The US has announced a slew of tariffs based on a reciprocal tariff ‘formula’. Head of government bond strategies TIM HEXT breaks down the latest
TODAY, President Trump announced a baseline 10% tariff on all goods into the US. This was widely expected.
Less expected, however, was the basis for “reciprocal” tariffs.
You would be forgiven for thinking this meant that whatever rate of tariff other countries imposed on the US, the US would impose back.
After all, Trump’s tariff board said “Tariffs charged to the US”.
However, rather than being actual tariffs, they made up a number based on a reciprocal tariff formula – that is, the trade deficit that the US has with a country divided by the size of imports the US takes from that country.
For example, Indonesia has a trade surplus (deficit for the US) of $17.9bn on total exports (imports for US) of $28 billion – so, its supposed tariff on the US is 64%.
What this highlights is that the US is more focused on their poor current account position and will use tariffs to fix it.
This meant the reciprocal tariffs being imposed by the US were higher than most expected, with markets reacting with an old-fashioned risk-off move.
What do these tariffs mean for the US economy?
There is more to play out as bilateral trade talks take place, so final tariffs may yet soften. Mexico and Canada were not mentioned today, but both still await 25% tariffs.
However, the current net increase in tariffs for the US is around 20%, translating to around an extra 2% to inflation. Part of that may be absorbed by exporters or retailers, but it would be hard to see inflation not being hit by at least 1%.
For growth, the US consumer is 70% of their economy.
If consumers spend the same amount of money, their volume of consumption would fall – leading to a roughly 1% lower GDP than anticipated. Employment should be softer near term as the boost from onshoring will take longer to come through.
Put together, we have stagflation-lite in 2025.
The US Federal Reserve is caught between higher inflation and lower growth, but would more likely see through the one-off inflation impact and react to the lower growth.
The Fed Funds Rate may yet end up near 3%, or “neutral”.
What about Australia?
We have a small trade deficit with the US. Under the Trump formula, our $14bn deficit on $88bn of imports should mean we tariff the US 16%.
Try that for “reciprocal”. Alas, Prime Minister Albanese is not one for such moves.
Our economy will take any hit through Asia, especially China. Almost 90% of our exports go to Asia, so any slowdown there will have an impact here.
However, we should not see any direct inflation hits. In fact, exporters may look to replace some US demand in other markets, which could even see some import prices fall.
Australian financial markets, however, will continue to be buffeted by global events.
Finally, bonds may once again perform their role as a defensive instrument. Today’s moves offer some hope.
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
Here are the main factors driving Australian equities this week, according to portfolio manager JIM TAYLOR. Reported by head investment specialist Chris Adams
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MEASURES of economic policy uncertainty are approaching four-decade highs, just as quickly as US business and consumer confidence fall to new lows.
To use a financial analogy, the US government is in the very early stages of a “de-grossing” strategy and reducing its exposure to the economy.
After an unprecedented run-up in government spending during Covid and then (via Treasury Secretary Janet Yellen) in the lead up to last year’s Presidential election, the private sector has been crowded out.
As government spending is stripped back, we will get a much better gauge on the underlying health of the ex-government economy.
The key risk is that the private sector swings from being “crowded out” to a voluntary “stepping out” in the face of a government strategy that no one has ever experienced before – and for which no rule books have been written.
On some calculations, something like 70-80% of US economic growth over the last three to five years has been driven by deficit-funded government spending.
We are on the cusp of learning about the relationship between the US government’s deficits and corporate profitability. Some have postulated that 6% deficits equate to US$2Tr of excess spending across the economy.
The impact of current uncertainty is being seen in the data.
The Fed’s indicators of recession risk have picked up marginally, from the low-20% range to the mid-20% range.
Expectations for Q1 CY2025 earnings growth for the S&P 500 have fallen from 11.7% on 31 December 2024 to 7.3% on the 28 March. Unusually for recent times, US earnings revisions are falling faster than other major developed economies.
A key observation point from here will be following capital flows, spurred by either better relative opportunities or policy grievances – likely across the Atlantic toward Europe.
Tariffs remained very topical, with some negative news – such as the 25% tariff on non-US produced cars – somewhat offset by comments out of the EU on areas where they may offer concessions, as well as Trump commentary about being “very lenient” in terms of the first round of reciprocal tariffs.
We expect further developments this week, with 2 April looming as the point at which a new round of tariffs will be implemented – perhaps marking the point at which uncertainty peaks.
After providing a tailwind for market sentiment for much of the past three years, inflation has largely stalled in the mid-to-high 2% or low 3% range, depending on the measure. The Fed’s view is that more cuts are on the way, but fewer than previously thought and weighted to the backend of 2025.
The S&P 500 fell 1.5% for the week. In an unusual twist, the US Dollar is falling as the S&P 500 retraces, for reasons discussed later in this note. The S&P/ASX 300 rose 0.63% during this time.
FedSpeak
As Atlanta Federal Reserve President Bostic – a non-voting member of the FOMC – flagged some of the challenges for forecasts amid the current uncertainty.
He currently expects prices to move largely sideways for the rest of this year, given less progress of inflation and the impact of tariffs.
This would mean that “the appropriate path for policy is also going to be pushed back”, with Bostic shifting his dot plot forecast from two cuts in 2025 to one.
He also cited increasing concerns from contacts on the economic trajectory which have yet to be reflected in data, but added that it is not yet clear whether weaker consumer sentiment will play out as a leading indicator.
On tariffs, he was cautious about labelling any impact on inflation as “transitory” but noted that historically they have been a one-off impact, with businesses passing through additional cost. Consumer sensitivity to this remains to be seen.
St. Louis President Alberto Musalem said it is unclear if any inflationary impact from tariffs will prove temporary. He also noted that secondary effects could see the Fed hold interest rates steady for longer.
He said there is an increased risk inflation could stall above the Fed’s 2% goal – or move higher due to tariffs and other factors – and emphasised the importance of inflation expectations remaining stable.
