Pendal Sustainable Balanced Fund – Class R (APIR: BTA0122AU) 

Pendal Sustainable Balanced Fund – Class Z (APIR: PDL0478AU) 

(the Fund)

The Fund applies exclusionary screens to its investments in the Australian and International shares, Australian and International fixed interest and part of its Alternative investments asset classes.

Effective 28 November 2025, some of the exclusionary screens applied by the Fund to its International fixed interest asset class will be changing, as outlined below:

• a new exclusionary screen will be added so that the Fund’s International fixed interest asset class will not invest in issuers directly involved in the supply of goods or services specifically related to controversial weapons; and

• the current screen for issuers that mine uranium for the purposes of weapons manufacturing within the Fund’s International fixed interest asset class will be removed.

Issuers who mine uranium for the purposes of weapons manufacturing will now be captured under the new screen for the supply of goods or services specifically related to controversial weapons.

In our view, these changes ensure that the Fund remains true to label and is more closely aligned with investor expectations in relation to responsible investment funds. 

Fund’s exclusionary screens – International fixed interest

Effective 28 November 2025, the Fund’s International Fixed Interest asset class will apply the following exclusionary screens:

The Fund’s International fixed interest asset class will not invest in issuers which directly:

• Produce tobacco (including e-cigarettes and inhalers);
• Manufacture controversial weapons (including biological weapons, blinding laser weapons, chemical weapons, cluster munitions, depleted uranium weapons, incendiary weapons, landmines, non-detectable fragments and nuclear weapons); or
• Supply goods or services specifically related to controversial weapons.

The Fund’s International fixed interest asset class will also not invest in issuers which derive 10% or more of their gross revenue directly from:

• The extraction of thermal coal and oil sands production;
• The production of alcoholic beverages;
• The manufacture or provision of gambling facilities;
• The manufacture of non-controversial weapons or armaments; or
• The manufacture or distribution of pornography.

Updated Product Disclosure Statement (PDS)

An updated PDS issued on 28 November 2025 is now available on www.pendalgroup.com.

We have updated and reissued the Product Disclosure Statement (PDS) effective on and from 28 November 2025 for the:

Pendal Sustainable Conservative Fund (the Fund).

The following is a summary of the key changes reflected in the PDS for the Fund.

Labour, environmental, social and ethical (collectively, ESG) considerations

Alongside the PDS and the Additional Information to the PDS, we have now issued the Guide to Our Sustainable Investment Process(Guide).

The Guide includes further information on our sustainability assessment framework and the Fund’s exclusionary screens which was previously contained in the Additional Information to the PDS.

The way the Fund is managed has not changed.

The Guide forms part of the PDS and contains important information. You should read the Guide together with the PDS and the Additional Information to the PDS before making a decision to invest in the Fund.

You can access the Guide to our Sustainable Investment Process on our website at pendalgroup.com/PendalSustainableConservativeFund-SIPG.

Exclusionary Screens – International fixed interest

We have changed some of the exclusionary screens that apply to the Fund’s International fixed interest asset class as follows:

• a new exclusionary screen has been added so that the Fund’s International fixed interest asset class will not invest in issuers directly involved in the supply of goods or services specifically related to controversial weapons; and
• the current screen for issuers who mine uranium for the purposes of weapons manufacturing within the Fund’s International fixed interest asset class has been removed.

Issuers who mine uranium for the purposes of weapons manufacturing will now be captured under the new screen for the supply of goods or services specifically related to controversial weapons.

Updates to ongoing annual fees and costs disclosure

The estimated ongoing annual fees and costs for the Fund have been updated to reflect financial year 2025 fees and costs. These include changes to estimated transaction costs.

We have updated and reissued the Product Disclosure Statement (PDS) effective on and from 28 November 2025 for the:

Pendal Sustainable Balanced Fund – Class R

Pendal Sustainable Balanced Fund – Class Z

(the Fund).

The following is a summary of the key changes reflected in the PDS for the Fund.

Labour, environmental, social and ethical (collectively, ESG) considerations

Alongside the PDS and the Additional Information to the PDS, we have now issued the Guide to Our Sustainable Investment Process(Guide).

The Guide includes further information on our sustainability assessment framework and the Fund’s exclusionary screens which was previously contained in the Additional Information to the PDS.

The way the Fund is managed has not changed.

The Guide forms part of the PDS and contains important information. You should read the Guide together with the PDS and the Additional Information to the PDS before making a decision to invest in the Fund.

You can access the Guide to our Sustainable Investment Process on our website at pendalgroup.com/PendalSustainableBalancedFund-SIPG.

Exclusionary Screens – International fixed interest

We have changed some of the exclusionary screens that apply to the Fund’s International fixed interest asset class as follows:

• a new exclusionary screen has been added so that the Fund’s International fixed interest asset class will not invest in issuers directly involved in the supply of goods or services specifically related to controversial weapons; and
• the current screen for issuers who mine uranium for the purposes of weapons manufacturing within the Fund’s International fixed interest asset class has been removed.

Issuers who mine uranium for the purposes of weapons manufacturing will now be captured under the new screen for the supply of goods or services specifically related to controversial weapons.

Updates to ongoing annual fees and costs disclosure

The estimated ongoing annual fees and costs for the Fund have been updated to reflect financial year 2025 fees and costs. These include changes to estimated transaction costs.

