Australia’s GDP numbers look solid on the surface, but the real story sits beneath the headline growth. Pendal’s head of government bond strategies TIM HEXT breaks down what it means for inflation and rates.

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GIVEN events so far this week, last year’s economic data is perhaps less important than usual.

However, the Q4 2025 national accounts released today – like any set of accounts – contains interesting insights into the Australian economy as it ended the year.

The high-level numbers

Real GDP was 0.8% for the quarter and 2.6% for 2025.

Household consumption (about 55% of GDP) grew a more modest 0.3% in Q4 and 2.4% in 2025, although electricity subsidies meant this was slightly lower than otherwise. This lagged income growth, resulting in higher household savings (6.9% from 6.1%).

Public final demand (approximately 27% of GDP) was up 0.9% and 2.4% for the year.

Private dwelling investment (approximately 6% of GDP) rose 0.6% and 5.5% for the year.

Business investment (approximately 12% of GDP) rose 0.5% and was up 4.4% for the year, led by non-residential building which was up 8.9% over 2025.

Stocks (inventories) were up 0.4%, rebuilding from Q3 -0.5%. This alone was worth half the overall GDP growth.

Export growth in the quarter of 1.4% slightly lagged import growth of 1.8%, to overall slightly detract from GDP. Below, courtesy of NAB, is the contributions to the 0.8% GDP growth from these measures:

What we learnt

Much will be made of economic growth sitting at 2.6% – above the RBA’s rough estimate of potential growth nearer 2%.

However, it pays to remember this 2% potential growth assumes very benign productivity growth, as population growth alone is adding 1.5% a year.

I suspect productivity growth will surprise to the upside in the years ahead – a pleasant surprise after such benign outcomes over the last decade.

Today’s number showed productivity growth of 1% over 2025. Looking just at the market sector this number is 1.5%.

Therefore, on purely economic terms 2.6% growth is at or only just above capacity (population plus productivity).

The RBA may argue that higher inflation shows the output gap is higher, but I suspect by year end this argument will not hold.

The second key part of the National Accounts for inflation is average earnings (called AENA).

This measure looks at the average earnings per employee, and importantly includes superannuation, overtime and bonuses.

It provides a broader picture than the Wage Price Index (WPI) which just looks at changes to basic wage rates for a fixed job basket.

Today’s data showed AENA grew at 0.5% for the quarter and 4.2% for the year.

Given this included the last 0.5% increase in super contributions and the productivity improvements, it questions if the recent higher inflation is being largely driven by wage costs.

Implications for markets

Clearly there is currently a lot more going on driving bond markets, but in isolation today’s numbers paint a picture of decent growth, but not runaway growth that the RBA needs to pull back.

A May rate hike is still on the cards if Q1 CPI is 0.9% trimmed mean as expected, but beyond that we still view that inflation and employment will moderate in 2026 and no further hikes beyond May will be required.

Potentially rates could even fall in early 2027.

Therefore, the current oil price inspired bond selloff presents opportunities to add duration into bond portfolios.

Only if you think this conflict will more permanently shift oil prices significantly higher can we drag out the ‘stagflation’ word, one last seen in 2022/23.

If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through our accounts team

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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

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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.

Contact a Pendal key account manager

Sustainable investing isn’t just about the environment. A growing segment of the bond market is targeting gender equality head on, using capital as a catalyst for lasting social change. Pendal’s GEORGE BISHAY and MURRAY ACKMAN explain.

• Gender bonds let investors back equality without sacrificing credit quality
• Globally, women are less active in investing in start-ups or small businesses
• Find out more about Pendal’s Responsible Investing capabilities 

GREEN bonds have been around for some time, but bonds focused on gender equality are now generating increased interest, a timely development ahead of International Women’s Day on March 8.

Gender bonds specifically target financing projects designed to advance gender equality and women’s empowerment.

The proceeds from gender bonds are directed towards initiatives that support women’s leadership, entrepreneurship and access to finance to help close the gender gap across various sectors.

The Asian Development Bank (ADB) launched a ‘gender bond’ as one of its core priorities to accelerate progress on gender equality. Pendal is an investor in ADB.

Pendal head of credit and sustainable strategies George Bishay says the Asia Pacific region still experiences some of the widest gaps between women and men across economic participation, financial inclusion, education access, and leadership representation.

ADB’s work recognises that closing these gaps is crucial for improving economic productivity and supporting long-term social stability.

“These bonds with their specific focus on gender allow investors to contribute to these goals whilst maintaining exposure to a high-quality supranational credit,” says Bishay.

An example of the type of project that these gender bonds support is the Uzbekistan Inclusive Finance Sector Development Program.

This program aims to expand access to finance for underserved micro and small entrepreneurs, particularly women-led businesses, by strengthening the regulatory environment, improving consumer protection, and enabling new microfinance institutions to operate sustainably.

Murray Ackman, Pendal senior ESG advisory analyst, says Uzbekistan has made progress in broadening financial inclusion and around 60 per cent of adults, according to World Bank data, now hold a financial account, driven in part by rapid growth in digital finance.