The Fed is no longer on the “golden path”, Chicago President Austan Goolsbee said, adding that the next rate cut will take longer than anticipated.
Macro and policy Australia
Headline year-on-year CPI inflation fell by 17 basis points (bps) to 2.38% in February, below consensus expectations of 2.5%. This means headline CPI has been within the 2-3% target band for seven consecutive months.
The monthly decline was driven by seasonal price falls in the holiday travel and accommodation basket – which was down 7.6% month-on-month – as well as lower fruit and vegetable prices (down 0.5% month-on-month).
Electricity prices fell 2.5% month-on-month – versus expectations of a 0.5% rise – with all Victorian households receiving subsidy payments after some missed out in January.
The baskets seeing the highest annual inflation are food (+3.1%), alcoholic beverages and tobacco (+6.7%), rents (+5.5%), education (+5.6%) and finance and insurance (+4.5%).
Housing-related components such as rents and new dwelling prices have eased significantly from where they were mid-2024, but are flattening out at current levels.
The largest price falls have come in electricity prices (-13.2%), fuel (-5.5%) and travel (-7.6%).
The year-on-year trimmed-mean CPI fell 10bps to 2.7%, above expectations of 2.5%.
The CPI excluding volatile items (fresh food, fuel and holiday travel) fell from 2.9% in January to 2.7% in February.
Elsewhere, there was little in the 2025-26 Federal Budget to shift perspectives.
The deficit of $42.1bn was a touch larger than the $40bn consensus expectation and well ahead of the $27.6bn for 2024-25, but lower than the forecast of $46.9bn from the midyear update.
This equates to 1.5% of GDP. Forward projections suggest a deficit ranging from 1.1% to 1.3% through to 2028-29.
The main surprise was a modest tax break totalling $17.1bn over five years through a slight increase in the lowest tax bracket.
The government expects the economy to grow 1.5% this fiscal year (down from 1.75% previously), 2.25 in 2025-26 and 2.50% in 2026-27. It is also forecasting CPI inflation to remain in the 2-3% target band, though rising to its top end next year.
Macro and policy US – policy uncertainty now leaking into the hard data
The March Composite Purchasing Manager’s Index (PMI) came in at 53.5, which was a three-month high ahead of consensus 51.7 and up from February’s 51.6.
The Services PMI of 54.3 was also at a three-month high. It also beat consensus (50.8) and was up from 51.0 in February.
The Manufacturing PMI of 49.8 was below consensus expectations of 51.9 and hit a three-month low as new orders growth slowed.
Forward-looking components revealed a degree of pessimism. The Future Activity Index component of the PMI fell to its second-lowest level since October 2022 given a cautious economic outlook and policy uncertainty.
The Conference Board Consumer Confidence Index fell from 101.1 in February to 92.9 in March – its lowest level since January 2021 and below consensus forecasts of 94.0.
The expectations component (down 9.6% to 65.2) and the present situation component (down 3.6% to 134.5) both declined.
The survey’s measure of 12-month ahead inflation expectations increased by 0.4pp to 6.2%, which is the highest level since April 2023. Tariffs were cited as the reason. While high, we note that the Fed is more focused on medium-term inflation expectations.
Other data points to note:
- New home sales in February rose 1.8% from January on a seasonally adjusted annual rate, slightly below consensus expectations.
- Initial jobless claims fell from 225K to 224K, marginally below the consensus (225K).
- Continuing claims fell to 1,856K, from 1,881K, below consensus of 1,886K.
- Real consumption rose 0.1% in February, below consensus (0.3%). February’s very modest rebound from a weak January suggests the emergence of a real slowdown in demand. Weakness was fairly broad based. A gain of ~0.3% in March see a 1Q annualised growth rate of about 0.5%, the lowest since 2Q 2020.
- Nominal personal incomes rose by 0.8%, well ahead of the 0.4% expected by consensus. Government transfers to households grew 2.2% while increases in personal taxes rose just 0.1%.
- The Core Personal Consumption Expenditures (PCE) deflator increased by 0.4%, above the consensus of 0.3%, and lifted the inflation rate to 2.8% from 2.6% in January. These numbers are less relevant until the impact of tariffs gets absorbed into the base.
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Markets
Evidence of the dramatic reversal in sentiment towards equity markets is seen in the positioning of US institutional asset managers, which have gone from the one-hundredth percentile of net long equity positioning in November 2024 to the 58th percentile in March.
US dollar
It is also interesting to note that of the 13 drawdowns of at least 10% in the S&P 500 since 2010, the US dollar has been at least flat – and usually up as part of a flight to safety – except in the current episode.
There are two factors that have changed.
First, on a short-term perspective, the story at the start of the year was a strong US economy and a weak Europe.
Since then, US growth expectations have dropped as uncertainty weighs on investment and spending, while European growth expectations have improved on the back of large German stimulus.
That led to the reversal of an undervalued Euro versus the US dollar. There is a view that this could begin to unwind if the tariffs begin to eat into growth of other countries more so than the US.
The second, longer-term case for a weaker US dollar goes to the argument outlined by Stephen Miran, chair of the Council of Economic Advisers within the Trump Administration.
The argument is that the US dollar is chronically over-valued as a result of all the payments being received by exporters in China and the EU being recycled into US assets.
There has been a very large increase in foreign ownership of US equities in last decade, which is now at all-time highs. If countries start to believe that the trade compact with the US is now broken, they are less likely to keep buying – and may actually sell – US assets, thus creating a long-term headwind for the US dollar.
This helps explain why the long-term negative correlation between equities and the US dollar has broken down.
The near-term outlook for the dollar remains unclear, because of the relative impact on tariffs.
However, we think the long-term trend may well be for a weaker US dollar, with the caveat that this is mainly against the Euro.
The Australian dollar may underperform the Euro given our own issues with government over-spending eventually requiring some response, which may lead to a headwind for growth.