New data shows impact investing has grown significantly in the past five years. Regnan senior ESG and impact analyst MURRAY ACKMAN explains

• Impact investing surges eightfold since 2020
• Bond market a major growth segment with $145 billion invested
• Find out about Regnan Credit Impact Trust

IMPACT investing is still rapidly growing in popularity as climate change continues to dominate headlines and governments around the world ramp up spending on clean energy and affordable housing.

Impact investing aims to generate positive social or environmental returns as well as a financial return.

The 2025 Benchmarking Impact Report, just released by Impact Investing Australia and the University of New South Wales Centre for Social Impact, reveals that $157 billion is now invested across 197 publicly available impact products – an eightfold increase in value since 2020.

This is nearly 60 per cent higher than the $100 billion estimated in the 2020 report.

Impact Investing Australia started monitoring the development of impact investing back in 2016.

According to the latest report, 84 per cent of impact investors said their investments met or exceeded social and environmental outcomes and 80 per cent said their investments met or exceeded financial expectations.

While overall there has been an eightfold increase in the value of impact investment products over the last five years, the individual segment that has witnessed the highest growth is the investment bond market – increasing by 8.5 times to $145 billion.

Green bonds first emerged in 2008 via a World Bank launch of this new product, which focuses on environmental projects such as renewable energy and energy efficiency programs.

“This developed a new category of sustainable fixed income where the capital raised is earmarked for specific environmental and social projects,” says Ackman.

The other two main categories of proceeds bonds are social bonds, which focus on projects such as access to essential services and housing, and sustainability bonds, which are a mix of green and social.

“Globally, we see more green bonds than the other categories. This is in part because more entities are able to undertake projects related to the environment: every entity has their own carbon footprint that they can mitigate,” says Ackman.

“Many companies are able to install, generate or access renewable energy and reduce their own emissions through energy efficiency projects.

“However, not all entities are able to have capital intensive projects that might benefit the underserved in society.”

Impact bonds issues continues to grow

According to Ackman, 2024 witnessed the highest ever issuance globally, and Australia is on track for its third consecutive year of the highest amount of issuance.

“In 2020, there were around $8.7 billion in these use-of-proceeds bonds launched in Australia,” explains Ackman. 

“By 2023, there were $21.5 billion new use-of-proceeds bonds launched. There were $50 billion in use-of-proceeds bonds outstanding (bonds continue until the maturity date), which made up 3.5 per cent of the relevant index with 40 issuers.”

As of mid-2025, almost $25 billion proceeds bonds had been issued, says Ackman, with the full year on track for the most ever – $39.5 billion proceeds bonds were issued in 2024.

“Now, around 9 per cent of the relevant index are use of proceeds bonds with 56 issuers covering 14 sectors,” says Ackman.

“This demonstrates the market is maturing with increased diversification of issuers and sectors.”

To date, the Australian Government has only issued green bonds, while state and territory governments generally issue more sustainability bonds (64 per cent), according to the Benchmarking Impact report.

Corporate issuers also appear to favour green bonds, which account for 69 per cent of their allocation.

Around 62 per cent of green, social and sustainability bonds are issued within Australia, while the remaining 38 per cent are issued offshore.

Inflation is trending above Reserve Bank expectations. Pendal’s head of government bond strategies TIM HEXT explains what it means for investors

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

THE ABS today released its first complete monthly view of inflation.

The Bureau described the shift from quarterly to monthly CPI as a “major milestone” enabling “earlier detection of shifts in inflation and provide better information for policy decisions for all Australians”.

And it’s fair to say most Australians took notice — with the data showing October monthly inflation was 3.8% higher than the same time last year.

The ABS also released an attempt at a trimmed mean, which showing prices 3.3% higher than a year ago. (A lack of accurate seasonality for now makes a less accurate process.)

The data is slightly higher than Reserve Bank expectations of 3.7% headline inflation and 3.2% trimmed mean by the end of the year.

What is causing this ongoing spike higher in inflation?

School holidays fell largely into October this year, pushing up domestic travel inflation by 6% in October — and more than 7% compared to October last year.

Water prices were up 4% and are now 7% higher than last year. This is a new utilities pressure point which escaped the surges of 2022.

A basket of imported goods all moved higher by 2% to 3% – all goods that usually flatline like footwear, clothes and homewares.

Importantly, new dwellings moved 0.4% higher in October. Although it’s a decent rise, this is not a bad as feared.

The noise from the removal of electricity subsidies remains. Prices are 37% higher than a year ago.

The outlook

Traditionally for the Reserve Bank to hit its 2.5% CPI target they needed service prices (which make up two thirds of the basket) to be 3-4% and goods prices (one third) to be around 0-1%.

Pre-pandemic this was not a  problem. But far too many services have now settled down above 4%.

Health, education, utilities and childcare are all failing to move lower with wages.

We have written a lot about this and remain optimistic this will fall back in the year ahead.

Our concern near term is the current spike may feed back into wages in 2026. 

Hopefully by early next year some of these pressures will abate, but the minimum wage decision in June will be watched closely.

It was 3.5% this year and hopefully will be similar next year

Market impact

The market is in no mood to look through poor inflation numbers.