“However, women entrepreneurs still face significant barriers in accessing credit,” says Ackman.

Globally, women are about 22 per cent less active in investing in start-ups or small businesses than men (6.9 women per cent versus 9 per cent men), according to the November 2025 Women’s Entrepreneurship Report released by London’s Global Entrepreneurship Research Association.

One in 10 women, compared to one in eight men, started new businesses in 2024, while 10.7 per cent of adult women across the participating countries were engaged in total early-stage entrepreneurial activity.

ADB’s program supports targeted reforms such as increasing the ceiling for microloans, developing responsible lending guidelines, and establishing gender-focused lending quotas to help narrow these gaps and improve opportunities for women to participate in economic life.

This is the type of bond the Regnan Credit Impact Trust and the Pendal Sustainable Australian Fixed Interest Fund are focused on.

These bonds are issued in Australian dollars, and the fund has no exposure to any project-level credit risk.

“Our exposure is solely to the AAA rated ADB, a multilateral development bank established in 1966 and owned by 69 member countries across the Asia Pacific region,” says Bishay.

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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THERE are plenty of concerns occupying markets right now:

• Conflict in the Middle East which escalated with weekend strikes on Iran (see our analysis below)
• Continued speculation on the potential for AI to disrupt certain industries and possibly the whole economy
• The Nvidia result revamping debate about over-investment in AI
• Growing unease over private credit

Ahead of Operation Epic Fury, the US market (S&P 500) was off only 0.4% last week and down 0.8% for the month.

It underperformed global equity markets, with the FTSE 100 (+2.1%), Euro STOXX 50 (+0.1%) and TOPIX 500 (+3.4%) all up for the week.

Last year’s two leading sectors – tech and financials – are now lagging in the US, while more capital-intensive stocks are outperforming amid an improving economy and a market reassessment of their relative competitive advantage.

Bond yields fell across the curve last week, helped by a focus on the disruptive effects of AI.

In commodities, lithium surged 23.5% on supply disruption. Copper (+3.5%) and gold (+3.4%) also rose.

Australia experienced a solid week with the S&P/ASX 300 up 1.5%, taking the monthly return to 3.9%.

The final week of ASX reporting season reinforced an earlier trend of reasonably solid performance.

The economic backdrop remains broadly benign, while companies are generally doing a better job in managing expectations and framing their investment case.

The outlook in Iran

The US/Israeli attack on Iran could prove to be a seminal moment in the geopolitical landscape.

The spectrum of potential outcomes is very wide, with vastly contrasting implications.

From a market perspective the focus – as with the Ukraine conflict – will be on the consequences for supply of key commodities and disruption to the Strait of Hormuz.

Oil is a key consideration with almost a third of the world’s crude shipped through the strait. But 33% of the world’s fertiliser, 32% of methanol and 19% of LNG is also exposed.

Closure of the Strait of Hormuz is a risk.

There have been radio warnings to commercial vessels forbidding transit – though no proclamation from Iran’s Supreme National Security Council.

There were also reports Sunday evening of a US-sanctioned oil tanker – one apparently moving Iranian oil illegally – under attack.

There has already been a material reduction in traffic in the Strait.

However, this is a response to the insurance industry which has quickly moved to implement a war risk premium, cancelling coverage for ships in the region or hiking rates by as much as 50 per cent.

Ships must pause or slow their journeys while this is resolved.

There is a widely-held view that there is unlikely to be material disruption given Iran’s economic reliance on oil exports – and 80 per cent of oil travelling through the Strait is on its way to Iran’s ally, China.

There is also no clear historic precedent for a closure.

Previous threats of closure have not eventuated. During the 1980-88 Iran-Iraq war the strait remained open, even as combatants attacked each other’s tankers.

The other risk is that Iran may seek to destroy oil and gas infrastructure in other Gulf countries, which could disrupt supply.

All that said, this is highly unpredictable situation given the existential threat to the Iranian regime.

Oil was already trading around $US73 – about a $US8 premium – which imputed around a 20% risk to disruption. So a move to 50% risk would take the market to $85 and 75% risk to $105.

The risk to the upside from there would be the duration of any blockage.

Other possibilities to bear in mind include:

1. OPEC+ raising production, with a meeting held Sunday to discuss a production hike. Rumours are of potentially 400k barrels per day (bpd)
2. UAE and Saudi use oil pipelines to bypass the Strait; this may equate to 30-40% of the volumes
3. The US and China access their strategic reserves
4. The US limits oil exports, which may drive a wedge between the price of West Texas Intermediate (WTI) and Brent.

Longer-term, the key issues relate to what happens with the Iranian regime.

The worst-case scenario is some sort of internal conflict or regional separatism breaking out in Iran, which could disrupt its economy and oil production.

A preferred outcome is more akin to Venezuela where a new regime acquiesces to US demands relating to the nuclear program, in return for economic support.

The challenge for markets is an oil-induced shock lowers growth and potentially hampers the ability for the US Fed to cut rates.

