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

US EQUITY markets last week closed out the best quarter since 2020, in a rally driven by AI-related big tech.

The S&P 500 rose 1.8% for the week and finished up 14.9% for Q2 2026.

The S&P/ASX 300 gained 1.1% last week. Its 4.14% return for Q2 was solid, but it is cycling a weak year (+2.8% calendar year to date) with the impact of three rate rises, a sluggish domestic economy and a broadening housing downturn all weighing on performance.

It has been held back relative to the US because it lacks a clear set of AI beneficiaries.

That said, over the past two weeks some of the softer sectors – such as healthcare, consumer discretionary and software – have recovered.

Last week was also stronger for most global equity markets, apart from Korea (KOSPI Composite -3.8%) which saw a late rotation away from chip makers. 

The broad-based US Russell 2000 also marked time (-0.4%), but it has had a very strong calendar year-to-date (YTD) performance (+21.4%). 

The US–Iran accord has helped ease supply, with Strait of Hormuz voyages reportedly quadrupling last week, reinforcing confidence that oil supply can normalise through the second half of 2026.

Citibank has suggested that Brent crude prices could retrace to US$60–65 per barrel by the end of 2026, as the market shifts back toward surplus.

The other global hot spot, Ukraine, looks more likely to flare up with Ukrainian military successes potentially drawing an unpredictable Russian response.  

AI/data centres

The scale and scope of the AI/data centre (DC) buildout continues to have knock-on effects.

For reference, the total hyperscaler AI capex spend is estimated to be just shy of US$700 billion in FY26 and is quickly nearing the scale of the US Department of Defence’s FY26 budget of roughly US$900 billion.

Chip prices

Apple is looking at buying memory chips from two Chinese semiconductor makers, ChangXin Memory Technologies and Yangtze Memory Technologies, to ease the impact of a global memory shortage that has forced price hikes across its product lines.

This year prices for standard DRAM/NAND chips have increased by 50-60% as suppliers shift capacity toward AI-related customers.

The issue is these two Chinese companies sit on a Pentagon blacklist. Apple has proposed using chips from these companies specifically for devices sold in the Chinese market, freeing up chips from other suppliers for the US.

Apple CEO has lobbied Trump administration officials for clearance to make these purchases.

Stress on the US grid

PJM Interconnection, the largest power grid operator in the US operating across 13 states – including the world’s largest DC cluster, has seen demand levels hit a two-decade high on the back of a heatwave and DC power demand.

The US Department of Energy stepped in with an emergency order, authorising PJM to force large DCs onto backup generators during peak hours, turning idle capacity into a pressure valve for the power system.

This is testing a thesis pushed by US-based, Goodman Group-lookalike Prologis that DCs can act to stabilise the grid. The outcome is important because of growing community-based opposition to DC rollouts. 

Meta hits pause

Meta has changed tack in its AI/DC rollout, looking to create an enterprise cloud business like Amazon AWS or Microsoft Azure.

This is a change in the business landscape where most assume the whole rollout strategy is simply an unbridled rush to stake out the fertile ground in the AI/DC opportunity set.

Instead, Meta opted to pause and seed an enterprise cloud business.

US policy and macro

US labour data was on the softer side. Payrolls rose just 57,000 in June, roughly half expectations.

This is putting the Federal Reserve (Fed) back in a difficult spot; inflation is still too high, but the labour market is no longer giving it a free option to stay hawkish.

The AI boom is counterbalancing the balance of the economy, which is stagnant or possibly even in shallow recession.

Business strength may increasingly show up as compute capex and token spending, rather than actual jobs growth.

After three good reports in a row, the June employment report was weak, and in some respects even negative.

Initial jobless claims continued to be low (unchanged at 215,000). On a year-on-year basis, they are down 6.9% and continuing claims are down 7.2%.

This series continues to be one of the two most positive short leading indicators for the economy, along with the stock market.

But the pattern of downward revisions to payrolls for previous months resumed. April was revised lower by 31,000, and May was revised lower by 43,000, for a total decline of 74,000.

