MTR Corporation’s inaugural green bond is mobilising capital to scale low-carbon transport and energy smart urban infrastructure.

• MTR green bond funds low-carbon transport
• Proceeds support rail upgrades, renewables, resilience
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in MTR Corporation’s inaugural green bond, which directs proceeds toward a portfolio of low‑carbon transport and energy‑efficient urban infrastructure.

MTR is recognised as a global leader in electrified mass transit, carrying around 6.5 million passenger journeys each week across its networks, including in the Sydney and Melbourne metros.

The green bond finances and refinances eligible green investments under MTR’s Sustainable Finance Framework, with proceeds expected to support a range of climate‑aligned projects.

This includes major rail line extensions in Hong Kong, station energy‑efficiency upgrades, low‑carbon building improvements, renewable energy installations, biodiversity and conservation initiatives, and climate‑resilience works.

Several near‑term projects are likely to be funded through this issuance, including rail expansion programs that increase public transport capacity in new growth districts, replacement of older rolling stock and equipment with more efficient alternatives, and upgrades to station infrastructure aimed at reducing operational energy use.

The bond may also finance enhancements to MTR’s extensive property portfolio, where the company is targeting substantial reductions in scope 1 and 2 emissions intensity by 2030, as well as water and waste‑management improvements across its network.

This bond is significant as it supports one of the world’s most heavily used public transport systems, where scale magnifies climate benefits.

Hong Kong relies on public transport for roughly 11.7 million trips per day, and rail accounts for around 44 per cent of domestic journeys.

Improvements funded through this green bond help avoid emissions by shifting more commuters onto efficient rail networks, reducing road congestion, and accelerating energy‑efficiency gains across MTR’s operations.

These projects contribute to MTR’s science‑based targets, which include reducing well‑to‑wheel rail transport emissions by 46.2 per cent per passenger‑kilometre by 2030 and achieving carbon neutrality by 2050.

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Source: https://www.mtr.com.hk/sustainability/assets/pdf/en/2024/MTR_Sustainable_Finance_Rpt_2024.pdf

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Pendal funds have backed one of ANZ’s SDG bonds – fast-tracking finance into clean energy, climate and social-impact projects.

• ANZ bonds back climate and social outcomes
• Two thirds of funding directed to Australia
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in the ANZ Banking Group’s Sustainable Development Goals (SDG) Bond 2031, which allocates proceeds toward a diversified portfolio of social and environmental lending activities aligned with the United Nations SDGs.

Proceeds from ANZ’s SDG bonds are used to fund or refinance eligible assets with a strong emphasis on climate action, sustainable cities, clean energy and positive social outcomes.

The bond finances a broad range of projects, with approximately 80 per cent of proceeds allocated to environmental activities and around 20 per cent to social outcomes.

Around two thirds of funding has been directed to projects based in Australia.

On the environmental side, the bond supports the financing of more than 360 large scale renewable energy projects across Australia, India, Hong Kong and other regions. These include wind farms, solar projects and battery energy storage systems.

One example is the development, construction and operation of the 252-megawatt Wambo Stage I and 254-megawatt Wambo Stage II wind farms in south-east Queensland.

Examples of social projects supported include the operation of specialist disability accommodation across Australia, comprising nearly 1,000 beds, as well as the construction of a further 106 specialist disability accommodation homes providing around 350 beds.

The bond has also supported the delivery of more than 1,200 dwellings to be used as social and affordable housing. Investing in an ANZ SDG bond provides exposure to a high-quality Australian bank while directing capital toward a wide range of activities that support climate stability, social inclusion and sustainable economic development.

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Source: https://www.anz.com/content/dam/anzcom/debtinvestors/sdg-bond-impact-report-september-2025.pdf

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In this article Pendal’s EM team explains why they’re avoiding the most exposed energy importers and favouring markets with strong external positions

• Strait of Hormuz closure is an intensifying macro shock for Asia
• Reinforces underweight positioning in energy‑importing Asian markets
• Learn more about Pendal Global Emerging Markets Opportunities Fund

THE Iran conflict represents an exceptional negative supply shock with severe implications for some emerging markets – and conditions have deteriorated further since our last analysis in April.

The continued closure of the Strait of Hormuz has extended the shock well beyond energy markets into currencies, rates and growth expectations across Asia.

The transmission mechanism we described previously is now clearly visible.

Asia is highly dependent on Middle Eastern energy supply, and a prolonged disruption functions as a tax on growth.

Higher fuel and transport costs feed rapidly into headline inflation, weaker current accounts and sustained pressure on currencies.

Policymakers are left balancing growth concerns against the need to anchor inflation and protect external stability in an already challenging global monetary environment.

Currency and bond markets react first

Since the conflict escalated, the Indian rupee, Indonesian rupiah and Philippine peso have all moved sharply weaker.

