Rajinder Singh: What’s driving Aussie equities this week

Here are the main factors driving the ASX this week, according to portfolio manager RAJINDER SINGH. Reported by investment specialist Chris Adams

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EQUITY markets are holding up despite higher bond yields and a resurgence in the US-Iran conflict, which pushed up energy prices (Brent crude +7.8%).

Last week was relatively quiet for US data after a very strong earnings season.

Strong manufacturing and jobs numbers, along with broad growth in corporate profits, indicates that the US economic growth continues to be robust despite numerous headwinds.

The S&P 500 was largely flat for the week (+0.1%).

In Australia, the release of credit and quarterly GDP figures showed that while the economy has been travelling okay, there are signs of slowing in areas such as housing.

Weak productivity growth means the economy is operating close to its speed limit and presents the RBA with a dilemma in deciding whether to raise rates again.

The S&P/ASX 300 fell 0.4%, however we saw dispersion in the performance of various market components.

Large caps held up (S&P/ASX 20 -0.2%) while midcaps and small caps were weaker (S&P/ASX Midcap and S&P/ASX Small Ordinaries both -0.9%).

At the sector level Materials (-3.6%) and Technology (-5.1%) were weak while there was rotation into other sectors such as Financials (+2.0%) and Consumer Staples (+2.1%).

Macro and policy US

Statements from Federal Open Market Committee (FOMC) members John Williams and Christopher Waller were scrutinised to give an indication of the central bank’s next move.

Williams stated that there is evidence inflation continues to ease as the tariff impact fades, with higher energy prices not spreading into other services, while Waller said he would support holding rates steady if price pressures keep easing.

The Fed’s decision is likely to be heavily influenced by August inflation data which is due on Friday this week.

It is worth noting that despite the rise in two-year yields, the spread of this to the Fed Funds rate has moved higher – but is not significantly more than previous periods.

This can be seen with the market now only pricing one hike this year and another by early 2027.

In other US releases, the August ISM Manufacturing PMI slipped to 54.6 from 55.6 (consensus 55.2), however this comes after the recent reading in July which was the highest index level since May 2022.

As activity continues to expand, these numbers suggest that the manufacturing sector in the US is running quite strong.

The BLS employment report was also strong, with nonfarm payrolls up 162,000 month/month in August and upward revisions of +55,000 to prior months.

Job gains were broad-based with healthcare continuing to be a key contributor to US job growth but there were also increases in the construction, manufacturing, and leisure and hospitality sectors.

US payrolls have clearly moved past the trough of late 2025 and led to a decreasing unemployment rate this year

Macro and policy Australia

The Private Sector Credit statistics from APRA unsurprisingly reflected a slowdown in credit growth, given recent changes to the housing sector.

Overall credit still grew a healthy 0.4% in July (+8.4% year/year) with continued strong business growth of 0.6% (+10.0% year/year) offsetting slowing housing growth of 0.2% (+6.7% year/year).

Within housing, Investor mortgages slowed down to only +0.1% in July, while Owner Occupier grew 0.3%.

Major bank economists are now forecasting mortgage growth to slow to between 2.5% and 5.0% per annum, with recent updates shifting towards the lower end of the range as the housing downturn continues.

Elsewhere, the National Accounts from the ABS showed real GDP grew a modest 0.4% in the June quarter, which was a touch above consensus.

Annual growth was a solid 2.1% which was notably above both consensus and RBA expectations (+1.8% and +1.9% respectively).

However, there was evidence that the economy is slowing with the last two quarters annualising to just over a 1% growth rate.

Despite the negativity around the Middle East conflict, houses and inflation, households did not curb consumption – including discretionary spending which rose 1.4% in the June quarter. A key component of this household expenditure growth was a lift in vehicle purchases by 10.3%.

Private business investment continues to be strong, and this component alone added 1.2% – or just over half – of overall annual growth. This is being driven largely by data centres and related energy investment.

A more concerning aspect was that while income for wage and salaries is solid +6.2% (and so supporting the previously mentioned household consumption), productivity continues to be weak. This actually was negative for the quarter, continuing its anaemic pattern of previous periods.

