes joint investments in processing facilities and plans to invest $1 billion over the next six months.

The announcement had a mixed impact on Australian rare earth stocks, with Lynas (LYC) up and down, but Australian Strategic Materials (ASM) gaining 20%.

Unsurprisingly, US rare earth stocks fell on the news.

Gold

It was a volatile week for gold, falling 5.4% over the week – its biggest drop in five years.

Gold is still up 57% this year and 6% below its all-time high.

Key drivers include central bank purchasing after the Russia/Ukraine war, seizure of Russian overseas reserves, rising geopolitical tensions and lower interest rate expectations.

Speculative buying also seems to be a major driver. We saw the highest ever quarterly ETF flow into gold in the third quarter.

ETF share of gold demand has risen 900 per cent in 2025 to nearly 20 per cent of overall demand.

While the US dollar-debasement trade is often cited, firmer bond yields would appear to contradict that theory.

Interestingly, the strongest correlation over the past two years appears to be between gold prices and Japanese government bond yields.

Oil

Oil prices surged last week.

WTI crude jumped 5.6% to US$62 and Brent rose to US$66, primarily due to aggressive new US sanctions targeting Russia’s two biggest oil companies, Rosneft and Lukoil.

These firms account for nearly half of Russia’s crude exports and about 5 per cent of global supply.

The sanctions freeze company assets in the US, ban American business dealings and threaten secondary sanctions on foreign banks and refiners that continue trading with them.

US equities

Earnings have been doing the heavy lifting in 2025 in terms of driving equity market returns, taking over from the price-earnings expansion that dominated much of the previous two years.

The three-month changes in forward revenues and earnings expectations remain very strong.

However, it’s worth noting that analysts surveyed by FactSet believe the Mag 7 is likely to post collective earnings growth of 15% in the third quarter of 2025 – more than double the 6.7% growth of the “Other 493”.

Longer-term, declining net US equity supply conditions since 2011 have probably contributed to US equity market resilience in the face of various shocks.

At the end of the day, US$1.5 trillion in annual defined benefit/contribution payments by households and employers must end up invested somewhere.

All the money that hasn’t made its way into the equity market is going into other assets, including private credit and private equity.

It’s recently been noted there are far more private equity funds in the US than there are McDonald’s restaurants.

If anything blows up in the private space (provided it isn’t systemic), we may see more money back in public markets.

Elsewhere, retail participation in stock markets remains elevated.

One way to gauge retail investor activity is by tracking the volume of stock trades executed through off-exchange platforms that cater to clients like Robinhood.

These trades are on track to account for half of total market volume this year – the first time they’ve reached that level.

US earnings season

It’s still early, with fewer than a third of S&P 500 companies reporting, but 85% have delivered positive surprises – the best showing in four years.

• Netflix’s Q3 2025 earnings results were mixed. It reported strong revenue growth and remains on track to post its best quarter for advertising sales. But it missed earnings expectations due to a one-time tax expense in Brazil cutting margins to 28%, versus guidance of 31.5%.
• Tesla’s 3Q 2025 record deliveries and revenues were above expectations, though margin compression (5.8% versus 9.6% year-on-year) weighed on EPS, impacted by lower prices and reduced regulatory credits.
• General Motors beat consensus estimates for EPS, EBIT and revenue. Volumes were ahead of expectations with North America the bright spot. The company raised FY25 EPS, EBIT and operating cash-flow guidance with management reaffirming capex and battery joint venture forecasts. The company also lowered its FY25 gross tariff impact.
• Intel’s Q3 2025 earnings results marked a strong turnaround. The chip-maker beat both revenue (+3%) and earnings expectations with strong demand for AI compute. However, Q4 gross margin guidance was 36.5% (down from 40% in Q3), due to product mix and Altera deconsolidation.

Australian equities

The ASX trailed the US market, dragged down by Materials (-2.1%). This reflected a fall in gold prices which saw gold miners Newmont (NEM, -15.2%), Ramelius Resources (RMS, -12.9%), Genesis Minerals (GMD, -12.8%), Evolution (EVN, -10%) and Northern Star Resources (NST, -9%) as the five weakest stocks in the ASX 100.

Energy (+5%) did best on the back of a 10.4% gain in Woodside Energy (WDS). Lithium stocks Pilbara Minerals (PLS, +20.5%), IGO (IGO, +9.4%) and Mineral Resources (MIN, +7.6%) were also among the week’s strongest.

Stock news was dominated by the AGM season.