Options markets are now pricing meaningful probabilities of further depreciation over the next three months, signalling that investors see limited near‑term relief without clear de‑escalation.

Bond markets likewise point to tighter financial conditions despite slowing growth momentum.

Official responses underline the severity of the shock.

The Reserve Bank of India has opened a dedicated dollar‑swap window for oil refiners, increased spot FX intervention and restricted offshore derivatives trading, while acknowledging that growth risks are now skewed to the downside.

Bank Indonesia has intensified intervention onshore and offshore and tightened dollar‑buying rules to stem outflows.

The Philippines’central bank has signalled a series of policy interest rate increases to contain inflation despite weakening activity, while Thailand has cut growth forecasts sharply as inflation expectations reset higher.

Across the region, multilateral institutions have revised down growth forecasts and marked up inflation projections.

Equities impact

Equity markets, in our view, remain behind this reality.

Valuations in several Asian markets continue to assume relatively stable earnings growth, with limited adjustment for margin pressure from higher input costs, weaker domestic demand or tighter financial conditions.

Prolonged terms‑of‑trade shocks in energy‑importing economies typically feed into corporate profitability with a lag, particularly where currencies are adjusting and fiscal space is constrained.

We think FX and bond markets are ahead of equities in pricing the effects of the Hormuz disruption.

Our positioning

We remain heavily underweight India, zero weight the Philippines and Thailand, and underweight Korea and Taiwan (despite holding significant exposure to global semiconductor in these two).

Our portfolio positioning remains focused on avoiding the most exposed energy importers and favouring markets with stronger external positions, greater policy insulation or direct benefits from higher energy prices.

We remain significantly overweight Brazil, Mexico and China.

About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne, Ada Chan and Roshni Bolton are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
 
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here

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

GLOBAL equity markets continue to rise, led by those with the most semiconductor exposure (e.g. US, Korea, Taiwan) – driven in turn by upgrades to AI capex and supply shortages.

The S&P 500 gained 2.4% and the NASDAQ +4.5% last week. The S&P/ASX 300 was up 0.4%.

Financial markets remain unconcerned that the Iran conflict will trigger a further significant rise in energy prices, suggesting some form of resolution is close.

The worst fears around supply shortages have not eventuated yet, due to adequate inventory and higher-than-expected demand reduction.

This availability of fuel has caused oil and refined-product prices to fall. Brent crude was off 6.4% last week.

The US earnings season has been strong, with broad-based earnings upgrades suggesting an economy in good shape. This was also reflected in their latest jobs data.

Other commodity prices benefitted from reduced fears of a global slowdown; resources was the best-performing Australian sector as a result.

Our market withstood the expected rate hike, and the focus was on several corporate results and updates.

The underlying message is that the economy and earnings are holding up well. Everyone is looking for signs of weakness, but very few have emerged to date – and those tend to be in more structurally challenged franchises.

Gulf crisis

Oil and refined product prices declined last week as the market continues to anticipate some form of deal to reopen the Strait – and the blockage’s impact on the global economy has been less than feared.

Jet fuel, for example, has declined 35% from its peak – albeit still up 65% from February – despite fear of shortages.

That said, there has been a partial rebound in oil following Tehran’s seeming rejection of the latest US peace offer and US President Donald Trump’s bellicose reaction overnight.

When the crisis started, the market would have expected that a nine-week closure of the Strait, with only 4% of product getting through, would lead to far higher oil prices than we have seen.

Reasons for the more benign reaction include:

1. Reserve/inventory drawdowns have been more significant. This has not just been in crude oil but also in refined products. In oil it is Asia which has worn the loss of supply, however in refined product this adjustment has been in all regions. It is believed this incorporates a material number of “invisible” stockpiles (i.e. held outside of official reporting by private industry, commercial traders or smaller producers).
2. Demand has fallen more than expected at a given oil price. Part of this is due to refined product price moves – which are 1.5x to 3x that of crude – that have destroyed demand (e.g. in jet fuel). But we have also seen weaker demand from China (which may be them drawing on reserves), petrochemicals (linked to availability of naphtha) and poorer Asian countries which have been outbid for product.
3. Higher crude exports from other regions – notably the Americas – running at around 3 million barrels per day.

The most recent easing of crude premiums and crack spreads is also linked to reduced panic buying of refined product, which inflated the initial reaction (notably in jet fuel spreads).

The market seems to have been quite efficient in adapting to the shock and this has given confidence to broader financial markets.

However, a large part of this reflects the ability to draw on stockpiles, both visible and invisible. We do not know where the tipping point may be which, if hit, would require far more material demand destruction.

The other observation has been that it increasingly looks like explicit rationing is less likely to happen, as market pricing does the work of allocating the scarce supply.

US economy

April payrolls and March JOLTS data last week suggested that the employment market is okay.

It is currently in the sweet spot of not being strong enough for the Federal Reserve to worry about wages responding to the energy shock, but also not weak enough to put pressure on the central bank to cut rates.