Three-year yields are now pushing above 3.85% or 0.25% over cash.

Markets have almost fully priced out rate cuts for the first half of next year and are now pricing a 50 per cent chance of a hike by year end.

We expect some commentators will now forecast hikes next year.

The Reserve Bank will not be pleased with the direction of inflation, but the volatility of these monthly numbers will calm them for now.

The main test will be the fourth-quarter numbers released in late January.

We were looking for 0.7% trimmed mean but after today will need to push that up to 0.8%.

Another 1% outcome would certainly start to test their nerve.

Meanwhile odds are building for a US rate cut next month.

As the Bloomberg chart below shows Australian ten-year bonds are at their widest to the US since June 2022 and 2017 before that.

Since June we have underperformed by 0.75%, from 0.25% under US bonds to 0.5% over.

 

 

 

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

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

THE market was in somewhat of a nervous funk heading into the Nvidia result and the September US payrolls data last week.

As it turned out, Nvidia was a “beat and raise” with positive commentary around accelerating compute demand.

The September payrolls data had a little something for everyone with a better jobs number and a worse unemployment rate.

We received confirmation that there will be no further jobs data (for October or November) nor November CPI data ahead of the next Fed meeting on the 9th and 10th of December.

This saw the implied chance of a rate cut in December reduce to about 33%, although this rose to nearer 70% late in the week following comments from Fed Vice Chair John Williams, who flagged a “rate adjustment in the near term” was on his agenda.

This helped the S&P 500 recover some of the steep losses from the 3.5% reversal experienced on Thursday, the magnitude of which (closing negative after being up 1.4%) had only happened twice before (April 2020 and April 2025).

The upshot was that outside of US bonds it was a sea of red across equities, gold, bitcoin (down 30% from October high), AI stocks and oil.

The S&P 500 finished down 1.9% for the week. The S&P/ASX 300 retreated 2.5%. The Nasdaq fell 2.7% and is now down for three straight weeks in its largest move down since the April tariff ructions.

Volatility is on the rise again with intra-day moves generating seldom-seen outcomes.

One area deserving of some extra attention could well be the correlation between crypto and the tech stocks.

Wall Street and Main Street had leverage at a record level of US$1.1 trillion at the end of October, and so it is highly likely that as crypto prices fall there will be some level of de-grossing occurring to keep gearing levels within required constraints.

We also note a degree of AI scepticism evident in the Bank of America fund manager survey, which showed that 20% of respondents feel that companies are overinvesting – this is the highest level since 2005.

Elsewhere, Treasury Secretary Scott Bessent suggested the US was at an inflection point regarding cost-of-living pressures, with the benefit of lower inflation and higher real income to come through in 1H CY26.

“It’s going to be through growth… In the first two quarters (CY26) we are going to see the inflation curve bend down and the real income curve substantially accelerate – and when those two lines cross, Americans are going to feel it,” he said.

US macro and policy

Fedspeak

Minutes from the October meeting were released last week and suggest the Fed is more divided than usual with regard to monetary settings.

Participants expressed “strongly differing views about what policy decision would most likely be appropriate” in December.

“Most” participants still expect a less restrictive policy stance over time.

However, only “several” saw a December cut as the right move, if the economy continued to perform as expected, while “many” thought that keeping rates on hold for the rest of this year would be the appropriate course.

That is consistent with recent comments from regional Fed chairs which urged a cautious approach to further easing – particularly in light of the announcement of no further jobs or inflation data before the next meeting.

In this vein, Chicago Fed President Austan Goolsbee reiterated the view that “when it’s foggy, let’s just be a little careful and slow down”.  

Fed Governor Michael Barr concurred. He sees inflation at around 3%, versus a 2% target, and emphasised the need for caution and making sure the Fed achieves both sides of its mandate. 

Boston Fed President Susan Collins said she was hesitant about further cuts, with monetary policy in the right place given economic resilience and the need to keep downward pressure on inflation.

On the other hand, Fed Governor Christopher Waller noted that US companies have begun talking more frequently about laying off workers to adjust for weaker demand and possible productivity gains from AI.

He suggested that, excluding the temporary impact from tariffs, inflation was perhaps less than half a percentage point above the 2% target and should decline further with the economy slowing. As a result, he thinks the Fed should be focused on a slowing labour market and ease policy accordingly.

Ultimately, the market seemed to take its cue from Fed Vice Chair John Williams who noted that monetary policy is “modestly restrictive” and he sees “room for further adjustment in the near term.”

There have been only five meetings with three dissents since 1993, most recently in 2019. There hasn’t been a Fed meeting with four dissents since 1992.

Jobs data

A surprisingly strong September payrolls report sparked market volatility last Thursday.

There were 119,000 new jobs added in September, versus 51,000 expected. This was caveated slightly by -33,000 net revisions for prior months and the unemployment rate ticking up to 4.44% — versus consensus which expected it to remain at 4.3%.

Average hourly earnings rose by 0.2%, below the consensus 0.3%. Net revisions were +0.14%.

Initial jobless claims dropped to 220,000 in the week ending November 15, from 228,000 and below the consensus expectation of 227,000.

Continuing claims rose to 1.974 million in the week ending November 8, from 1.946 million, above the consensus 1.950 million.