Aggregate hours worked for non-managerial workers declined 0.4%. Aggregate payrolls for non-managerial workers also declined 0.1%.

The challenge for the Fed is that inflation is stubbornly high above 3%, while its target is 2%.

Fed Chairman Kevin Warsh is still fighting inflation-first. His message that the Fed “will deliver price stability” keeps the bias toward higher rates, with markets now pricing only one hike by year-end.

The tension is that a weakening jobs market would normally point towards rate cuts.

Australia policy and macro

The Reserve Bank of Australia (RBA) minutes released last week noted that the economy was “easing broadly as expected” and that “there was merit in using the space provided by the board’s earlier decisions to raise the cash rate target to assess how the economy was adjusting”.

The board assessed financial conditions were “somewhat restrictive” and noted that “monetary policy needed to remain restrictive to unwind current excess demand”.

The issue for the RBA is that non-discretionary items (electricity, rents, insurance, education and health) are running at 5.1% price growth.

A number of these are structural, for example the impact of the housing shortage.

The RBA needs the economy to run below trend for a period and that probably equates to 1.5% GDP growth.

Australian capital-city dwelling prices fell 0.6% month/month in June, after a 0.5% decline in May, as the market continued to soften under the weight of multiple rate hikes, the federal budget’s housing-policy changes, a softening economy, and still-elevated house-price-to-income ratios.

National prices fell 0.4% month/month, taking the June quarter decline to 1.3%, the largest fall in almost four years.

Sydney (-1.2%) and Melbourne (-1.0%) led the monthly declines, while smaller capitals held up better but also eased (Perth +0.7%, Brisbane +0.3% and Adelaide unchanged.)

Auction clearance rates remain well below average.

The rental market remains tight, with vacancy rates at 1.6%, well below the long-term average of 2.5%.

In its recent minutes, the RBA noted that housing had been weaker than anticipated, this makes future rate hikes less likely.

Australia’s old line that “housing is the economy” still has some truth to it; retail sales and confidence are impacted when house prices fall. For now, house price weakness is likely to spread until a new positive catalyst appears.

Markets

Japanese bond yields and currency

The yen has declined to a new four-decade low against the US dollar, amid speculation that the Ministry of Finance would step in again by selling dollars and buying yen.

Since the beginning of 2021, the yen has plunged 37% against the US dollar. Since the beginning of 2012, it has fallen 53%.

Given the yen’s collapse and imported inflation pressures, the Bank of Japan has been forced to do quantitative tightening, which has contributed to surging long-term yields, and rate hikes.

There is no easy exit for the BOJ. Near term this exerts upward pressure on world bond markets and means more competition for Japanese capital.

Korean and chip market shakeout

In late June the US share market rotated back to some value and oversold sectors, as concerns build about the chip/AI trade. 

After a strong spring rally to record highs, the ‘Magnificent Seven’ and energy names weakened into month-end, reflecting a combination of rate-hike concerns, profit-taking, sell-offs in Micron, reported delays to the OpenAI IPO, and Apple and Microsoft price increases.

Investors are questioning whether AI optimism has pushed chip valuations beyond reasonable levels.

Goldman Sachs highlighted one of the clearest signs of AI euphoria last month – the Hong Kong-listed CSOP SK Hynix 2x leveraged ETF had grown into the world’s largest single-stock leveraged ETF by a considerable margin.

The Apple proposal to embrace Chinese memory suppliers is causing concern about competitive dynamics in the world’s largest electronics market.

Australian equities

The S&P/ASX 300 gained 6.16% in FY26, significantly underperforming international markets.

Put simply, Australia lacks an AI/chip story comparable to those investors can find in the US and through Asian markets.

At the same time, the Australian domestic outlook has come under pressure over the last six months.

At the sector level, Tech and Healthcare have struggled while Materials and Energy have outperformed.

This past week saw a reversal of FY26 trends, with Tech and Healthcare recovering. Interest rate-sensitive sectors remained weak.