The employment data shows that the flow on effects of the fuel shock, while affecting confidence, is not impacting the economy. Nor is AI leading to meaningful labour shedding.

Payrolls came in at +115,000 jobs, well ahead of the 65,000 expected. There was a -16,000 revision to the previous two months.

Given data has been messy because of weather and the government shutdown, the six-month average is the best trend proxy – and that is rising and is now above the breakeven level to sustain the unemployment rate.

The mix of job gains was a positive one, skewing to private sector and less reliant on health care.

Unemployment itself was 8 basis points (bps) higher at 4.3%, in line with consensus. Should it break above 4.5%, then the Fed would likely start considering rate cuts again.

Hours worked were solid, rising 0.3%, and wage growth continues to moderate +0.2% versus 0.3% expected. This will give the Fed confidence that input price pressures will not lead to second round effects. It also reinforces the positive productivity trend and the rise of profit share relative to labour share.

JOLTS saw a small drop in job openings to +4.1%, hiring picked up from a softer February to 3.9%, while quits remain at very low levels at 2.0%.

ISM data also signalled no signs of emerging weakness – although it has been less efficient as a leading indicator recently.

The upshot is that the economy is holding up well so far despite the fuel cost impost.

Combined with strong corporate earnings, this has given the market confidence to look through the short-term input cost issues.

US earnings and markets

Week four of US earnings season saw continued strong positive revisions.

The median stock was expected to grow earnings 8% year/year – and instead come in at 14%.

Overall earnings are tracking to 17% growth with revisions rising 5% from the start of April.

This means the S&P 500’s P/E ratio has fallen marginally year-to-date, despite the index being on its highs. 

The overall index is 21x and the median stock 16x.

Both are sustainable given liquidity and earnings trends, with the main risk being an input-cost induced slowdown.

One concern we have, but which has diminished, is a confidence-induced slowdown in consumption or investment. There is no sign of this.

Since the Iran war started the S&P 500 is up 7%, despite higher oil (43%) and bond yields (45bps), led by the technology sector (+20% equal weight).

Market breadth has been a concern, however the small cap Russell 2000 index (+8%) has performed better than the S&P 500.

Laggard sectors have been defensives like staples (-10% equal weight) and healthcare (-8% equal weight) as well as discretionary (-7% equal weight). 

The market’s key driver has been tech – and specifically semiconductors – on the continued wave of increased AI investment.

There has been a surge in company cash usage for reinvesting into capex and R&D (as opposed to dividend and buybacks) and the market has become more positive on this, believing that they can get reasonable returns.

This sentiment is helped by the enormous success of Anthropic, which is now up to a A$44 billion annualised revenue run rate, versus A$14 billion in December 25.

The growth in demand for compute has led to a further rise in hyperscaler capex. Between them Oracle, Microsoft, Meta, Alphabet and Amazon are expected to spend >US$800 billion in 2026 – this is US$100 billion more than expected at the start of April and $200 billion more than at the start of the year.

Amazon and Alphabet both announced significant increases in pipeline for their cloud services which is driven by Anthropic chasing capacity.

The largest bottleneck in supply is in semiconductors, driving up the price of both the chips and stocks.

The PHLX Semiconductor Sector ETF (SOX) is  up 58% since the end of March, led by Intel +183%, AMD +124% and Micron +121%.

The velocity of these moves (51% above its 200-day moving average) has only been surpassed once, which was a peak of +111% ahead of the tech bust of 2000.

From a factor perspective momentum has surged and breadth has been narrow.

Semiconductor strength has also driven the Korean and Taiwanese markets up 78% and 44%, respectively, in 2026.

Three years ago, they were a similar size in market cap to Australia – now they are double the size.

Such moves tend to see some degree of consolidation – but the strength of the momentum, combined with the fundamentals, suggests they will not see significant reversals.

Australian markets

The Australian market is very tame relative to these offshore markets.

One feature of our market is that it is becoming a funding source, as global investors chase returns in Korea and Taiwan.

The main macro news was the expected rate hike of 25bps to return to the previous cycle peak of 4.35%.

This was an 8-1 vote, driven by concerns of firms passing on costs given the tight labour market, the strength of the economy’s momentum prior to the Iran war, and domestic industry structures which gives corporates pricing power.

Reserve Bank of Australia Governor Michele Bullock did indicate that the board now sees policy as slightly restrictive and having risen three times in a row – and given the uncertainty – we would expect a pause.

The market is still expecting one further rise, potentially in August.

This was largely discounted by the market so prompted a limited reaction.

Instead, it eked out a small gain for the week helped by generally supportive corporate sentiment at the Macquarie conference.

Miners (Metals & Mining +4.5%) led the market followed by industrials (+1.2%), with energy (-7.6%) the laggard as oil prices fell and healthcare (-2.8%) continuing its underperformance, mostly driven by sentiment.