Data centres
There was further negative news flow on data centres (DCs), as a US sell-side analyst flagged Microsoft is not proceeding with 2 giga-watts (GW) of data centre options in the US and Europe.
We understand that Microsoft has over procured around 1GW of capacity, given they have altered their exclusivity agreement with OpenAI on training generative AI models. OpenAI is now also partnering with Oracle. This is equivalent to roughly six months’ worth of supply.
Anecdotal feedback suggests that other hyperscale customers are stepping up to take capacity.
Lease agreements already agreed with global data centre operators in the G20 nations are ironclad, with no ability to back out. However, DC operators may be amenable to adjusting capacity to another location particularly, if they can sell the unlocked capacity at a higher price.
The DC market remains in balance for now.
In Australian equities, Financials (+2.5%) and Energy (+1.9%) were the best performers for the week, while Technology (-2.9%) and Real Estate (-2.2%) underperformed.
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.
Here are the key takeaways from the Federal Budget and February’s inflation data, according to head of government bond strategies TIM HEXT
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INTERESTED readers may want to pore over the many details of the Budget by themselves. But here are the three things that matter for the bond market.
1. Gross debt will hit $1 trillion by next year
There is nothing important about this milestone as such.
But with a $62 billion headline cash deficit and around $90 billion of maturing debt to refinance, the Australian Office of Financial Management will need to issue more than $150 billion next financial year.
This is $3 billion a week (as it takes Christmas and New Years off), which is double the pace of this financial year.
Can the market absorb these higher amounts? Of course they can.
And with arbitrage players buying bonds (then financing them with banks on repo) and selling futures in massive volumes, the government can fund itself easily. This is one way the US government is getting itself huge issuance volumes away.
However, term premiums will continue to go up and yield curves should steepen further.
2. Big government is here to stay
The government continues to spend any savings it finds.
The Budget forecasts are highly sensitive to employment predictions. Not only do workers pay taxes, but you also don’t need to pay them welfare. Therefore, a fall in the unemployment forecast from 4.5% to 4.25% helped make the government $36 billion better off over the next five years.
However, new spending and modest tax cuts used up $35 billion of this. As a result, government spending remains above 27% of Gross Domestic Product – the highest since the 1970s (Covid aside). And this is only Federal government – including the state governments only makes it bigger.
The following graph is courtesy of ANZ – a larger version can be seen here.
3. There is very little in the Budget to help productivity
This Budget was not supposed to happen, with only Cyclone Alfred stopping an April election.
One hopes that both parties are holding back their bold initiatives for the campaign proper, which will begin next week. However, a pessimist may also suggest that both are trying to be small targets, as in the modern age, reform is viewed as just too difficult.
The thinking is a small number of losers will make far more noise than a large number of beneficiaries from any reform.
In the meantime, productivity in Australia is hard to come by, at least over the last decade. There are few signs we will be able to boost it anytime soon, though we are doing better than our friends in New Zealand.
This matters for markets and should make investors cautious that we can sustain real returns (over inflation) around the 3-4% level.
Recent years have left investors confident that the good times will keep rolling, but expectations should be moderated – disappointment will not be too far behind.
Inflation
Today, we also received the February monthly CPI numbers. This compares levels with February last year.
Prices are up 2.4%, almost right on the RBA’s target. If a trimmed mean is applied to CPI (that is, removing the top 15% and bottom 15% on a weighted basis) this number is 2.7%.
This is good news for the RBA. While electricity subsidies are keeping headline inflation down (these run out next year), there is plenty of good news in the items.
Importantly, new dwelling prices are only up 1.6% over the past 12 months, having been above 10% in 2021 and 2022. Rents were 5.5% higher – still too high, but down from 8% peaks.
In fact, apart from excise-impacted alcohol and tobacco, the only pinch points of high inflation remain health, education and insurance.
Lower wage growth should help health and education fall, though structurally they will remain elevated. Insurance is only a small part of overall CPI but should follow – down moderating car repair and building costs.
The Q1 2025 CPI numbers, due out 30 April (RBA meets 18 May), should show trimmed mean inflation at 0.6%. Headline may be nearer 0.8% or 0.9%, but either way, it will provide the RBA with a very good reason for another cut.
If the polls are right in suggesting post-election mayhem and both parties try to woo the independents to form a government, we may not have a government by 18 May.
However, whoever does become prime minister will be handed a gift from the RBA.
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
Here are the main factors driving the ASX this week, according to portfolio manager OLIVER RENTON. Reported by portfolio specialist Chris Adams
- Find out about Pendal Focus Australian Share Fund
- Tune into Crispin Murray’s latest Beyond the Numbers webinar
A QUARTER AGO, the market had strong momentum, favourable liquidity and seasonals, but definitive signs of overexuberance.
It could be argued it was due a correction, and this has occurred.
The answer has consistently been to buy the correction. It never feels comfortable at the time, but this has been the correct answer – unless the economy is sliding into recession.
We have seen extremely rapid unwinding of positioning, some soft economic data and some weak company updates.
The market stabilised last week – a sign that it is entering a new phase. The S&P 500 was up 0.5% and the S&P/ASX 300 1.9%.
What the US is attempting to do – in fundamentally rebalancing its economy – is not something society or the market has had to deal with much over the last few decades (we’ve had other things, certainly).
It creates uncertainty. This is reflected in sentiment indicators within the US. It is also being reflected in capital flows globally.
Uncertainty feeds into confidence which can and does have the ability to drive the economy. The prospect of policy missteps is elevated.
The Fed does have some room to maneuver with a currently strong employment backdrop and only moderately high but stable inflation.
The Trump Administration can also try and give the market confidence at various points. They have made it clear they want to create structural change without causing recession.
We suspect short-term volatility will be elevated, as we head toward a most-likely favourable long-term environment for risk-assets.
It feels somewhat analogous to the constant back and forth we had on soft versus hard landing. This is likely to go on for an extended period of time.