Countering this, we know lower fuel prices is an integral part of President Trump’s mid-term campaign – and he will be focused on ensuring the conflict does not derail that objective.

The outlook for AI and software

Fears around the potential for AI to disrupt the software industry and the broader economy seemed to reach a crescendo last week.

The antecedents began in January, with three developments at developer Anthropic, which is a leader in the enterprise AI market:

1. New data demonstrated a material improvement in the capability of Anthropic’s Claude Code product, which can do the work of human programmers.
2. Anthropic successfully launched Claude Cowork, a user-friendly interface which has broadened the accessibility of AI-driven coding, allowing people without software development skills to use its agentic capability.
3. The January release of 11 specialised Cowork “plug-ins” which allow Claude to perform tasks previously managed on dedicated software products in the sales, finance, legal andmarketing industries.

Two events escalated concerns last week:

1. A widely-circulated article from finance newsletter Citrini speculated about a dystopian future for society. It described a world where AI agents replaced workers, with productivity benefits captured by a narrow group of AI companies. This could lead to a “doom loop” where job losses impacted consumption, leading to 10% unemployment, a private credit meltdown, a mortgage crisis and a stock market drop.
2. E-commerce software maker Block (XYZ) announced it would cut around 4000 staff (about 40% of its workforce) after dramatic improvements in programming productivity. Meanwhile logistics software developer Wisetech (WTC) also announced it would reduce headcount by 20%. Both arguably validated the concerns articulated by the Citrini article.

Investors reacted by extending their AI concerns beyond the software industry to the broader economy and fears of rising unemployment.

There have been some rebuttals to the Citrini piece, notably from hedge fund manager Citadel, highlighting flaws in the essay.

Citadel argues that productivity gains in one part of the economy historically drive activity in other parts. It also enables lower interest rates, which would also stimulate growth.

The Citrini piece may actually have marked the near-term low in the software sector.

Block’s announcement prompted the realisation that software companies may be able to expand their margins as a result of AI.

Nvidia and Anthropic also argue that software is central to the adoption of AI, with agents acting as users of software tools, not replacements.

Finally, the drawdown in the S&P 500 software sector P/E multiple has reached close to the lowest levels seen in 2009 and 2022.

Nvidia result

The bellwether AI chip maker’s quarterly earnings were 4% above expectations, but the stock fell
6.7%.

• An incremental revenue step-up has been sustained at US$10-11billion per quarter, from around $5 billion in 2023-24.
• Revenue grew 73% year-on-year, with acceleration projected through to mid-2026.
• EPS is projected to grow 50% in 2027.

Despite this the stock continues to de-rate – recently down to 21x – which reflects concerns over the sustainability of AI spend.

The latest update on AI capex spend by the hyper-scalers, governments and neoclouds has seen a material step up in 2026 to more than US$800 billion.

This is a six-fold increase on 2023, prompting questions around sustainability.

The concern has been that this represents a significant overbuild and an unwind could impact the economy and tech valuations.

A decline in free cash flow among hyperscalers – massive cloud service providers such as AWS, Microsoft Azure and Google Cloud – reinforces this concern.

However there is an argument that the spend is sustainable – that this is replacement spend, not incremental, and is driving productivity growth.

This is reinforced by strong gains in revenue per employee at Microsoft, Amazon, Alphabet and Meta.

There is also a case that the model for technology use is changing, which alters the growth rate for the sector:

• The old constraint was humans using a PC and a smartphone for human-to-human or human-to computer interactions, which had finite demand for computing power
• The introduction of AI agents interacting with each other drives a step-change in demand for computing power which drives quicker growth, as seen in the surge of demand for AI tokens (the unit of data that AI models use to process information) in recent months. Under this scenario the investment spend is justified, which gives confidence to the sustainability of Nvidia growth and its valuation.

Private credit concerns

This is the third big issue for markets, emphasised by two developments last week:

1. A renewed focus on the issue of “double pledging” of collateral in asset-backed loans following the collapse of a small UK mortgage lender MFS. This affected US investment bank Jeffries, knocking its stock down 9%.
2. Ex-Goldman Sachs CEO Lloyd Blankfein warned of the risks of taking private credit products to retail investors in a Wall Street Journal article. Losses in the sector would put it in the crosshairs of government and regulators, he said. This highlights the issue we discussed in last week’s note, with the use of listed Business Development Companies (BDCs), several of which have performed poorly.

These concerns affected both the broader bank sector – on concerns of their funding exposure to these vehicles – and the alternate asset managers, which have fallen sharply.

Other key data points

The January US producer price index (PPI) came in higher than expected, reinforcing concerns at the margin that progress on inflation has stalled.

Headline monthly PPI was +0.5% (versus +0.3% expected) and +2.9% yearly (versus about 2.6% expected). Core monthly PPI was +0.8% (versus +0.3% expected) and 3% yearly.

The upside surprise was driven by services, rising about 0.8% for the month due to transportation costs, financial services and labour-intensive components. Goods prices fell modestly.

The impact from commodity prices is something to watch as we saw in 2022. Should events in the Middle East impact energy prices it would be reflected here.