Payroll data did not materially move expectations about the likelihood of a rate cut in December – however the market had already moved materially lower.

It is also notable that payroll strength has been concentrated in a few sectors – notably the non-cyclical heath care sector.

The move in the unemployment rate is perhaps of more interest. While it only rose 0.1% from August, it has risen 0.3% over the last three months, which has to be a number that is gaining the Fed’s attention.

Much of the rise in unemployment over the past year or so had reflected new workers or re-entrants to the labour market failing to find jobs quickly. But the increase in recent months has also reflected many workers losing their jobs.

So where to from here? Leading indicators of labour demand remain modest to weak in aggregate.

• The hiring intentions index of the NFIB survey has improved marginally over the last three months.
• The employment intentions indices of regional Fed surveys have remained weak.
• Indeed’s measure of job postings has continued to trend down.
• Challenger job cut announcements and WARN layoff notices both picked up in October.
• We may see an emerging boost to layoffs from AI over the next six months.

The upshot is it feels like hiring is too weak to absorb both new worker and increased layoff activity as the labour hoarding post-Covid thaws, with added impetus from AI-generated productivity.

Macro and policy Australia

Minutes from the recent RBA meeting emphasise the hawkish pivot of the last few months.

They noted that while there were some temporary factors at play in the recent rise in inflation, “strength in several components pointed to the possibility that some part of the increase might prove persistent”.

They also considered whether an increase in corporate margins might be playing a role, which implies less capacity in the economy than previously thought.

On the labour market, the minutes noted the rise in unemployment in September and slowing employment growth, but flagged forward-looking indicators that suggested employment growing in coming months as economic activity recovers.

In some good news for the RBA, wages grew 0.8% quarter-on-quarter – in line with consensus – to be up 3.4% year-on-year.

While the quantum was as expected, the drivers were not. Public sector wages rose 3.8% year on year, from 3.7%, but private sector wages slowed from 3.4% to 3.2% year on year and annualised at a rate of 2.8% for the quarter

This is the slowest pace of growth in private wages in over three years and the slowest annualised pace since late 2021. 

Macro and policy China

There was some commentary suggesting that Beijing is looking at nationwide mortgage subsidies for first-time homebuyers, higher income tax rebates for borrowers and lower transaction costs to coax wary buyers back into the property market.

October data indicated house prices were still falling, impacting the confidence and wealth of the consumer.

This prompted a short-lived rally in the Australian mining sector.

There were also reports that the EU is considering taking stakes in Australian miners that may include offtake agreements and joint investments similar to those between Australia and the US, as part of a move to reduce dependence on China.

Markets

US earnings season to date is running at the best levels for a couple of years.

While Nvidia’s result had no red flags, the market continues to fret about the circularity of the AI ecosystem. This is evident in the surge in Oracle’s credit default swap in recent weeks.

Nevertheless, Nvidia CEO Jensen Huang noted the three trends he saw underpinning sustained growth in AI investment. First is a shift of non-AI software – such as engineering simulations and data science – away from traditional processors. Second is the invention of entirely new categories of software such as coding assistants. Third is the shift of AI from virtual applications to the physical world of cars and robots.

Elsewhere:

• Home Depot (5.3%) delivered a miss and a cut to expectations, noting ongoing consumer uncertainty and continued pressure in housing affecting demand.
• Lowes also delivered a cut but was more positive on the trends quarter to date.
• Target was soft, with analysts focused on concerns around traffic deceleration and share loss.
• Walmart was upbeat on the holiday season, calling out strong Halloween and Thanksgiving trends. Upper and middle-income households are driving growth, while lower-income families remain under pressure.
• TJ Maxx beat expectations and management highlighted strong momentum into Q4.

The market is unclear on whether these latter results indicate consumer resilience or consumers trading down to deeper value options.

We will get some Thanksgiving holiday spending data which should provide some more colour over the next week or so heading into Christmas.

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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. 

Contact a Pendal key account manager here

 

 

 

Midcaps are not just a diversification opportunity – right now, they are also outperforming their larger cap counterparts. BRENTON SAUNDERS explains why – and where to look.

• Higher earnings growth driving performance
• Diversification benefits
• Find out more about the Pendal MidCap fund

MIDCAP stocks are a sweet spot in the Australian share market, delivering higher earnings growth and outperforming their large cap peers over time, says Pendal’s Brenton Saunders.

Narrow market leadership in recent years has left many index investors increasingly concentrated in mature, slower-growing sectors like the big banks.

Saunders says midcaps can offer a more balanced alternative with better exposure to faster-growing businesses and a higher level of corporate activity that can help to underpin valuations.

“If somebody asked you at a barbecue, why do midcaps outperform the large cap indices, quite simply it’s because they have higher earnings growth,” says Saunders, portfolio manager of the Pendal MidCap Fund.

“They’re typically companies in the sweet spot of their corporate development and their evolution as businesses.

“They’re big enough to attract real investment attention – both from investors and bigger corporates – but unlike many smaller cap companies they’re pretty settled in terms of their balance sheets and funding.

Saunders was speaking at the Pendal webinar Why ASX midcaps are out-performing – and which sectors are best-positioned.

What makes an attractive midcap?

Different investors can have different views on what makes a midcap company.