The comments above regard the US and its economy – the implications for individual countries and blocs will be just as interesting, with the derivative impacts highly uncertain.
China is pushing a consumer recovery, while Germany is stimulating via higher defence spending and has awoken. We are already seeing major shifts.
It seems more important than ever to construct portfolios to reflect vastly different economic outcomes, to be open minded and nimble but not reactive.
David Zervos, Chief Market Strategist at Jefferies, summed it up nicely. While approving of the “withdrawal” or “detoxification” of the US economy from dependence on the government sector, he noted the risk of economic convulsions through the process.
With regard to markets, he said that how it will play out “over the short term remains difficult to predict; but with the end result being a decisive move towards spending and regulatory parsimony, the long-term outlook for risk asset returns couldn’t be any brighter”.
Thus far, the S&P 500 drawdown is playing out in line with previous examples of corrections greater than 10%.
Historically, the median outcome is that stocks start a strong rebound two-to-three months after the market’s previous top – if there is no recession. If there is a recession, equities have historically continued to sell off.
US macro and policy
FOMC
As expected, the Fed left rates unchanged at 4.25%-4.50%.
The “dot plots” of expectations for future rate cuts from the FOMC participants still suggests a further 50bps of cuts in 2025, however the distribution shifted upwards, with four now expecting a midpoint of 4.375% in December, up from one, and the number expecting only a 25bp cut lifting from three to four.
New economic projections suggest most members expect the inflationary effect of tariffs to be short-term, but that concern over the outlook for employment is increasing.
Expected GDP growth for 2025 was reduced to 1.7%, from 2.1% in December, the unemployment rate nudged up from 4.3% to 4.4% and Core PCE inflation from 2.5% to 2.8%. However, 2026 expectations were largely unchanged.
The statement noted the economy “has continued to expand at a solid pace”, unemployment has “stabilized at a low level” and labor market conditions “remain solid”.
However, it noted that “uncertainty around the economic outlook has increased.” It also removed the previous reference to risks over employment and inflation goals as being “roughly in balance.”
It has announced that the pace of balance sheet reduction will be slowed, as a result.
Equity market took the release well and consensus rate cut expectations remained steady.
Other data
The preliminary Michigan Consumer Sentiment survey dropped from 64.7 in February to 57.9 in March – well below consensus and the third straight month of declines.
Both current sentiment and expectations were lower – the latter down 10 points from February. The difference in sentiment according to political party remains stark.
US Nominal Retail Sales increased just 0.2% month-on-month (MoM) in February. We note that high-frequency data like Open Table booking and bank lending show no signs of consumer caution yet.
US weekly unemployment benefit application were largely changed at 223,000, which is a relatively low level and indicates a resilient labor market.
This may deteriorate, however, given some of the recent layoff announcements.
The National Association of Home Builders/Wells Fargo Housing Market Index dropped three points to 39 this month, versus consensus expectations of 42. This is the lowest level since August 2024.
We also note that the average US 30-year mortgage rate rose for the first time since early January, to 6.72% for the week ending 14th March.
Expectations of lower growth and higher inflation due to tariffs are also reflected in New York state manufacturing activity, which dropped in March to the lowest level since early 2024, while measures of prices picked up.
China policy and macro
The action plan announced following the recent National People’s Congress is aimed at boosting consumption as a driver of economic growth.
The plan’s seven parts, with some key elements, are:
- Promote income growth. Boosting spending power via higher minimum wages, stabilizing stock and real estate markets, as well as subsidies and measures to support rural economies.
- Improve consumption capacity. Giving people the means and confidence to spend via better access to credit and stronger social safety nets (eg childcare, pensions and healthcare support).
- Improve consumption of services and public benefits. Better access via measures such as elderly-friendly infrastructure, community-based childcare, home services industry standards and steps to improve tourism.
- Upgrade large-item consumption. Encouraging purchases of items like cars and home appliances via subsidies and trade-in programs. Also measures to support affordable housing.
- Improve consumption quality. Implement product standards and promote domestic brands, support further technological innovation such as AI and encourage sustainable products.
- Improve consumption environment. Enhance consumer rights and tackle issues such as fake goods and unfair pricing. Upgrade infrastructure and improve convenience of the consumption environment.
- Remove restrictive measures. Easing regulations that hinder consumption and improve credit availability.
Elsewhere, year-on-year growth of industrial production (IP) came in at 5.9% for January-February, versus 6.2% in December but ahead of consensus expectations at 5.3%.
Fixed asset investment grew 4.1% (versus 3.2% expected) up from 2.2% in December. Retail sales rose 4.0% (3.8% expected) up from 3.8% in December.
There has been some front-loading of demand and production from a recent trade-in program and a boost in exports looking to get ahead of tariffs, so this growth may moderate in coming months.
Other policy and macro
The OECD cut global GDP growth forecasts from 3.3% to 3.1% for 2025 and from 3.3% to 3.0% for 2026, citing the uncertainty relating to trade barriers among G20 nations.
Mexico and Canada saw the largest reductions, but China was lifted from 4.7% to 4.8% in 2025.
The February Eurozone consumer price index (CPI) was revised lower to +2.3% year-on-year, versus the earlier flash reading of +2.4%.
The Bank of England’s Monetary Policy Committee left the benchmark policy rate at 4.5%.
Australia policy and macro
Employment
Employment data came in much weaker than consensus, falling -53k in February (seasonally adjusted) from January, versus -30k expected. This is after a year of almost continual upside surprises.
Hours worked fell -0.4% month-on-month.
The Australian Bureau of Statistics cited fewer older works returning to work post the holiday period, noting the participation rate dropped from 67.2% to 66.8% driven by change in the age cohorts 55 years and older.
The unemployment rate fell from 4.11% to 4.05% and underemployment from 6.0% to 5.9%, indicating that capacity remains relatively tight.
Indicators suggest labour demand remains stable and supported.