The bond market didn’t really react to the data, with the focus on structural issues around AI on the labour market seeming to suppress bond yields.

Australian inflation

January’s monthly consumer price index (CPI) was marginally higher than expected at 3.84% yearly (0.1% above forecasts). Trimmed mean was 3.36% (versus 3.3% expected). The three-month annualised figure was 3.36%, which is not slowing.

Other underlying measures, stripping out more volatile components, are running in the 3.3% to 3.5% range.

This reinforces inflation concerns, though the market did not see it as enough to drive the RBA to raise in March.

Instead, consensus is they will wait for the more detailed quarterly data, with a May hike now at 70% probability.

The market has raised the likelihood of a third hike this year from 40% to 60%.

Markets

One of the US market’s key features is the high level of stock volatility relative to index volatility. This has reached levels last seen in the GFC.

This stock dispersion reflects the high level of uncertainty in the market, which is tied to significant structural and geopolitical issues we’ve been discussing.

The near-term outlook for equity markets overall is likely to be shaped by events in the Middle East.

The underlying US economy is in good shape, and the Fed has scope to cut rates, which should mitigate against any over-reaction.

Australia

February proved to be a strong month with the market +3.9%, taking calendar YTD returns to 5.7%, well above the -0.8% and +0.7% respectively in the US.

This reflects the structure of the market, with the US skewed to tech. US banks have also materially underperformed ours.

February’s gains were led by:

• Banks (+13%) with the Big 4 seeing earnings upgrades driven by margins and markets income.
• Miners (+9%) helped by a rotation to hard assets on geopolitical fears, disruption in lithium, and a well-received update from BHP.
• Consumer staples (+5%) driven by a good result from Woolworths.

The laggards were:

• Healthcare (-13%) on earnings and de-rates at Cochlear, CSL and Pro Medicus.
• Technology (-8%) on fears AI will kill SAAS business models.
• Consumer discretionary (-6%) on concerns over domestic rates following the inflation data and more patchy sales signals.

The other feature of the market was a large divergence between mega cap and small cap with the ASX20 +7.9% and the ASX Small Ordinaries -2.6%.

This reverses the outperformance of smalls since the last reporting season (although adjusting for the small cap gold exposure the top 20 has materially outperformed).

It is worth noting Commonwealth Bank rose 17% and BHP 15.5% for the month, which suggests returns were impacted by transition flows as more money went to index-trackers.

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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. 

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

Is inflation signalling another rate hike? | How investors can still ride the gold surge | Government bonds offer value after February rate hike | Muted supply sets real estate up for growth

Higher inflation numbers could see the Reserve Bank of Australia commit to yet another rate hike by May, according to Pendal head of government bond strategies TIM HEXT.   

• Find out about Pendal Government Bond Fund
• Browse Pendal’s fixed interest funds

THE Australian Bureau of Statistics (ABS) now has a complete monthly series whereby all items are measured every month (although 10% of the index only changes annually). Previously only 60% of items were updated every month.

The first month in a quarter therefore is now a far better guide to what the quarterly outcome will be.

Inflation numbers showed a monthly rise of 0.4% with prices 3.8% higher than January last year.

The trimmed mean for the month rose by 0.3%, leaving it 3.4% higher than January last year.

“These numbers were 0.1% higher than consensus and are likely to see early predictions for the all-important Q1 CPI trimmed mean (out on April 29^th) to come out at between 0.8 and 0.9%,” explains Hext.

The RBA is predicting 1.8% of CPI growth in the first half of 2026, so these forecasts would be at or slightly below the RBA forecast.

Where does this all leave the RBA? 

“Well, there is not enough here for a March hike, but a May hike looks very likely,” says Hext.  

Markets agree, pricing a 90% chance of a hike.

“Before today we thought the inflation pulse would moderate slightly in Q1 taking pressure off the RBA, meaning a hike was closer to a 50/50 prospect,” notes Hext.

“That view is no longer backed by the data.”

The slight moderating trend of late last year has ended, as seen below:

The monthly data in more detail

The strong

Electricity (+18% on the month)

This is mainly from removal of subsidies. Actual prices ex-subsidy are up 4.5% on the year, still higher than the RBA would like.

Health (+2.7%)

Pharmaceutical products led the way, but medical and hospital services were also strong. Recently announced annual health insurance premium increases of 4% to 5%, starting April, will keep health above 4% annual inflation

Clothing and Footwear (+2.9%)

Not often this category gets a mention as strong, but discounting has reduced from previous years keeping prices unusually elevated.

The weak

Transport ( -0.7%)

Lower fuel prices and public transport fares have helped lower this measure.

Recreation and Culture (-3.4%)

The ABS is still grappling with seasonality across the board, but international travel is proving very hard to quantify and reversed the sharp rises in December.

The trend

Other areas did not see much change to the recent pulse of higher than target inflation. Rents (0.3%) and New Dwellings (0.4%) will need to show some moderation in the months ahead to make the RBA more confident that inflation is under control.