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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

Emerging Markets: How AI exports are powering Korea’s next investment opportunity | Tim Hext: Data deluge unlikely to shift the RBA | PODCAST: Where to find AI exposure on the ASX

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

• Find out about Crispin Murray’s Pendal Focus Australian Share Fund

GLOBAL equity markets ended last week mostly softer, with rotation away from recent winners emerging as the dominant theme.

Mega-cap and technology stocks lagged while smaller companies, healthcare and property names showed relative strength.

Rotation was also seen in bond, FX and commodity markets with bonds and the US dollar generally rallying, while hopes of a Middle East resolution led to weakness in previously strong commodity prices including oil.

The S&P 500 fell by 1.9%, while the ASX 300 dropped modestly by 0.8%. Brent crude fell 10.6% alongside gold, which dropped 3.4%.

In Australia, we saw May CPI data which showed inflation to also be elevated but not accelerating.

Similarly, labour force data indicated that the economy was steady, allowing the RBA more time to assess the current situation before deciding on the next course of action on rates.

In the US, markets continued to look for data that would indicate the next direction of action by the Federal Reserve under new Chairman Kevin Warsh.

The most recent Personal Consumption Expenditure (PCE) inflation data continued to be elevated but not enough for the market to price in substantial rate hikes.

Other economic metrics indicate the economy to be slowing but not alarmingly so.

Australian macro/economic

The two key data releases last week: the May CPI and the Labour Force report – were keenly watched to give a better understanding of the RBA’s likely next course of action.

The May CPI surprised to the downside with headline inflation decreasing 0.7% month-on-month (vs consensus -0.4%), taking the yearly growth down 20 basis points (bps) to 4.0% (consensus 4.3%).

The downside was driven by falls in domestic and international travel costs, while core housing components continued to firm, with new dwelling prices up 0.9% and rents up 0.4% for the month.

Meanwhile, the trimmed mean rose 0.4% for the month, lifting the yearly rate 20bps to 3.6%.

Thursday’s Labour Force data showed the unemployment rate fell 13bps to 4.36% in May, broadly in line with expectations. Total employment rose 40,300, above the consensus of 32,500 though the trend in job creation has been moderating since 2023.

Hours worked fell 1.1% for the month but remained 0.5% higher year-on-year. Job vacancies declined 2.1% for the quarter.

Together, these prints suggest a lower second quarter peak for inflation than previously assumed in the RBA’s Statement on Monetary Policy, which forecast a headline of 1.4% quarter-on-quarter and trimmed mean at 1.0% quarter-on-quarter.

Some market observers believe that this data increases the likelihood of the RBA staying on hold after three rate hikes into slowing activity and housing momentum.

RBA Deputy Governor Andrew Hauser also noted during the week that a resolution of the Middle East conflict could lower global oil prices and reduce fuel costs for Australian households.

Markets ended the week pricing approximately a 25% probability of a rate increase at the August meeting, and around 60% odds of at least one further move by year-end.

US macro/economic

Similar to Australia, this week’s data releases were scrutinised to give an indication of the central bank’s next move under new Chairman Warsh.

The most important release was the May update of the Fed’s preferred metric of inflation: the PCE price index.

Core PCE came in modestly better than many expected at 0.3% month-on-month, taking the year-on-year rate to 3.4%.

Core Goods was negative for the month as we move through 2025 tariff impacts, while Core Services ex Housing showed an energy impact via airfares.

The result was interpreted mildly dovishly, with markets trimming implied rate hike expectations modestly. Current pricing suggests just over 1.4 hikes by year-end 2026.

Other data releases included New Home Sales which fell to 580,000 in May, below the consensus of 640,000.

Rising unsold inventory points to further price declines ahead.

The combination of slower population growth, high mortgage rates and low consumer confidence is continuing to throttle residential construction though the new “21st Century ROAD to Housing Act” seeks to reverse the housing sector sluggishness.

US Jobless Claims offered a mixed signal.