There were a few results last week. Observations included:

• The banks saw small downgrades reflecting margins trends not being as positive as expected. It is important to note that they see no signs of weakness or stress in the economy; credit growth remains firm and management are noting the increases in collective provisions are precautionary.
• Domestic industrials Ventia, Downer, SGH and Orica reinforced this message, all providing updates or results which were in-line with or better than expectations; again, there was no evidence of a slowdown.
• Consumer signals were more mixed. Qantas, Sigma Healthcare and Vicinity Centres were positive on sales trends, while Endeavour and Super Retail were not, reflecting the importance of category exposure. JB Hi-Fi fell, the issue being the underlying cost pressures and stock constraints crimping margins, rather than an issue with sales momentum.

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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

With more than half of global GDP reliant on healthy ecosystems, biodiversity is fast emerging as a critical lens for long-term sustainable investing.

• Biodiversity underpins over half global GDP, shaping investment
• World Bank bond funds conservation and sustainable livelihoods
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD Biodiversity and Sustainable Development bond from the World Bank.

More than half the world’s GDP is estimated to be dependent on biodiversity and ecosystem services.

Fresh water, fertile soils, clean air and even insects pollinating plants – the flow-on effects of the degradation of biodiversity are immense.

Biodiversity is emerging as an investment focus, coinciding with businesses increasingly disclosing the different environmental risks they face.

This bond is helping to position nature as central to development through promoting conservation, training, and policy to seek nature-based solutions in agriculture, forestry and fisheries.

Through this bond, the Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund are investing in projects around the world that are promoting biodiversity, including by providing training and opportunities to manage resources. 

The World Bank lists examples of projects that may be funded by bonds like this. One example looks at oases in Tunisia.

Oases, which has long been the centre of trade and cultural exchange, are threatened from water wastage, soil salinity and fertility loss.

Local knowledge about how to manage these resources is being lost.

The World Bank project is funding improved governance of these spaces by improving water saving and reducing land degradation.

This project will place 25,000 hectares under sustainable landscape management practices, providing financial support for 250 small and medium enterprises. 

Another example of a project that is relevant to a biodiversity bond is in Mexico.

There are 12 million people in Mexico who live in poverty in forests and are directly dependent on local natural resources.

This project is helping to strengthen sustainable forest management and provide other economic opportunities.

This includes conservation and business development and providing other economic opportunities apart from logging and land clearing.

This project places a particular focus on the underserved such as indigenous people and women.

ASX midcaps to benefit from retirement shake-up | Sticky inflation, oil shock and income positioning | Emerging small cap opportunities amid Middle East turbulence

Pendal’s investment in the Asian Development Bank’s gender bond helps accelerate gender equality across the Asia-Pacific while keeping credit exposure anchored to a AAA-rated supranational issuer.

• Gender bond funds Asia-Pacific gender equality
• Targets women’s financial inclusion, improving access to credit
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in a sustainable bond from the Asian Development Bank (ADB) called a gender bond.

These bonds are issued in Australian dollars, and we have 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[1] across the Asia Pacific region.

The ADB exists to promote inclusive, resilient, and sustainable development, and one of its core priorities is accelerating progress on gender equality.

The Asia Pacific region still experiences some of the widest gaps between women and men across economic participation[2], 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 while maintaining exposure to a high-quality supranational credit.

An example of the type of project that these gender bonds support is the Uzbekistan Inclusive Finance Sector Development Program[3].

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.

Uzbekistan has made progress in broadening financial inclusion and around 60 per cent[4] of adults now hold a financial account, driven in part by rapid growth in digital finance.

However, women entrepreneurs still face significant barriers in accessing credit.

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.

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[1] https://www.adb.org/who-we-are/about

[2] Economic and leadership gaps: constraining growth and skewing transitions – Global Gender Gap Report 2024 | World Economic Forum

[3] 57245-001: Inclusive Finance Sector Development Program Subprogram 1 | Asian Development Bank

[4] ADB Program to Boost Financial Development and Inclusion in Uzbekistan | Asian Development Bank

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Industry super funds are under increasing pressure from the government to provide more products enabling them to service members beyond retirement. Pendal’s BRENTON SAUNDERS discusses the changes and the midcaps set to benefit

• Super funds pushed to improve retirement drawdowns
• Global companies circling Australia’s annuity market
• Find out more about the Pendal MidCap fund

RETIREES could see a wave of new retirement products hit the market from mid-year, as APRA resets capital requirements for decumulation products, like annuities — a change expected to lower barriers for providers and encourage large overseas insurers to compete in Australia.

The shift comes as the government increases pressure on super funds to help members spend down balances in retirement, rather than die with “fully stacked” accounts.

“The problem the government has is that a lot of people, when they pass, their super funds balances are still high, and they haven’t really used that money over time and effectively decumulated,” explains Brenton Saunders, portfolio manager for Pendal MidCap Fund.