“We still expect some moderation in inflation through the year but it won’t come soon enough for the RBA,” says Hext.

“Bond markets will struggle to maintain any decent rallies, unless global risk off events spread their wings.

“We still believe bonds up towards 5% represent good medium-term value, but the urgency to buy has eased for now.”

If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through our accounts team

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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

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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.

Contact a Pendal key account manager

The Pendal Monthly Income Plus Fund’s February 2026 distribution will be paid on or around 26 February 2026.

The change is being made for operational reasons and will be for February 2026 only.

We anticipate the early payment of the February distribution will not impact the size of the distribution that would normally be paid.

Investors will still receive distribution statements in accordance with our usual process.

Please call our Investor Services support line on 1300 346 821 if you have any questions.  

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

• Find out about Pendal Focus Australian Share fund

Crispin Murray in attendance.

Global equity markets are taking the US Supreme Court’s ruling on tariffs and rising tension between US and Iran in their stride, for now.

The S&P 500 rose 1.1% last week. US equities have remained range bound in the last four months, but breadth is improving. They have lagged other markets – such as European, Japanese, UK and Australian equities – over the year to date.

Commodities were generally flat, with the exception of oil, as Brent crude rose 5.9% on concerns over potential supply disruption.

The Australian market outperformed the US last week, with the S&P/ASX 300 +2.0%. It was a busy week for earnings results, which were generally positive – particularly in the larger index names.

The gain was led by a bounce in Technology (+6.3%) and Energy (+4.9%) and continued good performance from Banks (+3.3%).

Companies appear to be adapting to the world of higher stock price volatility driven by quant-based signals, with better control over their guidance leading to less downside surprises.

FX has emerged as a headwind for some offshore companies still reporting in Australian dollars, while the underlying economy has been supportive for earnings, so far.

Tariffs

The US Supreme Court (SCOTUS) ruled 6-3 that the IEEPA (International Emergency Economic Powers Act) does not authorise tariffs, thereby forcing their removal.

This had been widely anticipated, with the bond and FX markets not moving in response to the announcements.

The Trump administration has had time to prepare a contingency plan and stated they will respond in a way that achieves the same level of revenue as under the IEEPA regime.

The President’s first step has been the immediate application of a new tariff under Section 122 of the 1974 Trade Act (used to address a large current account deficit). This was initially a headline rate of 10% and now appears to have increased to 15%.

A 15% rate is about in-line with the average of the tariffs its replaced, though some countries (eg Australia, Mexico, Canada) may get an increase while others – notably Asian countries in US supply chains – may get a small drop.

Section 122 tariffs can be in place for 150 days.

Where we stand today is that the overall effective tariff rate was at ~10%, with IEEPA comprising ~7%. Under the Section 122 tariffs, that effective rate looks largely unchanged.

Looking forward, the Administration may also impose new Section 232 tariffs which are focused on issues of national security eg the steel and aluminium sectors.

They may also instigate investigations under Section 301, which can allow tariffs in response to unfair / discriminatory trade policies.

It is expected that this review will be expedited by bundling countries together. There is an existing investigation underway into China’s trade policies under this section. Section 301s are likely to be the main long-term tool.

It is expected well over 90% of tariff revenue lost due to the SCOTUS ruling will ultimately be recouped.

SCOTUS did not make a ruling on the refund of the ~US$150bn collected under IEEPA. This has been pushed back to lower courts, creating a lot of uncertainties and an expectation this could 3-12 months to resolve.

One potential impact of this ruling is it may limit the bargaining power the US has in tariff negotiations, and we may see a more subdued trade environment this year.

Iran

Brent crude oil rose 5.9% last week on heightened tensions between the US and Iran.

Iranian rhetoric has risen as a response to the substantial shift in US military assets into the region.

Specifically the USS Gerald R Ford, the world’s most powerful aircraft carrier, and its support fleet have moved into the Mediterranean Sea. They are expected to move within striking distance of Iran between Sunday and Tuesday.

This is joining the USS Abraham Lincoln, which is already in the Gulf of Oman. Overall, this is the highest level of US military hardware they have had in region since the Iraq War.

Experts suggests a window for strike action from this Sunday, for around two weeks.

The goal is clearly to maximise pressure on the Iranians to do a deal. So far, the US view seems to be that Tehran is not meeting their expectations with regard to ballistic missiles and support of proxies in the region.

The issue is Iran’s response. The regime is threatening to target oil assets in the region – although this is seen as possible but unlikely, given it would invite retaliation against their own assets which would compound their economic malaise.

A more likely response would be directed against US bases in the region, to shore up internal support.

Fear of this is likely to underpin the oil price in the near term.

Private credit

US-listed and headquartered alternative asset manager Blue Owl’s (NYSE:OWL) stock price continued to fall last week on concerns over one of its unlisted private credit vehicles, OBDC II.

OWL announced they were no longer accepting redemption applications; previously investors could redeem 5% in a quarter. The fund has moved to ‘return of capital’ model where they make periodic distributions as they sell assets. 