Initial claims fell to 215,000, below the 225,000 consensus, though likely influenced by the Juneteenth holiday. In contrast, continuing claims rose above consensus to 1.821 million.

Markets

Overall market sentiment remains mixed with only a couple of indicators being close to recent highs

The notable theme was a broadening rotation in both size and sector.

The Russell 2000 small-cap index outperformed both the S&P 500 and the NASDAQ and healthcare and REITS were higher.

The “Magnificent 7” group of mega-cap technology stocks are testing important technical support levels as they are now down approximately 5% year-to-date as a group, while the broader S&P 500 remains up around 8%.

Semiconductor stocks including SK Hynix, Samsung and Micron also saw elevated volatility after recent strong runs.

The high-profile IPO of SpaceX retreated around 17% from the prior week’s highs, with many participants remaining sceptical of the durability of its price strength.

While the overall Australian equity market returns were only slightly down, we saw significant dispersion in various market components during the week.

Large caps held up while mid and small-caps delivered negative performances. At the sector level resources were clearly weak while there were signs of rotation into other sectors such as consumer, healthcare and REITS.

Commodities and FX

Commodities were generally weaker partially due to ongoing US dollar strength and potential resolution in the Middle East.

Oil led the declines falling back close to pre-Iran conflict levels. This is despite the ongoing confusion on the status of US-Iran negotiations this week.

The order of events was the US-Iran talks opening in Switzerland, Iranian negotiators then departed after 18 hours of discussions, JD Vance hailed “great progress” in negotiations, and then the US launched strikes in Iran after reports of a tanker being struck in the Strait of Hormuz – with Iran subsequently retaliating with missile and drone strikes on Kuwait and Bahrain.

Gold continued its weakness from its US$5,500 highs earlier in 2026, briefly dipping below US$4,000 during the week and now approximately 10% lower month-to-date.

Another key factor to watch is the developing strength in the USD.

The USD has been flat to down over the last year and now just reached its 12-month highs.

Dollar strength is a non-consensus view at the moment which can lead to further outsized moves if market participants are caught wrong-footed with their positioning.

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About Rajinder Singh and Pendal’s responsible investing strategies

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

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

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

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

Contact a Pendal key account manager here

Despite strong semiconductor exports and a large current account surplus, the Korean won remains near multi‑decade lows due to capital outflows, creating a disconnect that may present medium‑term value, according to Pendal’s EMERGING MARKETS team

• Semiconductor boom, yet won remains weak
• Capital outflows drive currency disconnect
• Learn more about Pendal Global Emerging Markets Opportunities Fund

IN ONE of the more unusual current developments in emerging markets, South Korea is experiencing a powerful export surge driven by global demand for artificial intelligence infrastructure, yet the Korean won continues to trade close to its weakest levels in decades.

South Korea’s latest trade data confirms the strength of the current semiconductor cycle.

Exports reached a record US$87.8 billion in May, rising 53 per cent year-on-year and comfortably exceeding expectations.¹ 

Semiconductor exports increased by 169 per cent.¹ 

The benefits are increasingly extending beyond semiconductors, with non-semiconductor exports gaining momentum and manufacturing activity reaching its strongest level in more than five years. This has transformed Korea’s external accounts.

The current account surplus rose from 1.8 per cent of GDP in 2023 to 6.6 per cent in 2025 as semiconductor exports recovered sharply.¹ 

Semiconductor surge tipped to offset energy price drag

The Bank of Korea expects the semiconductor boom to more than offset the economic drag from higher energy prices stemming from tensions in the Middle East.

Under normal circumstances, such a combination of strong exports, rising corporate profitability and large external surpluses would be expected to support a stronger currency.

Instead, the won has continued to weaken. In our view, this reflects the dominance of capital flows over trade flows.

Korean investors have become substantial buyers of overseas assets, particularly US equities.

Domestic savings are increasingly being deployed overseas, while a growing share of the foreign currency revenues generated by Korean exporters are being retained offshore rather than repatriated and converted into won.