“A big part of the reason is that there are very few easy to understand and effective decumulation products out there.”

An annuity is one of these types of products. It is a financial contract with an insurance company that provides a guaranteed income stream, either immediately or in the future, often used for retirement planning.

However, Saunders says up until now annuities haven’t been particularly popular in Australia due to a complicated administrative process and limited availability.

Challenger (ASX:CGF) is one of the only Australian investment management companies that currently offers annuities.

“The Australian framework historically has required a much more capital-intensive approach to annuities because capital adequacy requirements were higher,” says Saunders.  

“So it’s never really attracted a lot of the big global annuity players into the market to facilitate mass development of products.”

What’s changing

APRA finalised its review at the end of March with the amendments set to come into effect from 1 July 2026.

The amendments are designed to make annuities less capital-intensive to write, potentially widening the limited provider pool and attracting new entrants to the market

At the same time, Challenger is investing in technology to make annuities easier to quote, implement and service through advisers and super funds.

“Challenger will also partner with industry super funds to provide them with products that they can then pass on to their members,” adds Saunders.

“It’s a big opportunity for Challenger specifically, but what will happen is – and what we’re seeing happen now – is other participants from Japan and the US are entering the annuity market.

“So, it’ll become quite a vibrant landscape.

“I suspect in time companies like Challenger, given that they’re much smaller than the big global annuity providers, could be acquired by these bigger companies.”

Why it matters for retirees

If more insurers enter and super funds expand retirement offerings, retirees may have more ways to convert part of their balance into a predictable “pay cheque”.

“Companies like financial services business Generation Development Group (ASX:GDG) and AMP (ASX:AMP) have launched products that are more market-linked than annuity based, but are very tax efficient and getting a lot of traction with the retirement market,” says Saunders.

Evolution of SMSFs

Over the past decade, there has also been an evolution of self-managed super funds.

“The superannuation industry is growing incredibly fast. We’ve had super contributions as individuals increase a couple of times over the last five years, and with strong markets we’ve also had super balances grow materially over the last five or six years,” says Saunders.

Saunders says two offerings have been gaining share with “tech ready,” attractively priced and well serviced platforms; Netwealth Group (ASX:NWL) and Hub24 (ASX:HUB).

“That all manifests in these platforms, and notably Hub and Netwealth have been big beneficiaries of that.

“We back them to continue taking market share in the platform market from industry superannuation funds on the one hand, and from the incumbent platforms on the other.”

Pendal MidCap Fund owns a position in CGF, GDG, AMP, NWL and HUB.

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

• Find out about Pendal Focus Australian Share fund

US equity markets are rallying on strong earnings and “good-enough” economic data, while the ASX is lagging due to lower exposure to tech/AI and greater weight in resources and banks – which had a breather last week.

The S&P 500 gained 0.92%, the NASDAQ +1.1% and the small cap Russell 2000 +0.9% last week. The S&P/ASX 300 finished down 0.7%.

Brent and West Texas Intermediate oil both put on around US$10/barrel over the week with no progress on Iran.

We remain in a limbo period where existing inventories and demand destruction are preventing things from getting out of hand – but it’s only a matter of time before this changes.

US reporting season was generally positive and highlights a resilient consumer.

Several big tech companies reported last week, providing a positive backdrop with revenue generally ahead of consensus and increases to AI-related capex.

The Australian economy remains resilient. Last week’s Q1 consumer price index was high but in line with expectations, affirming the need for further rate rises.

Indications are that Australian consumers also remain resilient for now.

Markets appear to be marking time until the global economy starts slowing more materially.

US macro and policy

Rates

The US Fed held rates steady as expected but delivered some hawkish takeaways.

• Four out of 12 governors dissented – the most since 1992. Three of the four wanted to remove the inclusion of an easing bias in the statement. Chair Jay Powell noted there was a “vigorous debate” over the inclusion of the statement and it could be removed next meeting. Stephen Miran provided his customary vote for a rate cut.
• Powell said the bar for “looking through” the oil shock was high, given officials are already looking through the tariff shock while inflation has been high for a number of years.
• Citing concerns about Fed independence, Powell is staying on as a governor even after Kevin Warsh becomes Chair on May 15. This raises concerns of conflict with the White House.

Bond yields rallied last week due to higher oil prices, then rose faster after the Fed decision.

GDP

Elsewhere, the US economy showed stronger growth with Q1 GDP data up 2 per cent (annualised) versus the previous quarter. This was consistent with company feedback and not a surprise given the base effect of the government shutdown in Q4.

• Real final domestic demand grew 2.9% (or 2.5% excluding recovery from the government shutdown)
• Fixed business investment was the key driver, running at +10.4% annualised, due to information-processing equipment, software and data centres
• There was a partial offset from imports (+21%), driven by tech goods
• Real personal consumption slowed but remained reasonable at +1.6%, with stronger momentum over the quarter
• On the other side residential housing investment fell 8% annualised, down to 3.7% of GDP – the lowest level since Q4 2015.