For Pendal, the segment includes stocks ranked 51 to 150 on the ASX – a wider definition than the ASX MidCap index.

Saunders says those 100 companies have a lower concentration in slower-growth sectors compared to the broader market, with no single industry dominating performance.

“The spread in midcaps across the economy and sectors on the ASX is just much better,” says Saunders.

“The sector historically has empirically done better than most of the other larger and small cap aggregates on the ASX.

“And despite that, it acts as a very powerful portfolio diversifier.”

Top 10 midcaps include companies like Lynas Rare Earths, Life360, JB Hi-Fi, ALQ, and REA Group, offering exposure to diverse growth themes rather than concentration in banks and large-cap resource stocks.

Why midcaps look appealing now

Saunders says recent conditions have shifted the balance in favour of midcaps after a multi-year period of trading in a range as investors chased large-cap bank stocks instead.

Corporate activity has picked up, with several companies under offer or recently acquired.

“In my portfolio, I’m usually dealing with two or three of them that are under offer,” says Saunders.

“That just serves to underpin ratings and the price discovery.”

A lower interest rate environment is also aiding rate-sensitive parts of the investment universe such as real estate, while easing real rates are typically supportive for the gold price.

“There are good opportunities in mid-caps now – there are a number of companies and sectors on the ASX with strong outlooks.

“It’s well positioned to carry on outperforming, which it has done for the past year and a half.”

Diversification benefits

Saunders says the midcap sector’s breadth is a core part of its appeal.

Businesses in industries as diverse as software, data centres, gold, energy, consumer goods and medical technology are all offering attractive opportunities.

The diversity makes the segment much less concentrated than the broader market.

The biggest 10 companies in the 51-150 represent just over a fifth of the index, with no single sector dominating.

That compares to a 45.6 per cent weighting for the top 10 in the S&P/ASX 300, where banks alone represent nearly a quarter of the S&P/ASX 300.

Saunders names diversified financials as a particularly interesting opportunity, with platform businesses like Netwealth and Hub24 benefiting from growing demand for more sophisticated wealth-management functionality.

He says retirement is another area he is watching closely, driven by government efforts to improve retirement income products. This is creating opportunities for companies like Challenger and AMP as the population ages.

Here are the main factors driving the ASX this week according to Pendal investment analyst ANTHONY MORAN. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

MUCH of the gain in global equity markets this year can be attributed to the step up in AI expenditure, US GDP acceleration and Fed interest rate cuts – and in the short term these narratives are running out of steam.

But we need to be careful about getting too bearish, given financial conditions remain loose and US GDP growth should reaccelerate in CY26.

Equity markets were volatile last week. They started stronger on the announcement of a deal to end the longest US federal government shutdown in history.

But then they gave gains back of an increasingly hawkish view of the Fed and a savage rotation away from the AI/tech sector midweek, to the benefit of resources and defensives.

The S&P 500 finished up +0.1%, while the NASDAQ was off -0.4%.

The Australian market was quite a bit weaker after being spooked by a strong jobs number that put hopes of further rate cuts to bed. The S&P/ASX 300 finished down 1.3%.

Macro data out of the US continues to be in short supply due to the shutdown, but the Australian market saw a lot of news from September reporting companies and AGMs.

US macro and policy

The big news was an end to the federal government shutdown as a spending package law was signed by President Trump on Wednesday night.

The deal only funds the government through to January, but restores SNAP funding for low-income earners and provides retroactive pay for furloughed government workers.

We should now get a catch-up on economic data releases over the next month which, given the direct and indirect impacts of the shutdown, may come in on the weaker side.

Elsewhere, the market was concerned by an increasingly hawkish tone out of the Fed.

The Wall Street Journal – regarded as being plugged into Fed thinking – reported a major divide on the Board of Governors regarding a December rate cut, reflecting a tug-of-war between softening employment fears and still resilient inflation. 

Four different Fed members spoke last week, and all noted a high bar to cutting rates in December given slower progress in reducing inflation.

The probability of a December cut fell to 50% – a material move from the 100% implied probability a month ago. 

Amidst the shutdown’s data vacuum, proprietary surveys are showing further softening in labour markets.

Goldman Sachs’ job growth tracker slid to 50,000/month in October – from 85,000/month in September – and it anticipates a 50,000 decline in nonfarm payrolls in October. This would be the weakest print since 2020 and would likely lead to the probability of a December cut rebounding.

The challenge for the doves looking to cut rates is that alternative measures of consumer spending suggest a pick-up in October, following September weakness.

Given the lack of official data and mixed signals from alternative measures, it is understandable why the Fed is considering skipping a cut in December.

Data points in the next few weeks will be critical.

Tariffs

The Supreme Court’s ruling on the legality of the bulk of the Trump tariffs is a wildcard to watch for December and January.

Oral arguments were held last week and suggest a majority of Justices are sceptical of the President’s authority to impose these tariffs under the International Emergency Economic Powers Act (IEEPA).

Prediction markets are implying only a 25% probability that the tariffs are upheld.

The Trump Administration does have other avenues to pursue but this issue, along with how tariffs are treated retroactively, is a significant source of uncertainty.

Given a poor performance from Republicans in the gubernatorial, state legislature, and New York mayoral elections held in November, the Trump Administration is making some moves to ease tariffs. 