As a result, sizeable trade surpluses have coincided with persistent capital outflows.

Vast dollar earnings not being converted back to Korean won

The result is the emergence of “DRAM dollars”, analogous to the petrodollars generated by major energy exporters.

Korea’s semiconductor sector is generating vast dollar earnings, but an increasing share of those proceeds is not being converted back into won.

At the same time, strong performance in overseas equity markets and a weaker won have reinforced the attractiveness of foreign assets for domestic investors, creating a self-reinforcing cycle of capital outflows.

The won is cheap, but not outrageously so. In its 2025 External Sector Report, the International Monetary Fund (IMF) concluded that Korea’s external position in 2024 was broadly consistent with medium-term fundamentals and desirable policies.

In particular, the IMF noted Korea’s need to run a large current account surplus in order “to build precautionary savings to meet aging-related needs and an orderly deleveraging of private debt”.² 

Since that assessment, the real effective exchange rate has fallen by a further 8 per cent, while semiconductor exports and current account dynamics have strengthened.

How we are positioning

The portfolio remains substantially exposed to the beneficiaries of the AI investment cycle, including Samsung Electronics and SK Hynix, both directly and indirectly.

We remain heavily underweight the rest of the Korean market, where the transmission of semiconductor success into broader earnings growth is less certain.

We also remain underweight the won given the export exposure already embedded within our holdings.

Nevertheless, the combination of a large current account surplus, strong export momentum and increasingly attractive valuation suggests that the medium-term outlook for the Korean currency is becoming progressively more favourable.

Sources: ¹Bloomberg ²IMF

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

We have updated and reissued the Product Disclosure Statements (each a PDS) for the following classes of units in the Pendal Dynamic Income Fund (the Fund), effective on and from Monday, 29 June 2026:
• Pendal Dynamic Income Fund – Class R (APIR: BTA8657AU ARSN: 622 750 734)
• Pendal Dynamic Income Fund – Class W (APIR: PDL7550AU ARSN: 622 750 734),

The following is a summary of the key changes to the PDSs.

Contact details for overseas investors
The contact phone number for overseas investors appearing on the front cover of the PDS has been updated to +61 2 9164 8333.

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 management fees and costs and estimated transaction costs.

Asset classes and Asset allocation ranges
We have clarified that the Fund’s minimum exposure of 50% to Australian credit applies to Australian investment grade credit

Discover how Australia’s first Commonwealth Government Green Bond is helping support the nation’s transition to a low-carbon economy.

• Backing Australia’s low-carbon transition
• Funding renewables, transport and climate resilience
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in the first Australian Commonwealth Government Green Bond.

Green bonds are meant to finance solutions for climate change and environmental challenges, but not all bonds are equal.

We’ve seen quite a few green-labelled bonds that are simply doing business as usual.

For governments, this is a particular risk, with green bonds made up of already-completed projects that they were going to work on anyway, such as public transport or other infrastructure projects.

We invested in this bond because half the proceeds will go towards existing commitments and half will go towards new commitments.

In our view, this is quite reasonable and is better than some other green bonds from governments.

The list of projects financed through the bond includes some that will help with the transition to a low-carbon economy – with the focus on renewable energy, clean transport, climate change adaptation, and a circular economy.

Electricity generation is the biggest source of emissions in Australia, so upgrading the grid to allow greater renewable energy connectivity will be essential in reducing emissions.

Electrification using renewable energy will significantly reduce emissions.

The green bond includes investments in modernising the electricity grid and developing new transmission infrastructure through concessional financing.

This bond also funds projects that relate to this – from community batteries and electric vehicle charging infrastructure to loans for energy-saving home upgrades.

Prior to issuing, the government announced funding to progress leadership on climate action in government operations, which includes financing to support all Commonwealth entities in publicly reporting on their climate risks, opportunities and management.

This bond is consistent with recent government action to respond to climate change as well as engage in environmental repair through this bond.