Overall, commentators saw this as evidence that the economy is operating near its potential speed limit and this, with the weak productivity outcome, supports the case that the economy needs to slow for CPI to return to the RBA’s target.

The upshot is that the market is now pricing roughly a 60% chance of a rate hike at the September meeting and a rate hike is fully priced in by November.

Speeches from the RBA’s Deputy Chair Andrew Hauser and Chief Economist Sarah Hunter next week could provide an indication of the RBA’s thinking.

Elsewhere, it was interesting to note the VFACTS report on new car sales for August 2026.

New vehicle sales grew 4.9% year/year in August 2026, with Chinese and Electric cars strong as light commercial vehicle/four wheels drive sales remained weak.

The headline grabber was that EVs outsold petrol cars for the first time with more than 27,000 EVs sold over the month compared to 25,000 petrol cars.

The record 24.9% for EV share of sales is up from around 8% in 2025 and just 1.9% in 2022.

Government subsidies, a sustained rise in fuel prices and a lift in cheap Chinese imports continue to transform the country’s car market.

Macro and policy global

Last week China’s official manufacturing PMI rose 0.6 to 49.8, above consensus expectations at 49.5.

Meanwhile, the non-manufacturing PMI was steady at 49.0.

Overall, this led to a slight increase in the composite PMI to a neutral 49.5.

In comparison, Japan’s July monthly data was largely encouraging with both industrial production and retail sales exceeding expectations. Industrial production rose 4.1% year/year, supporting a robust pick-up in the economy.

Markets

It is worth recognising the remarkable results of the recently concluded US reporting season.

Over 86% of S&P 500 companies beat earnings expectations, with strength broad-based across sectors, though tech and energy led.

The overall quarterly EPS surprise was 24% in aggregate – a result not seen since the recovery from the Covid-induced recession. 

Earnings expectations are typically revised downwards through the year – however expectations for both 2026 and 2027 continue to inflect upward.

When looking at the underlying components of earnings, estimates for the median stock have risen across top-line revenue growth, bottom-line earnings, as well as for free cash flow, highlighting the underlying strength of earnings growth.

September is typically seen as a weak month seasonally for US stock returns. However, whenever there has been a strong eight-month YTD performance in August (and the market is +13% thus far in 2026), the final four months tend to finish quite strong.

The US market continues to be quite rotational in terms of the best performing sectors.

In particular, we have seen the most recent relative highs coming in the healthcare and resource sectors.

Fixed income

Despite concerns the funding requirements for AI are driving up global interest rate costs, there has been very little move in the more sensitive corporate spreads – for example BofA BB US High Yield Spread

In terms of the fear that the world is reluctant to finance the US deficits, it is worth noting that foreign holdings of US treasuries have actually continued to increase, with sharp increases from 2020 onwards from places such as the UK, Belgium and Canada.

However, the mix has changed; there has been a shift from public holders to the private sector, as well as the reduction in Chinese holdings being offset by an increase in European holdings. 

Australian equities

July monthly activity for the banks showed the start of a slowdown in mortgage credit – particularly investor loans, which dropped from 10% to 6% on a one-month annualised basis.

However, July is seasonally weak. The bigger test will come in August, given the two-to-three-month lag between lower applications post-budget and borrower drawdowns.

Through reporting season, major banks highlighted a 15-20% reduction in mortgage applications. NAB suggested this would translate into mortgage credit growth of 2.5%.

CBA was more hopeful of ~5% but its economics team has since downgraded the outlook for house prices and is due to update its mortgage growth forecast.

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About Rajinder Singh and Pendal’s responsible investing strategies

Rajinder is a portfolio manager with Pendal’s Australian equities team and has more than 18 years of experience. Rajinder manages Pendal’s sustainable and ethical funds, including Pendal Sustainable Australian Share Fund.

Pendal offers a range of other responsible investing strategies, including:

• Pendal Sustainable Australian Share Fund
• Crispin Murray’s Pendal Horizon Sustainable Australian Share Fund
• Pendal Sustainable Australian Fixed Interest Fund
• Pendal Sustainable Balanced Fund
• Regnan Credit Impact Trust

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

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