The upshot is the US retainsgood momentum in GDP growth but is heavily dependent on tech investment.

Looking forward there will be a drag from higher oil prices – and this will build. But other energy prices are low, so the US is relatively well positioned versus other economies.

Fiscal stimulus is also providing short term support. US consumer plays which have been sold off may to surprise to the upside.

Inflation

The Fed’s preferred inflation measure, the Core Personal Consumption expenditures (PCE) price index, rose 3.2% annually to March. This is the most since 2023 but was in line with expectations.

It eased slightly on a monthly basis, to a still-firm +0.3%.

Real personal consumption expenditures grew at +0.2% monthly, showing robust support for economic growth. However, this relied on a declining savings rate – and is likely to come under pressure from rising inflation and declining government transfers.

The savings rate is still well above recession levels but needs wage growth to pick up to support continued spending growth.

Housing

New housing starts data for February and March came out last week. After falling slightly in February to 1,356K they jumped in March to 1,502K (versus about 1.4k expected), helped by warmer weather.

Homebuilding has been more resilient than feared but recent homebuilder commentary suggests a slowdown in April with permits quite weak in March.

Australia macro and policy

Inflation rose 1.4% in Q1, which is high but in line with market expectations.

Trimmed-mean CPI rose 0.8% for the quarter, which is also high, albeit slightly below consensus and the RBA forecast.

Bond yields were flat in response.

• Culprits:  Services inflation (+0.8%) has remained high for the past three quarters driven largely by inflation in meals out and takeaway food. Insurance prices rose 2.2%, hairdressing and personal grooming services were up 1%, and maintenance and repair of motor vehicles gained 1.5%.
• Consumer durables rose 1.4% on furniture, flooring and electric appliances, but softer housing turnover may take some pressure off. Clothing and footwear rose 3.8% due to higher silver and gold prices (the category includes jewellery).
• Offsets: At-home food inflation eased to +0.4%, but there was some medium-term upside risk from fertiliser prices. Government-administered inflation (excluding electricity prices) slowed significantly to +0.4% (eg childcare -0.7%). Housing inflation also slowed to +0.9%.

Electricity prices rose 17.8% due to the expiry of government rebates, while auto fuel prices rose +5.2%.

The Q1 data is a bit stale, given the key concern is now about higher hydrocarbon prices filtering through the economy and potentially into wage claims.

The consensus view is that we see another interest rate increase this week, and risk that further hikes will be required.

Stockland Group’s quarterly noted that total retail turnover grew 3.8% on a yearly basis to Q3 FY26, versus +3.6% in H1 FY26.

The “mini-major” category (stores between 400 and 1500 square metres such as JB Hi-Fi, Rebel Sport, Officeworks, Dan Murphy etc) and food saw the strongest growth. Homewares and apparel were the slowest.

Feedback from unlisted retailers suggests resilient spending growth.

The upshot is that there is more tightening coming in this cycle.

Short-term earnings look fine, but we are more cautious around discretionary retail and housing-related names in the medium term.

Other macro insights

The Eurozone’s economic outlook is looking much more challenged.

Q1 GDP slowed to +0.1% quarterly, while April’s CPI rose +3% yearly, up from 2.6% the previous month. While this is no worse than feared, Europe appears at greater risk of stagflation than other parts of the globe.

This is before the impact of higher oil prices on the economy (which EU is more exposed to).

The European Central Bank (ECB) and Bank of England (BOE) both left rates unchanged as expected.

The BOE noted weakening growth as an offset to inflation.

The ECB was more hawkish, as expected, warning that upside risks to inflation and downside risks to growth had increased.

Both central banks appear biased towards addressing inflation first, with a hike at the June meeting.

Commodities

Oil rose through the week given a lack of progress towards opening the Strait of Hormuz.

The longer this drags out, the longer it will take longer for supply to be restored after production shut-ins and shutdowns.

Right now, inventory releases and demand destruction – particularly in developing countries – is helping offset the supply shortage.

Asian economies have seen a raft of shortened working weeks, restrictions on transport and fuel rationing.

Australia continues to find incremental supply. The federal government announced it had secured 450mL of diesel and 100mL of jet fuel.

We are seeing some demand destruction in developed economies also.

Traffic volumes are already declining in the US and Australia. But the supply gap should increase from here – requiring more demand destruction.

There is also some circularity. Right now, the US economy is relatively insulated, allowing President Trump to stall talks and an agreement.

Conditions in the US may need to get worse before the conflict is resolved.

The UAE’s exit from OPEC is long-term bearish for oil but has little impact in the short term.

The UAE was operating near peak utilisation and will need to do repairs after the conflict ends. But long term the Emirates want to increase their supply.