From affordable housing to microfinance, social bonds are helping create opportunity where it’s needed most

• Social bonds fund underserved communities globally
• Support housing, finance and economic empowerment
• Find out more about Pendal’s Responsible Investing capabilities 

Around two thirds of global emissions come from electricity generation.

Renewables and low carbon energy is a fundamental requirement in the transition to a net zero world.

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund also invest in social bonds which have positive outcomes outside Australia.

An example of this is the AUD social bond from the International Finance Corporation, which is a member of the World Bank.

These types of social bonds have projects that focus on the underprivileged in society in developing countries.

This includes projects targeting health and gender equality, as well as economic empowerment and opportunities through agribusiness, microfinance and infrastructure.

Examples of the type of projects these bonds fund include support for Baobab Group, which provides funding services in areas underserved by traditional banks, supporting 500,000 micro entrepreneurs and small businesses.

The bonds assist this group to scale up their lending capacity, with particular focus on Burkina Faso, Democratic Republic of Congo, Cote d’Ivoire, Madagascar, Mali and Senegal.

Another example of support that these types of bonds provide is to expand the offerings of Home First Finance Company Limited in India.

This organisation helps with the housing needs of low and middle income first home buyers who are underserved by banks.

It helps support the growing demand for green individual housing, which is underdeveloped in India but particularly so for affordable housing.

These projects have truly life changing impacts on the lives of the underserved around the world.

A busy week of inflation and jobs data offered some relief at the headline level, but sticky housing costs and a resilient labour market mean the Reserve Bank is unlikely to shift its cautious stance just yet. Pendal head of government bond strategies TIM HEXT explains

• Inflation eases, but housing remains sticky
• Jobs data supports cautious RBA stance
• Find out about Pendal Government Bond Fund
• Browse Pendal’s fixed interest funds

Unusually, two big data releases – inflation and employment – emerged back-to-back this week. Overall though, oil prices have had a bigger impact on markets than the latest data reflects, but it always pays to look under the hood of such key data releases.

May inflation data

The monthly headline inflation data is always volatile, especially when oil prices are on the move. Throw in free public transport in Victoria and Tasmania (and now unofficially on Sydney buses) and the squeeze is being eased.

Headline inflation came in just under 4% (3.96%) year on year as fuel and domestic travel experienced some rare deflation.

The RBA was looking for 4.8% for the end of June, but that forecast was made when oil was 25% higher. Co-incidentally it was May last year where we last saw a negative print.

Headline Monthly CPI

Source: ABS

More importantly trimmed mean inflation came in at 3.57%. The RBA was forecasting 3.8% for the end of June.

Overall, this should be a mild positive. However, the details are slightly less inspiring. Of note is housing inflation, the key area whose acceleration in late 2025 led to rate hikes this year.

New dwelling inflation was up 0.9% in May and another sign tradies are passing on cost repairs were also strong at 0.7%. Rents were 0.4% higher, tracking above 4% annually.

Falling house prices and rising costs will not help encourage much needed development.

May employment data

Another mixed data result was today’s employment numbers.

Unemployment fell to 4.4% from 4.5% and the headline number was +40,300 jobs.

However, downward revisions to previous numbers and the fact most jobs were part time meant markets ignored the numbers. Safe to say, nothing new to see here but for now employment is hanging in.

Market impact

The all-important quarterly trimmed mean inflation number will be released on July 29^th.

Forecasts suggest an outcome of 0.9%, leaving trimmed mean at 3.5% annually.

The Reserve Bank would view this as too high but no longer accelerating, likely meaning an on-hold decision in early August but with a small tightening bias.

Markets have a 20% chance of a hike in August and half a hike (12 basis points) by year end.

We remain positive duration but have reduced exposure to reflect the fact three-year futures are finally back at the cash rate (4.35%) again.

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 investment analyst OLIVER RENTON. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share Fund

THE central banks of both Australia and the US have kept rates on hold, but with hawkish overtones.

Labour and inflation data due this week will be important in setting near-term expectations around interest rates.