They also announced a secondary sale of US$1.4bn of assets across three private credit vehicles (including OBDC II), at 99.7% of par value. It is unclear if these have been cherry-picked assets.

Blue Owl’s funds have significant exposure to the technology sector and their technology-focused fund has around 70% of its loans in the software sector.

The market is concerned that this may be the conduit by which AI concerns morph into the financial sector.

Context needs to be put on this in terms of scale; their two key unlisted funds are ~U$4.5b.

The much bigger listed vehicle, OBDC, is ~US$17bn and here investors can access liquidity by selling units. It is trading at 0.78x NAV.

Activist investors Saba Capital Management and Cox Capital Partners offered to buy shares from investors in three of the unlisted funds, but at a 20-35% discount.

There were also reports that OWL had tried to sell U$4bn of Core Weave debt relating to a specific data centre and found no takers.

OWL denied this and said their exposure is only for $500m bridge financing.

The conclusion is ambiguous. It does highlight the potential risk of private credit in the retail market. However the size of this particular issue does not appear to be systemic and there does appear to be liquidity to monetise these assets, albeit at a discount.

We do not see this as destabilising the broader market.

Other macro news

The headline December US personal consumption expenditures (PCE) came in higher than forecast at +0.4% month/month and 2.9% year/year.

The Core PCE measure was also higher at +0.4% month/month – versus 0.3% expected – and is at 3.0% year/year.

There is a very mild sign of inflation reaccelerating; tariffs are elevating core goods inflation and core services ex-housing does not appear to be falling, which is required to get to the 2% overall target.

This will add some caution to the Fed’s plans for rates – as the growth rate the economy can absorb may be lower than previously thought.

It was very interesting to note that Governor Stephen Miran – President Trump’s temporary pick for the Fed and previously an uber-dove – said given better employment data he believes the Fed do not need to be as aggressive in their rate cutting. He said he would take out the last two cuts from his forward projections.

The market is currently pricing in one US rate cut by the July 29^th meeting and a second come October. The probability of rate cuts fell 5-10% through the week.

US Q4 GDP data also came in lower than expected, at 1.4% versus 2.8% forecast, driven by lower federal government spending and a fall in exports.

The government shutdown was estimated to have taken 1% off the number, which should now boost Q1 GDP.

Markets

The US market continues to consolidate, absorbing the headwind of an underperforming tech sector.

It has been supported by strong earnings, with this being offset by i) the de-rate of sectors deemed vulnerable to AI and ii) the hyperscalers (eg Microsoft, Amazon, Google) as their cash flow comes under pressure by the continued upward revision in capex.

The positive signal is that liquidity continues to be supportive and, unlike this time last year, breadth is improving which reflects the positive momentum in the economy.

Software remains a key sector to watch, it has now dropped to key technical support levels and is heavily oversold. Whether it takes a further leg down or rebound from here remains to be seen.

Australia

The domestic market looks to have recovered off technical support levels and continues its uptrend.

The two largest sectors have been supportive;

• Banks have had positive earnings revisions as margins hold up better, bad debts remain subdued and credit growth firms.
• Resources have been helped by higher gold and base metal prices and better capital discipline.

An additional 92 companies have reported last week taking the total to 140, representing 78% of the market cap. Another 130 (skewed to the small end of market caps) are set to report this week.

Overall, earnings season to date has been constructive.

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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. 

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

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

• Find out about Pendal Focus Australian Share fund

BY AND large things in the US remain on track.

American consumers are about to feel the fiscal boost from tax cuts, their labour market is solid, bond and credit markets are well behaved, earnings are very strong, inflation is flattish and expectations remain anchored.

This is translating into the equal-weighted S&P500 reaching a record high and a broadening of sector leadership with historically low levels of stock correlations, albeit with elevated levels of volatility.

The software space, however, continues to see heavy selling pressure on the AI disruption theme. As a result the S&P 500 shed 1.4% last week.

Market concerns that AI could become a broader market overhang drove contagion last week into insurance brokers, asset managers, trucking, logistics and commercial real estate.

About three-quarters of the US reporting season is done and the results are solid at a revenue and EPS level.

Positive labour data and a benign January CPI print didn’t materially move expectations on the timing of expected rate cuts in the US.

Meanwhile ASX reporting season has thrown up an assortment of hits and misses. An increase in result-day volatility – which we have seen over the past few halves – seems likely to continue.

The S&P/ASX 300 was up 2.3% last week. Bank reporting has provided some reassurance that earnings risk is low and the market remains positively predisposed to resource stocks.

Macro and policy US

Retail sales

Headline retail sales and sales ex-autos were both flat in December, well below the consensus expectations of 0.4% growth for both categories.

The strong growth in spending in 2H 2025 looks unsustainable as real income growth has slowed and spending rates were sustained by a drawdown in savings.

The current savings rate of 3.5% is well below the longer term average of about 6%

A more sustainable spending growth is more like 1.5%.

Labour markets

Despite growing rhetoric, at this point there is little sign of a spike in job losses as a result of AI. The tech/AI sector is losing 5-6k jobs a month on average, but this trend has been in train from early 2023 and remained largely constant over the course of 2025.