US oil exports are surging, helping to fill the shortfall. But there has been no increase in shale production yet. Listed players, which dominate production, remain capital-disciplined.

It is interesting to note that LNG prices have not risen as much as expected – up only a fraction of the surge seen in response to the Ukraine conflict in 2022.

This has helped alleviate some of the conflict’s pressure on European power prices and Asian economies.

It comes as Chinese LNG demand has been softer than expected due to the impact of more investment in renewables – as well as the abundance of domestic coal as a substitute.

We are also seeing LNG demand destruction in markets like India.

Gold has been negatively correlated to oil in this episode.

Weakness in AUD terms means downgrades on mark-to-market for Australian gold miners. Given their large margins this means issues like higher diesel costs are dwarfed by the commodity price impact.

More broadly, the resources stocks have benefited from the market focus on the supply impacts from the Iran conflict.

We are mindful of the risk that the focus shifts to the demand impacts of weaker economic growth and sees the sector roll over.

Markets

US equities

US markets are hitting record highs, given less economic sensitivity to the Iran conflict and greater exposure to AI/tech. 

The tech sector was initially softer last week after reports OpenAI missed an internal revenue target (which the company later refuted).

But Anthropic’s revenue growth suggests this is driven by competition rather a slowdown in industry growth.

A strong result ultimately saw tech rebound.

Almost two-thirds of the S&P 500 has now reported with 61% beating consensus by more than a standard deviation.

Only 5% of companies have missed estimates.

But because of the uncertain macro backdrop, the reward for beats has been small.

Four AI “hyper-scalers” (Amazon, Alphabet, Meta and Microsoft) reported last week, beating consensus on sales, earnings and capex guidance.

• Alphabet rose 10% after reporting acceleration in Google Cloud growth
• Amazon gained 1% on stronger Amazon Web Services growth
• Microsoft fell 4% as growth in Azure didn’t accelerate meaningfully
• Meta lost 9% as capex guided higher despite disappointing user growth and not delivering operating leverage.

The upshot is AI infrastructure demand continues to grow.

Alphabet noted it was compute-constrained and cloud revenue would have been higher if it had the capacity. Their 2027 capex was set to “significantly increase” over 2026.

This is a positive read-through for local AI infrastructure providers such as NextDC (NXT).

Other results demonstrated a robust consumer:

• Fast-moving consumer good companies P&G, Mondelez and Unilever all showed volume growth after a softer December quarter
• Fiber Packaging companies also saw improving volume growth
• Casinos demonstrated resilient land-based revenues
• Quick service restaurants are delivering continued growth in the US as well

The impact of tax refunds is likely helping support things. But the risk is to the downside as Iran conflict drags on.

Australian equities

The ASX underperformed the US with less exposure to AI/tech and the key sectors of resources and banks taking a breather.

Utilities and healthcare were weaker on stock-specific news, while ongoing fears of a consumer slowdown weighed on consumer discretionary.

On the positive side the energy sector followed oil prices up. With economic concerns weighing on other sectors, we saw outperformance from REITs and the defensive industrials.

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About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has almost three decades of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund is a high-conviction equity fund with a two-decade track record across a range of market conditions.

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

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 investment analyst SONDAL BENSAN. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

THE AI thematic is driving related sectors higher, boosted by earnings revisions and positive observations on demand, notably last week from chipmaker Intel.

This is countered by growing uncertainty around Middle East conflict resolution and timing of the reopening of the Strait of Hormuz.

As a result, indices with large AI exposure such as the S&P 500 (+0.6%) and the NASDAQ (+1.5%) were up last week. The remainder, such as the S&P/ASX 300 (-1.8%), ended down.

As geopolitical uncertainty flows into changing inflationary expectations, we saw Treasury yields reverse the positive move from last week, with US 10-year government bond yield rising 6 basis points (bps) to 4.3%.

On a positive note, the price of refined oil products fell materially last week, as refining margins reversed from extended levels. This is a further indication that demand is likely being affected by caution around higher energy costs.

While the week was relatively quiet for economic data releases, there is a raft of economic data this week.

With tech the only positive driver of markets in the absence of better news from the Middle East conflict, there will be a big focus on tech results this week. Five of the Mag7 will report – Microsoft, Google, Amazon, and Meta on Wednesday, followed by Apple on Thursday.

US – Iran conflict

After a failed deal over the previous weekend, the oil price was relatively stable last week.

Hopes of any form of resolution faded over the week and the oil price ground higher by the day, to currently trade at US$108 a barrel (Brent crude).

While a deal no longer seems imminent, indications remain that an offramp and peace discussions are still the desired outcome.

President Donald Trump continues to find avenues to extend the ceasefire. Peace talks mediated in Pakistan planned during the week fell through.

Iran’s economic sensitivity to the US blockade of the Strait during the ceasefire is likely to be of increasing importance to the urgency with which Tehran engages on a peace deal.