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Tariffs
On tariffs, current estimates suggest 2-8% of Australia’s $30bn in exports to the US will be hit in the next round, in the event of no exemptions. Affected areas include beef and pharmaceuticals.
Budget
Commentators broadly expect strong revenues, but offset by further spending and no change to the expectation of further deficit spending.
There is a likelihood of further rebates or “cost of living” measures given the upcoming election.
The spending outlook could hit a snag in the event of a minority government – based upon the 2010-2013 experience – depending on who formed it. Betting markets still imply a 2/3rds chance of this outcome, reflecting how tight the race is.
Elsewhere, March quarter manufacturing activity remains below average, whilst business investment has eased but remains above average.
Advertised salary growth is remaining stickily high at 3.6%.
Markets
Bond yields were down across the curve in US, with the 10-year down 7bps to 4.25%. The Australian equivalent fell 2bps to 4.40%.
Commodity prices were up small, on the whole. Gold (+14.8%) and copper (+27.6%) are the standouts calendar year-to-date.
Global equity indices were up over the week. The EUROSTOXX50 is the best performer in 2025, up 11.19%, which would not have appeared on too many bingo cards.
The current US drawdown is nothing out of the ordinary thus far – and is currently less than the average intra-year drawdown of 14.1% going back to 1980.
The correct response historically has been to buy the dip…unless the economy is heading into recession.
The rebalancing of systematic strategies away from equities appears to have played out and has already hit the low end of its 10-year range for a measure of commodity trading adviser (CTA) strategies.
Measures of investor net leverage and long/shorts suggest that fundamental investors have also shifted back to the bottom end of five-year ranges in terms of US equity exposure.
Retail investors have been slower to move.
The Goldman Sachs risk appetite indicator has diminished, but only back to a ‘neutral’ level.
Ther were some interesting company-specific updates to note:
- Nike Q3 revenue rose 3%, beating expectations. China was weak but North America and EMEA were better than expected.
- Fedex reduced its FY profit outlook for a third consecutive quarter, calling out waning consumer confidence and the impact of trade wars.
- Homebuilder Lennar’s forecast for quarterly orders missed analysts’ estimates, with the co-CEO noting “a challenging macroeconomic environment for homebuilding.”
Australian equities
The week finished with solid gains across the board for the ASX and its sectors, but was choppy throughout.
The S&P/ASX 300’s 1.9% gain brings it back to down -2.3% for the month.
Consumer staples (+4.0%) had the best week on news flow out of the Government review into supermarkets.
About Crispin Murray and 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 an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
Find out more about Pendal Focus Australian Share Fund here.
Contact a Pendal key account manager here.
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.
Stocks that suit volatility | Emerging markets could enter a bull market | Investing in founder-led companies | Uncertainty creates opportunity for ASX investors
In a volatile world, equities investors should seek out businesses that are taking control of their own destiny, argues Pendal equities analyst ANTHONY MORAN
- Look for companies with control of their own earnings trajectory
- M&A, cost-cutting, market share gains
- Find out about Pendal Focus Australian Share fund
THE market turmoil triggered by Donald Trump’s trade wars, spending cuts, and geopolitical brinkmanship can leave investors feeling there’s nowhere left to hide.
But beyond the chaos, opportunities abound in companies simply getting on with business — cutting costs, expanding margins, lifting market share, and delivering for shareholders, says Pendal’s Anthony Moran.
In uncertain times, companies with control over their own future are precisely the sort of investments investors should be hunting down, he says.
“You want to lean into idiosyncratic upside — upside that won’t be derailed by macroeconomics or the business cycle.”
Moran, an investment analyst in Pendal’s Australian equities team, highlights ASX-listed companies such as Amcor, Light & Wonder, and BlueScope Steel as examples of businesses creating their own growth opportunities, led by management teams with the capability to control their own destiny.
Pendal invests in all three stocks.
Amcor merger upside
Moran says Pendal has been adding to its position in Amcor (ASX: AMC) and sees the global packaging giant as an attractive opportunity in the current market.
“Amcor’s cycle is not one that’s hugely volatile,” he says.
“They sell consumer packaging focused on the centre of the supermarket and healthcare – low-volatility, in-demand sectors.
“The plastic packaging industry globally is just coming out of a nasty bout of destocking after consumers cut back due to inflationary pressures and Amcor is regaining its operating momentum and returning to growth.”
Amcor’s all-scrip acquisition of New York-listed Berry Global Group – approved by shareholders last month – is set to accelerate earnings growth, argues Moran.
“Berry makes semi-rigid plastic packaging – think yoghurt tubs and beauty product containers – and Amcor is targeting US$650 million of synergies from the merger, which is 23 per cent of the combined EBIT.
“So, you’ve got a company that’s going to drive tremendous EBIT growth relative to historical levels over the next three years on the back of those synergies.
“Even if you have a cyclical slow down, consumer confidence softens, and volume growth is flat, that’s immaterial compared to the earnings growth.”
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Amcor benefits from a well-structured deal struck at a reasonable price by allowing Berry shareholders to share in the upside, Moran says.
With high gearing, shareholders will see even faster growth in earnings per share than the EBIT growth alone suggests.
And because Amcor manufactures locally in its key markets, it is insulated from US threats of trade tariffs.
“Amcor was already looking attractive beforehand — it’s currently trading on 11 times FY26 PE versus a historical average of 14.5 times.
“People haven’t given them full credit for the cyclical recovery and haven’t factored in the merger yet.”
Light & Wonder gaining share
Light & Wonder (ASX: LNW) is another company that fits the theme of being in control of its own destiny. For the slot machine maker, it’s the ability to gain market share that’s driving the upside, says Moran.
“If you’re doing something different, developing a competitive advantage that’s seeing you gain meaningful market share relative to the underlying growth rate in the industry, then that’s going to insulate you from the macro weakness we’re seeing.”