The US Bureau of Labor Statistics has done work on the sectors they feel are to job erosion from AI such as business support services, credit intermediation, legal services and insurance and claims adjusting. Here, job losses actually improved from circa 8-10k/month during 2024 to 3-5k per month over the course of 2025.

The employment cost index (ECI) rose by 0.7% in Q4, slightly below the consensus, 0.8%.

This increase was the smallest since Q2 2021 and saw the year-over-year rate at 3.4%, which is also the lowest rate in a four-and-a-half years.

In combination with productivity growing at 2%, unit labour costs are rising at 1.5%. This is low enough to return core personal consumption expenditures (PCE) inflation – the Fed’s preferred measure – to the 2% target.

At this point there is no real sign that reduced immigration is driving sector-specific wage pressures.

For example, wages and salaries in construction rose by 0.7% in Q4, which was in-line with the broader average. Wages in the accommodation and food services sector increased by 0.8%.

Education and – to a lesser extent – healthcare are the only sectors still seeing solid wage growth.

Payrolls rose by 130K in January, which was well above the 65K consensus, while the two-month net revision was -17K.

After a string of weaker payrolls prints this number has come as something of a positive surprise.

The key strength is in Health with 124k jobs for the month versus a monthly average of around 58K jobs in 2025.

The unemployment rate dipped to 4.3% in January, from 4.4% previously. Consensus was also at 4.4%.

Average hourly earnings rose by 0.4% in January, a touch above the 0.3% expected by consensus while year-on-year growth is at 3.7%. This is slightly higher than the 3.4% reflected in the ECI, however the market – and the Fed – probably take the ECI as the truer read on labour cost movements.

Initial jobless claims dropped to 227K in the week ending February 7, from 232K, above consensus of 223K.

Continuing claims increased to 1,862K in the week ending January 31, from 1,841K, above the consensus of 1,850K.

Inflation

The US five-year forward breakeven rate – a indicator of inflation expectations, has moved up recently but still remains with in range of the last 3-4 years.

The consumer price index (CPI) rose 0.2% month/month in January, versus 0.3% expected, taking the year/year rate to 2.4% versus the 2.5% expected by consensus and 2.7% in December.

The core CPI increased by 0.3%, in-line with consensus, to be up 2.5% year/year which is the lowest since April 2021. Food, shelter and petrol prices are all trending in the right direction.

Fedspeak

Chicago Fed President Goolsbee noted that services inflation remains problematic and “worrisome”, it is “not tame” and “pretty high” in the latest CPI figures. He also expressed scepticism that the U.S. economy is on track to reach the Fed’s 2% inflation target. Instead, he thinks it appears “stuck around 3%.”

Despite this, he maintained that interest rates “can still go down,” but further progress is required on inflation.

He sees the labour market as steady and US consumers as the economy’s key strength at the moment, expecting this to persist if the job market remains stable and inflation eases.

Macro and policy Australia

RBA Governor Bullock told the Federal senate the RBA will raise rates again if inflation becomes entrenched.

These remarks echoed Deputy Governor Hauser, who said earlier in the week that inflation is too high.

The RBA now expects both headline and core inflation to overshoot the upper end of its 2-3% target range this year.

Bullock added that it is not clear if more rate hikes will be needed given uncertainties with forecasting. She emphasised that they will remain data-dependent and continually reassess forecasts going forward.

Cash rate futures continue to price in a further 25 bp rate increase by August.

She hosed down the notion of government spending driving inflation, noting that it is not fiscal policy which has driven the increase in inflation expectations from November.

She also pointed out strength in the labour market remarking that “everyone’s been focusing on the negatives, but we’re in this position because the economy is actually doing okay.”

The Westpac-Melbourne Institute consumer sentiment index fell -2.6% month/month in February. This is the third consecutive month of falling confidence.

It was driven by a broad-based softening across most major sub-indexes with views on current conditions weak.

Housing sentiment was mixed; the proportion of respondents thinking it is the right time to buy fell -6.3%, whilst house price expectations reached a new 15-year high.

Interest rates clearly continue to be a driver of the month-to-month move, with 80% of respondents expecting rates to go up – and 30% expecting rates to be up by 100bps over the year.

The January NAB Business Survey also showed some softening in conditions. Capacity utilisation (a focus of the RBA) fell to lowest level since July 25.

Overall, the soft outcomes are largely as expected given the more hawkish RBA expectations around these surveys.

How sentiment evolves from here will be a key domestic driver.

The value of new dwelling finance commitments increased by 9.5% quarter/quarter in 4Q2025, above the 6% expected by consensus.

The increase was broad-based across investors (+7.9% q/q) and owner-occupiers (+10.6% q/q). Within owner-occupiers, new commitments for first home buyers rose at their fastest pace since 4Q 2020 following the expansion of the 5% Deposit and ‘Help to Buy’ schemes.

The number of new dwelling finance commitments increased by 5.1% q/q in the quarter.