The debate here is the impact on Iranian oil fields once their storage capacity is reached.

Current storage capacity is estimated by some to be less than 20 days, while the White House suggests that it is measured in days, not weeks.

The risk is reservoir damage from forced shut-ins. Once storage fills and wells must be shut in, the consequences are geological rather than just operational.

Forced shut-ins can break reservoir pressure balance, drive water and gas intrusion into the oil-bearing zones, and trigger paraffin buildup that clogs tubing and pores – after as few as four days.

The specific process is called water coning; when production stops, water sitting below the oil pushes upward into the well, trapping oil in rock pores where it becomes difficult or impossible to extract, resulting in permanent loss of output.

The recovery process is slow and extremely expensive.

This means there is a view that the US blockade is basically threatening destruction of energy infrastructure without missiles.

Refining spreads

The oil price increase in isolation would not be a major drag on the global economy.

The sting this time around has all been in the refining spread which, for some fuels, has gone up more than the absolute per barrel cost of oil.

With supply dynamics largely unchanged week to week, softening demand conditions in response to price and availability are choking off demand and refining spreads are reversing from highly abnormal levels.

For example, the “crack spread” for petrol fell from US$37.8 to US$25.5 per barrel between the 17^th and 23^rd of April. It fell from US$79.9 to US$66.2 for diesel and from US$79.6 to US$55.4 for jet fuel over the same time.

US policy and macro

Last week’s data, while minimal, continues to support the theme of economic resilience.

March retail sales were strong and above consensus, rising by 1.7% month/month. This is the largest monthly gain since January 2023.

Growth in core retail sales (excluding motor vehicle and parts & gasoline) was solid despite the oil price spike, coming in at +0.7% month/month.

Revisions to February data were also positive.

Sales are being supported by inflated tax refunds, which is helping to absorb the higher cost of fuel.

In other news Kevin Warsh, Trump’s Fed Chair elect, spoke at the Senate Banking Committee confirmation hearing saying he’s not ‘pre-committed to any policy decision’.

He argued that the Fed should reduce size of the balance sheet and also emphasised trimmed mean and median as better measures of inflation – both of which are substantially lower than the Fed’s current preferred measure (the core personal consumption expenditures index) at the moment.

Though a dovish tilt, this change is unlikely to have a near-term impact on the path of interest rates in the US.

Warsh’s confirmation now appears to be largely a done deal, with the Department of Justice dropping the investigation into outgoing chair Jerome Powell.

At the earliest, Warsh could take over when Powell’s term as Chair expires on the 15^th of May.

This Wednesday is the April FOMC meeting.

Markets are pricing a near-100% chance of a hold, driven by upward inflation pressures stemming from the war as well as the resilient macro backdrop such as improving labour market trends and resilient consumer spending.

Markets

The bull run for the US tech sector continues.

Intel reported a strong beat and upgraded outlook, driving the stock and tech sector higher. It provided renewed bullish demand commentary for central processing units (CPU), noting the attach rate of graphic processing units (GPU) to CPUs in new AI workloads could move from 1:8 to 1:2 or even 1:1 going forward.

Meta also announced that it will partner with Amazon to deploy hundreds of thousands of AWS Gravitron CPU chips.

Software stocks were rattled by a downgrade from Service Now, a company providing cloud-based software to automate business workflows. It fell 18% and drove the sector down 6% in one day, highlighting the sensitivity of these stocks to negative earnings news.

The software index was basically flat for the week after rising early in the week.

US Reporting Season

US reporting season is now two weeks in with 26% of companies (by market cap) having reported. This week 25% of the S&P (by market cap) will report.

Results have been generally positive both for actual results and overall revisions.

• The blended earnings growth rate stands at 15.1%, up from 12.6% at the start of earnings season.
• Forward revisions are in the order of 2-3% to date.
• In aggregate, companies are reporting earnings that are 12.3% above expectations, above the 7.2% one-year average positive surprise rate and the five-year average of 7.3%.

Australia

The S&P/ASX 300 was down 1.8% over the week, lagging Asia and US peers due to the absence of direct AI beneficiaries.

Defensive sectors led given the renewed uncertainty. Banks have continued lower on increased provisions stemming from disruption caused by the war.

The list of companies pre-announcing earnings continues to grow.

Stocks where the earnings misses have been driven by revenue have been hit hard, as have those where the negative impact from the Middle East conflict came as a surprise.

Those companies where the earnings misses related to Middle East disruption were already transparent, or are temporary in nature, have not seen major reactions to announcements.

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About Sondal Bensan and Pendal

Sondal Bensan is an investment analyst with over 19 years of experience covering the Retail, Telecom, Media and Transport sectors. He joined Westpac Investment Management in 1999 and has previously held roles with Commonwealth Bank and Bell Commodities. Sondal holds a Bachelor of Commerce (Finance) and a Bachelor of Science (Maths and Statistics).

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