Light & Wonder is gaining market share in the US slot machine industry as a result of a multi-year turnaround strategy that has seen the company restructure how it develops games, revamp its sales and distribution model, and introduce better incentives for game designers.
With the US slot machine market growing in the low single digits, Light & Wonder’s market share gains have helped it deliver growth in the low teens, say Moran.
That means even if the broader economy slows, the company is still positioned for strong growth.
Cost control
Moran says other companies are delivering positive results for shareholders by refocusing on cost control.
BlueScope Steel (ASX: BSL) is a standout example, he argues. Alongside being a beneficiary of US steel tariffs due to owning US-based steelmaking, BlueScope is also delivering strong cost savings across its Australian steel-making business.
“They’re targeting $200 million in cost reductions, which is significant for a company making $1.2 billion to $1.4 billion in EBIT,” says Moran.
Toll road operator Transurban (ASX: TCL) and gas pipeline owner APA Group (ASX: APA) are also set to benefit by turning to cost control after a long focus on major growth projects in recent years.
Transurban has recently completed Sydney’s giant Westconnex motorway system and is nearing the end of Melbourne’s West Gate expansion.
APA has been focused on its east coast gas grid expansion and recently completed the purchase of Alinta Energy’s remote WA power assets.
Now both businesses are turning their attention to costs.
“If they can even keep their cost growth flat for a year in absolute terms, because their revenues are growing at CPI-plus their margins start expanding and that will fall quite nicely to free cash flow and dividends.”
About Anthony Moran
Anthony Moran is an analyst with more than 15 years of experience covering a range of Australian and international sectors. His sector coverage has included Australian Industrials and Energy, Building Materials, Capital Goods, Engineering & Construction, Transport, Telcos, REITs, Utilities and Infrastructure.
He has previously worked as an equity analyst for AllianceBernstein and Macquarie Group, spending a further two years as a management consultant at Port Jackson Partners and two years as an institutional research sales executive with Deutsche Bank.
Anthony is a CFA Charterholder and holds bachelor’s degrees in Commerce and Law from the University of Sydney.
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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GROWTH concerns triggered by policy uncertainty remain a headwind, with further tariff threats and signals from some US companies, like airlines, noting weakening demand.
The move in markets has been exacerbated by a significant positioning unwind in hedge funds. This is the nature of markets today, where automated risk-cutting forces a wash-out of crowded trades – in this case, momentum stocks.
By the end of the week, the positioning wash-out played out and markets began to bounce.
We are likely to see an uneasy truce for the next few weeks as forced selling ends and some quarter-end rebalancing may help equities, but the real driver of markets will be evidence of how the US economy is going.
The benign scenario is that we have seen around a 50-basis-point (bp) stepdown in US GDP growth to the mid 1.0%-2.0% range. This is probably factored in.
The risk scenario is that uncertainty sustains for longer and we see a self-reinforcing slowdown, as spending caution translates into job cuts. This could see markets fall further.
The “Fed put” is not yet in play, as inflation is not yet benign enough and the issue of how to manage the impacts of tariffs remains up for debate.
There is some good news as Germany looks set to get support for its fiscal stimulus, which will support growth in the EU.
China-exposed assets are also holding up, signalling the worst may have passed there.
The S&P 500 was down 2.23% for the week. At its Thursday low, the US market had sold off about 10% from its February high, while post-Friday’s rally is down some 8%.
The S&P/ASX 300 fell 1.87%. It’s off about 9% from its high, or 8% when adjusting for stocks going ex-dividend.
To understand why we have seen such a sharp move, we need to consider both fundamental and technical issues.
Fundamentals
The fundamental catalyst has been fears of a quick slowdown of economic growth.
A combination of concerns over tariffs, the erratic policy narrative, DOGE cuts, and deportations has led to businesses and consumers winding back investment and spending.
Last week, we saw more anecdotes to suggest growth was slowing:
- US airlines downgrading on slower sales. Delta CEO Ed Bastian said that there was “something going on with economic sentiment, something going on with consumer confidence”. The Southwest CEO said: “What we’re seeing now is a kind of broad softness in the macro economy… it’s hard to attribute to any one thing.” United noted US government air travel demand has dropped 50%.
- The NFIB Small Business Survey saw the post-election surge in optimism rolling over.
- Consumer expectations – as measured by the University of Michigan – are falling sharply. Among Democrat voters, they are at record lows.
Expectations among Republican voters are much higher but have also rolled over.
To give a sense of what has shifted in expectations, Goldman Sachs has moved its estimated effective tariff rate rise from 4.3% to 10%.
For context, the combination of the 25% tariff on steel and aluminium plus 20% on China and 10%-25% on some Canadian and Mexican imports already represents a 3% uplift in the tariff rate.
In addition to these, tariffs are expected on specific products such as autos, electronics, and critical minerals, as well as reciprocal tariffs to equalise those put on US goods.
According to Goldman Sachs, the overall economic impact may drive core Personal Consumption Expenditure (PCE) inflation from its current mid-2.0% range to 3.0%, and increase the tariff-related hit to GDP growth from 0.3% to 0.8%.
This takes its estimated Q4 year-on-year growth down to 1.7%. While this is below trend, it is a long way from a recession call.
No Fed pivot in the short term
An issue compounding these growth concerns is that inflation data is not currently sufficient to give the Fed a reason to bring rate cuts forward.
The University of Michigan Survey also highlighted a material rise in forward inflation expectations.
While both Consumer and Producer Price Index (CPI and PPI) data is benign, the components of it that are relevant for the Fed’s preferred PCE indicator signal that this is not coming down.
Core CPI data was up 0.23% month-on-month (3.1% year-on-year), which is the lowest level since April 2021.
However, the three-month annualised rate has stalled and is running at a 3.6%, which is not improving enough.
Furthermore, the relevant inputs from CPI and PPI signal that February’s PCE will be higher, with PPI for hospital prices and insurance premiums stepping up in February.