A range of agricultural imports including beef, tomatoes, coffee and bananas are now excluded from reciprocal tariffs.

This could reduce pressure on CPI; for example, Brazil – the largest supplier of coffee to the US – has faced tariffs of 50% since August and this flowed through to a nearly 20% rise in coffee prices in the September CPI.

The Administration also announced a new trade framework with Switzerland, lowering tariffs on goods to 15%, from 39%.

So there is also progress on country-by-country deals. These developments may also play into the Fed’s deliberations.

Australia macro and policy

The key news was a surprisingly strong October employment print with +42,000 jobs added versus consensus expectations of +20,000. The growth as high-quality, driven by full time employment rising +55,000.

Unemployment fell to 4.34%, from 4.45%, and underemployment also fell.

This moved unemployment below the RBA’s year-end forecast of 4.4% and, alongside the much stronger Q3 CPI print, makes it very difficult for the RBA to make near-term rate cuts.

We do note that, despite this month-on-month rebound, the longer-term trend remains of a steadily rising unemployment rate.

In the last month, two-year bond yields have risen 50 basis points (bp) in response to the macro data, while the market has shifted from pricing two cuts to just one by June 2026.

There is puzzling dynamic in Australia where the Westpac consumer confidence survey is quite strong, rising above 100 for the first time since Feb 22, but expectations for unemployment are also rising.

The explanation is likely the positive wealth effect on homeowners from rising house prices.

Australia’s variable rate mortgage system provides a rapid transmission mechanism for rate cuts. The RBA has cut 75bp since February – and capital city house prices have risen 7% in the same period.

Scentre Group’s quarterly sales data last week showed this positive wealth effect flowing through. Quarterly sales grew 3.7% for the September quarter, up from 2.7% in the June quarter.

REITs and consumer discretionary stocks have had a good run this year on the back of rate cuts. With the cutting cycle looking to have an extended pause, these sectors could now take a breather.

China macro and policy

The dour state of the Chinese property market continued with floor space sales falling 19% year-on-year in October and new starts down 30%, taking them to the lowest level since 2003.

Property has now declined to less than a fifth of steel demand in China, so the incremental impact for iron ore demand is less material.

Markets

Tech pullback

The AI/tech/datacentre space saw a healthy pullback last week, coming after a strong run year-to-date

There wasn’t any individual catalyst, but there has a been a steady drumbeat of concerns about the economic viability of the AI/datacentre boom over the last few weeks, raising anxiety in a bit of a news vacuum ahead of the key Nvidia results this week.

Talking points during the week included:

• Neocloud provider CoreWeave fell ~30% after cutting its revenue guidance. We note that the downgrade was driven by supply chain issues, not demand.  
• Softbank selling its entire stake in Nvidia (to fund other AI investments).
• Commentary questioning the sustainability of OpenAI’s economics.

It was no surprise that the higher beta parts of the tech space – such as the “Unprofitable Tech” basket – have seen the biggest pullback. Bitcoin has broken below US$100,000 and kept falling on Friday despite the Nasdaq stabilising.

Concerns are also spreading to the credit market, as seen in a spike in the spread of Oracle’s credit default swaps.

On a technical basis, the Nasdaq has been hanging onto the support of its 50-day moving average and finished there on Friday, adding to the importance of Nvidia’s result this week.

Pulling back and focusing on the medium-term picture, Goldman Sachs published a piece last week highlighting that the current AI boom is not showing the macro and market imbalances that were visible in 1999/2000.

Instead, Goldman Sachs argues the current conditions have more in common with the earlier-stage tech boom in 1997/98. 

On factors such as investment as a share of GDP, contribution of tech to real growth, corporate debt as a proportion of profit and equity returns, the current AI boom has not reached the levels of 1999/2000, suggesting that despite concerns and the inevitability of short-term corrections, the story could have further to run.

Resources

The resources sector benefitted from the rotation out of tech and the broader market sell-off last week.

The iron ore producers benefitted from resilient pricing as Chinese steel exports remain elevated, and supply is relatively disciplined.

Energy similarly benefitted from looking like it is recovering from its floor, while gold benefitted from its safe haven status.

Notably, there was a sharp recovery in sentiment towards lithium prices and equities.

The last few years saw an implosion of the lithium bubble as global supply ramped up and demand disappointed due to weaker-than-expected penetration of EVs.

However, there has been a potentially material change in the story on renewed growth in Chinese lithium demand driven by utility energy storage systems.

China’s rapid renewables rollout, stimulated by government incentives, has led to a “duck” curve in prices – where power prices are negative in the middle of the day.

This has made battery storage projects profitable and is driving a ramp up in investment.

Market technicals

The S&P 500 is right back to the bottom of the channel it has been occupying for six months and so approaching a meaningful resistance level.

This week will be important for indicating any change in trend.

The turnaround in investor positioning sentiment from positive to negative has been pretty sharp but is not at a level that suggests there is little downside.

On the positive technical side, markets historically trade weaker immediately after government shutdowns end, but then trend positively over following months.

US financial conditions also remain at reasonably loose levels, while the bar for markets in terms of consensus quarterly earnings expectations eases materially – from just over 10% in Q3 to just over 5% in Q4.

Australian equities

The Australian market underperformed US markets during the week.