All-in-all, this is all supportive of the outlook for banks.

Markets

US reporting season

The blended earnings growth rate for Q4 S&P 500 EPS currently stands at 13.2% – above the 8.3% expected at the end of the quarter. The blended revenue growth rate is 9.0%.

Of the S&P 500 companies that have reported for Q4, 74% have beaten consensus EPS expectations. This is below the 79% one-year average and the five-year average of 78%.

In terms of sales, 73% have beaten expectations, above the 71% one-year average and the five-year average of 70%.

In aggregate, earnings are 7.2% above expectations, below the 7.4% one-year average positive surprise rate and the five-year average of 7.7%. Sales are 1.6% above expectations, above the 1.3% one-year positive surprise rate but below the five-year average of 2.0%.

Australia

Week two of reporting season saw net EPS surprises of +8% (with season-to-date +3%).

Given the early skew to positive results there is a risk we end up negative on this front.

From a price reaction perspective it feels like the results are much worse than they actually are, with the median stock down 2-3%.

“Old economy” and value stocks like Banks, Utilities and Materials have had a strong season versus Growth and Technology stocks. The technology sector was down -4.7% and the selling from last year’s peak has been largely indiscriminate across both profitable and unprofitable companies.

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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. 

How investors can still ride the gold surge | Rate hike drives value in government bonds | Impact of tariffs, tech and rates

Gold and silver have done very well over the last 12 months – even with the recent pullback, but Pendal portfolio manager BRENTON SAUNDERS says investors still haven’t missed their chance

• The ‘scepticism gap’ weighing on gold miners’ valuations
• ‘Bonanza’ prices support earnings upgrades and sector strength
• Find out more about the Pendal MidCap fund

GOLD and silver prices have been riding a rollercoaster since the start of the year, but Pendal portfolio manager Brenton Saunders — who has worked as a geologist — argues there are still plenty of opportunities in midcap equities exposed to these metals.

Total gold demand in 2025, including over-the-counter sales, exceeded 5,000 tonnes for the first time, according to the World Gold Council (WGC).

Last year, the safe-haven metal set 53 new all-time price highs which yielded an “unprecedented value” of US$555 billion – a 45 per cent year over year increase, WGC data shows.

The reason: heightened investment activity driven by safe-haven and diversification moves that culminated in the second strongest year on record for exchange traded fund-inflows and elevated central bank buying.

Although central bank purchases slowed from their recent pace, they hit the upper end of the WGC’s forecast, totalling 863 tonnes for the year. Bar and coin buying also reached a 12-year high.

This led to the gold price marking its highest annual average at US$3,431 an ounce – a 44% spike year over year.

“Central banks have been buying it hand over fist; retail investors have been buying it hand over fist, the dollar has been weakening, and geopolitics have been pretty elevated,” explains Saunders, who manages Pendal’s MidCap Fund.

“If you go back to the late 90s/early 2000s central banks were all selling gold. It was an old asset. Nobody needed it anymore. It was defunct,” explains Saunders.  

“Most of the OECD countries sold most of their gold reserves. The US was probably the only one that didn’t.

“But now you’ve seen a very broad-based and especially emerging market purchase of gold. So it’s re-legitimised gold in a major way in terms of its role as a reserve asset the world over.”

Silver, meanwhile, is also a beneficiary of the market ructions, hitting its highest point on record in late January when it rose above US$120 an ounce.  

An additional key driver of the recent price surge in gold’s poorer cousin is the high demand for silver as an industrial metal input for solar panels.

“We now use a lot of it, especially in solar panels,” says Saunders. “That’s probably the biggest industrial use for silver now, but it’s always been a second-tier reserve currency investment product that has done the rounds.

“So it’s move more recently is obviously being helped by the fact that solar manufacturing is still elevated and now we’ve seen some investment demand come to the fore.”

But while gold and silver prices have run hard, this hasn’t necessarily been reflected in the share prices of gold and silver stocks.

‘Scepticism gap’

Saunders points to the ‘scepticism gap’ between the price of the physical metals versus the equities exposed to them.

“Because the move in the gold price has been so rapid the market has been highly sceptical of pricing in that scenario because they’re constantly questioning what will happen if the gold price comes back.

“So the equities, not just gold equities but especially in gold, have been quite reticent to reflect in their share prices the full move in the gold price.”

However, Saunders argues that the price could drop by US$1,000 and still be at a “bonanza level”, meaning gold-exposed companies “could weather quite a big correction in the gold price without much impact to the value of the company’s operational considerations”.

A “bonanza-level” gold price affords operations more flexibility, allowing them to mine areas that historically were not economic to consider. This increases reserves and profitability.

“That is the one thing that gives me a bit of comfort, and I think investors ultimately a bit of comfort,” says Saunders.

“If I look at consensus earnings for gold companies, they’re still reflecting a significantly lower gold price than prevails today.

“So that should mean if the gold price stays at the current level, we’ll continue to see earnings upgrades and that normally underpins share prices.

“Those are the things that make me hopeful that it should still be a fairly constructive sector from an investment perspective.”