This makes it difficult for the Fed to move earlier than the market expects, which is one 25bp cut in either May or June and a second by November.
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Technicals
The second reason for the selldown has been market positioning.
Given the rally from November 2023, positioning was extended and concentrated in momentum stocks such as technology and financials.
Therefore, as expectations have changed, there had been a sharp unwind of risk positioning –particularly in systematic strategies, which have automatic risk-cutting rules.
We have seen the sharpest rate of investor de-grossing (i.e. reducing positions to lower overall risk) since 2022.
Hedge fund net leverage has unwound substantially. It is interesting that gross leverage has stayed high, so hedges have been deployed but some of the core positioning may not have been unwound.
The momentum factor has worn the main impact and is off about 17% in the S&P 500. There are signs that this wash-out has largely played out. The key question is, what happens from here?
We believe we will see a period of stabilisation or a bounce-back in the market short term, as the technical drivers of the sell-off have played out and there has been a material rebasing of growth expectations.
However, there is still risk in the market should growth soften and begin to affect corporate earnings.
Reasons for near-term recovery include:
- The positioning unwind looks to have played out, particularly in the systematic strategies that employ automatic risk-reduction overlays.
- Quarter-end rebalancing should lead to net buying of the market given the selloff in equities. While still too early to estimate, at current levels this is potentially US$40b of buying.
- Technical signals such as the VIX Curve, and bull/bear ratios are suggesting the market is oversold.
There are, however, two things to remain mindful of.
First is that ETF flows remain strong. This is also consistent with the level of retail investor speculative behaviour and does not appear to have been washed out.
Second, while volatility (as measured by the VIX) has spiked, it has not yet reached the August 2024 high when the yen carry trade was unwinding.
Historically, in periods such as this, we do tend to see re-tests of the volatility high, as happened in 2022.
Market outlook
Looking forward, the market’s valuation de-rating is consistent with the selloffs we have seen in more recent drawdowns.
In some, such as in April and August 2024, the valuation recovered from here.
In March 2022, the de-rating continued following concerns over stagflation and the need for substantial rate hikes which were expected to hit growth and earnings (i.e. an extended period of uncertainty about the economy).
So the signals to follow now are the economic fundamental ones.
As it stands, the US economy looks to have stepped down to around a 1.5% GDP growth run-rate from the mid-2.0% range. Should this prove to be the case, then the risk of a material further drawdown is low.
Evidence that this is the case can be seen in:
- Real-time survey data such as the Evercore ISI Company Survey, which is plateauing but not falling further.
- Credit spreads, which are a good guide on the risk of a material economic slowdown and are not moving as materially as equities, which is constructive.
- The employment market holding up. The recent JOLTS data had a small rise in the Quits rate, which is a signal of confidence in the outlook for jobs. It should be noted that the weekly surveys of layoffs have begun to pick up a lot, tied to DOGE and the public sector.
While these signals are benign, we are in a unique situation with a new US administration focused on fixing what it sees as a flawed global economic model.
Its view is that the US effectively borrows money from other countries to buy its products and payments are recycled into US financial assets.
This creates an outcome where jobs are exported from the US, the US becomes increasingly vulnerable to global supply chains, the US debt level is increasingly unsustainable, and the US Dollar is overvalued.
While the desire to unwind this global trading model is understandable, the process is fraught with uncertainties and risks.
There are two key differences between the current administration and Trump 1.0.
The first is there is a more ideological approach to policy – it is not necessarily just the “art of the deal.” The administration, for example, has been staffed with people who believe in this as an existential risk to America’s future.
The second difference is Trump 1.0 was able to offer the carrots ahead of the stick i.e. tax cuts came first, driving demand and investment, with tariffs coming later. This time, the stick comes first with tax cuts later – and these are more about extending existing ones rather than new ones, with little economic impact.
Perhaps the administration will find a path to cut taxes further, but this is a more complicated challenge given the fiscal deficit.
So, for now, the economy is probably still strong enough for the market. But this could be a very different cycle to ones we have seen in the last twenty years.
German fiscal package
The new federal German coalition has secured support from the Green party for its fiscal package, with only minor modifications.
In the exclusion of defence spending above 1% of GDP from the budget, the definition of defence spending has been widened e.g. to include support for Ukraine.
The EUR500bn infrastructure fund has been extended from 10 to 12 years, with a concession to allow EUR 100bn to be put towards climate projects.
This deal is expected to pass through both chambers next week and could potentially add 1.5% to 2.0% to GDP per annum.
This has had a significant positive impact on confidence surveys in Germany.
Australian equities
ASX performance was in line with the US, rather than Europe.
Sector rotation was once again substantial, with previous laggards such as resources (+0.7%) and energy (+0.3%) up, and banks (-3.2%), technology (-4.1%) and consumer discretionary (-3.2%) down.
Stocks exposed to US consumers such as Aristocrat Leisure (ALL, -4.4%) continued to fall, while Qantas (QAN, -6.2%) fell on the back of the US airline downgrades, though the Australian domestic market looks very different.
In the data centre sector, there has been much debate regarding hyperscalers cutting back roll-out plans.
We now have more insight on this: it appears one hyperscaler has over-procured 1 giga-watt (mostly in the US), which is roughly four months’ worth of capacity and is driving the pause in its data centre leasing.
It has apparently been making polite inquiries of some of its customers to see if there is an opportunity to delay or reduce some of its commitments, understanding that it has no legal basis to request this.
Certain players dependent on this customer may feel obliged – others with more mixed business models are likely to decline.
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.
The Barrow Hanley Concentrated Global Share Fund No. 3 (formerly known as Pendal Concentrated Global Share Fund No.3) Annual Report for the year ended 30 June 2024 (2024 Annual Report) published on our website from 30 September 2024 to 5 March 2025 was inadvertently missing the page which contained the Statement of Comprehensive Income. The 2024 Annual Report with the missing page included has now been republished on the website on 5 March 2025, available here: Barrow Hanley Concentrated Global Share Fund No3 – Annual Report.pdf.