We saw the same rotation out of tech and into the resources and defensive sectors. We also had the additional drag of a sharp pull back in the banks, driven by a poorly received CBA result.

The rise in rates following the jobs data dragged down REITs and consumer discretionary stocks. The insurance sector outperformed as a beneficiary of higher rates.

Stock moves reflect the market rotation, sector specific themes and a continuation of the trend this year of relatively modest earnings misses being heavily punished by the market.

So resources dominated the top performers – particularly lithium and gold stocks.

On the flip side a range of tech companies were heavily sold off, as well as disappointing reporters including Xero, CBA and Aristocrat.

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About Anthony Moran

Anthony Moran is an analyst with over 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.

Find out more about Pendal Focus Australian Share Fund  

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Employment data came in stronger for October, prompting the market to ‘almost’ abandon 2026 rate cuts, writes Pendal’s head of government bond strategies, TIM HEXT

• Employment numbers stronger
• Most remaining economists abandon rate cut forecasts
• Find out about Pendal Government Bond Fund
• Browse all Pendal’s fixed-income funds

TODAY’S October employment numbers provided the usual amount of noise but highlighted that the rise in unemployment in September to 4.5% was a head fake.

Employment in October grew by 42,000 jobs and unemployment fell to 4.3%, or 4.33% to the second decimal place.

For those looking to dampen the noise, the trend unemployment rate stayed at 4.4%, spot on the Reserve Bank medium-term forecast.

Unemployment, October 2025 (seasonally adjusted vs trend):

 

Source: Australian Bureau of Statistics

Hours worked also rose to 0.5% and given it was all full-time jobs this month, the underemployment (part time workers seeking more hours) also fell to 5.7%. This leaves labour underutilisation at 10%.

Not surprisingly today’s number saw most remaining economists who had rate cuts still forecast abandon them. The market has less than 10% chance of a February cut and 20% chance of a May cut.

This has finally piqued our interest. Yes, we agree the Reserve Bank is likely to be on hold well into next year but there is time value in these sorts of chances.

We have entered some short-dated received positions post today’s numbers, as they provide a good risk/reward defensive hedge against all sorts of eventualities in the months ahead.

Our own data expectations do not have much of a view on unemployment. We think the consumer is picking up pace, but against this the government fiscal pulse is falling.

However, we think the quarterly pace of trimmed mean inflation will return to the 0.6% to 0.7% level in the quarters ahead, consistent with the Reserve Bank target.

Yes, annual numbers are lumbered with the recent 1% third-quarter number which will see annual inflation above 3% for a while yet, but it is the pulse that is important.

Meanwhile, for those planning holidays in December the Reserve Bank meeting on the 9th should be the most boring in years. ‘Happily on hold and balanced risks’ is all you need to know.

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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.

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Here are the main factors driving the ASX this week, according to head of listed property PETER DAVIDSON. Reported by head investment specialist Chris Adams

• Find out about Pendal Property Securities Fund

“WHAT do you do if you’re driving in a fog? You slow down,” said Jay Powell Fed Chairman in late October.

And that is what markets have done in the past couple of weeks.

The S&P/ASX 300 fell 1.3% last week – its second weekly decline, having fallen 1.5% in the previous week.

Markets are no longer fully factoring in an interest rate cut during this cycle after the RBA maintained the current cash rate last Tuesday.

The S&P 500 market has fallen by 2.4% from the peak late last month and was down 1.6% last week.

The Nasdaq (-3%) racked up its worst week since April with sell off in Palantir (-11%), Nvidia (-7%), Core Weave (-22%) and Oracle (-9%). 

Bitcoin, the bellwether for speculative euphoria, has fallen by 8% in the past week, US jobs data – as reported by Challenger – was weak and a near-record low University of Michigan sentiment number added to the caution.

Meanwhile, prospects for a resolution to government shutdown seem to fade further. At 37 days, this is the longest shutdown in US history and is starting to impact the real economy with disruption to the SNAPS program (42 million Americans, or 12% of the population, are on food stamps) and air travel.

On the positive side, markets are holding key technical levels, and we are near a strong period in the equity markets with seasonal inflows in 401K accounts.

Oil (-15% CYTD) has been a positive for the equity markets.

US Treasury markets were relatively quiet last week, with 10-year yields unchanged.

On a calendar year basis, there has been a change in leadership so far this year with the UK and Japanese markets performing well.  At the margin these markets are also benefiting from a shift away from dollar assets with US dollar trade-weighted index (DXY) down 8% for the year.

US macro and markets

Consumer sentiment weakened

The University of Michigan Consumer sentiment index fell from 53.6 in October to 50.3 in November, nearing a record low in a series that goes back to 1980.

In terms of components, the percentage of respondents expecting a higher unemployment rate over the next year rose to 62%, up from 52% in October.

Consumers’ one-year inflation expectations rose slightly to 4.7% from 4.6%, with one third of respondents expressing concerns regarding weak income levels, marking the highest proportion since 2020.

While consumer sentiment is expected to improve following the eventual resolution of the US federal government shutdown, there are ongoing concerns that previous over-hiring, labour hoarding, and productivity gains related to artificial intelligence may contribute to a jobless economic expansion.

Jobs market: Mixed but soft

The Challenger Job Cuts report indicated continued weakness in the US labour market, reflecting the highest year-to-date job cuts since the onset of the pandemic.

Elsewhere, the October ADP employment report registered a modest recovery in private sector hiring; however, the three-month average remains below breakeven estimates for employment growth.

The Fed

The Fed served up another 25 basis-point (bp) rate cut but could not quite decide what to do next.

This is the fifth cut, so total rate cuts have amounted to 1.5% in this current cycle. The vote was 10–2, but the dissents were in opposite directions.

• Stephen Miran (Governor) wanted a larger cut of 0.50%.
• Jeffrey Schmid (Kansas City Fed President) wanted no cut at all.

With a US government shutdown weighing on economic growth, Chair Powell is treading cautiously and has clearly opted for the “let’s just see what happens” approach until more data arrives on his desk.

Tariff Troubles

The Supreme Court is currently examining the Trump Administration’s $195 billion tariff initiatives, which have broad implications for international trade.

According to betting agency Polymarket, there is a 75% probability that the court will impose restrictions on the emergency powers granted under the International Emergency Economic Powers Act (IEEPA), despite being stacked with Republican-friendly judges.

It is likely that the imposition of new tariffs would slow as a result, although the Trump Administration does have alternative avenues to pursue them.

Ultimately, the Supreme Court’s ruling will be critical, with a key question being how tariffs already paid would be treated and the US government potentially being on the hook for billions of dollars of refunds.

China macro and policy

China’s trade engine hit a speed bump in October, with both exports and imports slowing down.

Exports decreased by 1.1% compared to the previous year, contrary to analysts’ expectations for an increase. Headline exports dropped for the first time since February. Shanghai port activity hit its lowest level since April.  

Imports were also subdued, falling short of expectations with growth of just 1% year-on-year (consensus: 3%, prior: 7.4%). China’s imports from the US declined at the fastest pace since September 2019.

The figures probably don’t capture the US-China trade de-escalation.

Commodity imports remained resilient, while high-tech goods were the main drag.

Agricultural imports showed improvement and could continue to recover in the coming months, supported by China’s resumption of purchases of US farm products

Australia macro and policy

The RBA kept the cash rate at 3.60%, as expected.

The latest Statement on Monetary Policy indicates lingering inflation pressures, prompting cautious policy and higher CPI forecasts, with trimmed mean inflation staying above 3% until mid-2026.

Unemployment projections edged up, but labour market tightness persists. The RBA trimmed GDP estimates.

Analysts now expect a prolonged rate pause, seeing May 2026 as the earliest possible cut. The RBA’s hawkish tone shifted rate cut odds from 97% by June 2026 to 74%.

The recent Q3 inflation print (+3.2% versus +3.0 expected) might well be considered transitory, reflecting the removal of government electricity subsidies (with the housing component accounting for approximately 20% of the CPI) and increases in council rates. These factors might well reverse in Q4.

However, RBA Governor Michelle Bullock noted that “just below three per cent is not good enough for the board.

“The question we should be asking is – if we ease much further, do we think inflation will continue to come down?” she said. “If you take our forecast at face value, I think that’s a bit marginal.”

Australian home prices climbed at the fastest pace in more than two years in October, underscoring how a resurgent property market threatens to complicate the RBA’s efforts to cool inflation.

Markets

US

Over 80% of S&P 500 companies have reported Q3 results, with 82% beating earnings estimates (above the recent 73% average) and 67% surpassing sales projections.

Despite robust performance, US stocks saw limited gains for positive surprises and sharper declines for misses.

Major AI hyperscalers such as Microsoft, Google, Amazon, and Meta reported earnings and increased their annual capex guidance, indicating greater investment in AI infrastructure.

The tech giants are on a capex spree, each trying to out-build the others for AI domination.

• Microsoft plans a 59% jump in FY26 spending.
• Google will spend $91–93 billion on AI hardware next year, a 75% leap from the previous year.
• Meta aims to spend $115 billion by 2026.

This is all despite unclear payoffs from generative AI.

These are cashflow-rich companies; however, the high-grade bond market is also helping to fund DC rollout.

The Beignet Investor LLC’s – a joint venture between Blue Owl Capital and Meta – is issuing US$27.3 billion in debt to fund a 2.064-gigawatt data centre campus in Louisiana.

This is the largest US corporate bond deal in history for a single project financing.

Australia

The S&P/ASX 300 finished the week -1.3% with weakness in small caps (-3.7%), materials (-3.1%) and tech (-4.3%).

Financials (+0.3%) were muted but outperformed, buoyed by strength in the Banks (+1.6%) amid a busy reporting season, despite a notable drop from Macquarie Group (MQG) owing to an earnings miss.

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About Peter Davidson and Pendal listed property strategies

Pete Davidson is Pendal’s head of listed property.

Peter has held financial markets roles spanning portfolio management, advisory and treasury markets over more than three decades.

Specialising in the Property, Retail, Insurance and Infrastructure sectors, he has previously held roles with Midland Montagu Australia, Daiwa Securities and has served as the non-executive director of the Industry Superannuation Property Trust.

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

Pendal Property Securities Fund invests mainly in Australian listed property securities including listed property trusts, developers and infrastructure investments.

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About Pendal Group

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

Contact a Pendal key account manager