As the Australian bond market tries to navigate Trump-driven market turmoil, Pendal’s TIM HEXT says it can help to stay focused on the hard data
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AUSTRALIAN equity markets have returned to their August 2024 levels, a time when the US election was beginning to take shape.
Optimism for a business-friendly Trump has turned into pessimism over his seeming willingness to experience short-term pain to achieve his agenda.
Meanwhile, Australian bond markets are trying to figure out what it all means.
For our team, which is focused on interest rates and credit, it means not losing sight of the data and what the picture is for the Australian economy.
Besides the headline-grabbing inflation and employment numbers, the most important release we get every month is the NAB Monthly Business Survey.
It is very timely and comprehensive, and a credit to the soon-to-retire Chief Economist Alan Oster and his team.
So, what did Tuesday’s release tell us? The picture is quite a bond-friendly one.
Business conditions remain below long-term averages and the bounce in confidence we saw in January fell away again.
Surprisingly, retail conditions fell away and remain low, which doesn’t support the narrative of a more confident consumer.
The chart below, courtesy of NAB, highlights the ongoing and consistent moderation in business conditions.
Capacity utilisation continues to moderate and is now almost back to the average level of the last decade (stripping out the Covid fall and surge).
In other words, capacity constraints are not a major problem, which is an important outcome for keeping inflation low.
Secondly, forward orders are yet to bounce back to normal levels. Like the economy, they are slowly improving but indicate ongoing caution.
Thirdly, prices paid remain consistent with easing inflation pressures.
Final product prices eased to 0.5% a quarter – the lowest since early 2021. Labour costs grew by 1.5%, which – adjusting for strong employment growth – is consistent with wage growth around 3-3.5%.
Our quantitative models use several factors from the NAB Business Survey.
The net impact was to trigger a signal to add some duration, consistent with our qualitative view that the current fall in business confidence will feed into lower employment and inflation outcomes.
This may all sound a bit dry and technical in the face of far more exciting hour-by-hour headlines and equity market chaos. However, we always need to make sure we keep an eye on the hard data, especially when it is timely.
About Tim Hext and Pendal’s Income & Fixed Interest boutique
Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.
Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
Find out more about Pendal’s fixed interest strategies here
About Pendal
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.
There are opportunities in Aussie equities for investors willing to look through the noise, says Pendal’s head of equities CRISPIN MURRAY in his bi-annual Beyond The Numbers webinar
- Uncertainty creates mis-pricing and opportunity
- Find out about Pendal Focus Australian Share fund
- Watch Crispin’s latest Beyond the Numbers webinar
ECONOMIC uncertainty, recession fears and swerving policy changes from the US Trump administration are creating opportunities for investors willing to look through the noise, says Pendal’s head of equities Crispin Murray.
An index of economic uncertainty spiked to levels not seen since the pandemic in February amid debate about the effects of US policies on tariffs, federal government spending cuts, and deportations.
Murray says the uncertainty is causing companies and consumers to defer spending decisions – which will ultimately affect economic growth – while also causing mispricing in markets as investors second guess the outlook.
“We’ve got uncertainty at stock levels, sector level, policy, geopolitics – everything is creating confusion,” says Murray.
“To be frank, we actually like this confusion. We like this uncertainty because uncertainty creates mispricing and it plays to our strength.
“That’s why we still believe, while the broader market trends for lower returns, there is still lots of opportunity to add value for our investors.”
Murray was speaking at the bi-annual Beyond The Numbers webinar after the February ASX earnings season.
Still Biden’s economy
Murray says it is increasingly clear that Trump is keen to attribute the first-half performance of the US economy to the previous Biden administration, indicating that he may be willing to wear prolonged uncertainty and weakness.
“That may be self-serving, but that’s the way they see it. Therefore, if we have uncertainty or weakness in the economy in the near term, they don’t see it as their issue,” he continues.
“To us, that would suggest that they are using this first few months of the year to do the hard yards on trying to get better outcomes in terms of trade, using tariffs as a stick, and this uncertainty period will extend for a few months.”
Markets fell this week after Trump said the US economy would see “a period of transition” and refused to rule out a recession.
For investors, Trump’s reform-driven agenda may turn short-term uncertainty into long-term gain, says Murray.
“Ultimately, we do believe this administration is here to drive growth, to drive markets, and will do what it takes to try and underpin that.”
Positive factors
Despite the uncertainty and likely growth slowdown looming over markets, there are some significant positive factors weighing in investors’ favour.
Central banks are in an easing cycle and rate cuts mean financial conditions have moderated, while liquidity remains supportive due to the US debt ceiling restricting net issuance of new bonds.
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“It is a bit of a safety net,” says Murray.
“If we do see a slowing in the economy, there is room for the Fed to ease. There’s room for bond yields to come down, and that could act as a mitigant for some of the short-term uncertainty.”
Australia sluggish, but downturn unlikely
Domestically, the Australian economy looks set to avoid a significant downturn as real disposable income holds up due to the effect of tax cuts, interest rates, higher wages, and moderating inflation, says Murray.
“We’re back to the pre-COVID era 2-to-3-per-cent real disposable income growth that should underpin consumption,” he says.
Recent data from the Commonwealth Bank of Australia show essential spending has slowed as inflation comes down, giving households more money to spend on discretionary purchases and reducing the need to draw down on savings.
Despite that support, Australia faces significant challenges.
“Productivity growth … has clearly stepped down,” says Murray.
“Some of this can be explained away by the mining sector, but there’s still underlying issues with our ability to drive productivity, and that creates issues for longer term growth.
“We really have become more like Europe than the US, and that ultimately is not great for corporate earnings in Australia.
“It also constrains the ability for the RBA to cut interest rates because of that lack of productivity growth.”
Murray says these “challenges for the next government are going to be difficult to address”.
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.