As the US reversed course in Iran last week, so too did the market with previously challenged stocks and sectors showing leadership and year-to-date winners lagging.

There were numerous instances of this and, with sentiment and valuations at stretched levels in both directions, this could prove a material shift in direction.

That said, the path towards normalisation in the Middle East remains far from clear.

Price action remains interesting. Last week we saw Sims (SGM) upgrade and Flight Centre (FLT) downgrade on the same day – with the latter outperforming materially.

Last week, the S&P 500 gained 1.0% while the S&P/ASX 300 was up 0.4%. Brent crude fell 7.7%.

Iran conflict

The state of negotiations between the US and Iran in Switzerland remain in flux, with reports this morning that the Iranian delegation has left in response to a series of threats by US President Donald Trump on social media.

Meanwhile, Tehran has announced that the Strait of Hormuz is closed again, although this is disputed by the US.

Trump stated that pressure on US oil reserves was a key motivator behind a peace deal, noting that they would run out of reserves in four weeks.

There were signs of an increase in the number of ships both entering and exiting the Persian Gulf towards the end of last week, but still a fraction of pre-conflict traffic.

It is difficult to see movements going back to normal in an expedited fashion.

US macro and policy

Fed meeting

The Fed had its first meeting under new Chair Kevin Warsh on Wednesday and unanimously voted to maintain the current target rate (3.625% at the midpoint).

In keeping with his stated intention to reduce the degree of signalling from the Fed, the meeting’s statement was cut back to only four paragraphs and forward guidance – which had previously referenced an “easing bias” – was completely removed.

The “dot plot” indicates an increase in the number of Federal Open Market Committee (FOMC) members who believe at least one rate hike will be required before the year’s end.

Nine of 19 members (not all voting) now anticipate at least one hike, eight are forecasting no change, while only one still expects a rate cut by the year’s end. Warsh reportedly did not submit a forecast to the dot plot.

This hawkish shift in expectations appears triggered by recent inflation data.

Housing

A more hawkish Fed gives no relief to an already embattled homebuilding sector.

The headline National Association of Home Builders (NAHB) Housing Market Index (which tracks homebuilder confidence in the market for newly built single-family homes) came in at 35 in June, versus consensus expectations of remaining at 37, where it had been in May.

A combination of high mortgage rates, low consumer confidence and slower population growth are dragging on demand.

Expectations for sales over the next six months remain muted, with the low chance of further rate cuts playing a role.

Consumption

Retail sales data suggests consumer spending momentum remains sustained and broad-based despite energy-driven volatility.

Headline sales rose 0.9% month/month in May, while core sales (ex-autos and gas) rose 0.5%. Three-month average trends for both measures also strengthened.

Nine of 11 categories showed growth, while electronics and appliances declined.ve terms-of-trade impact as a net energy exporter.

Australia macro and policy

The RBA kept the cash rate at 4.35%, also with unanimous approval, while it assesses the effect of previous hikes, slowing growth and disruption from the conflict in Iran.

The RBA noted that consumer spending is slowing – as in previous statements – but added that house prices are falling in some cities. The RBA also continues to see labour markets as tight, despite the recent increase in the unemployment rate.

Governor Michele Bullock noted that the recent increase in minimum wages was larger than expected, but did not expect it to have a material impact on inflation.

Nevertheless, the RBA still sees current headline and underlying inflation as too high and retains a clear tightening bias.

It notes that while oil prices have eased from their highs, they remain elevated compared with the start of the year, with the risk this feeds through to higher prices as firms pass on cost increases.

Elsewhere, Seek’s monthly job advertisement data showed that volumes softened in May across most parts of the country and in most industries. While the fall was not sharp, the company believes it suggests employers are acting cautiously in the current environment.

Seek notes that job ads in areas with high exposure to AI automation are declining, although it may be the case that employers are doing more-with-less against an uncertain macro backdrop, rather than directly replacing jobs with AI.

Jobs with low exposure to AI automation – which are the majority of volumes on Seek’s platform, continue to grow although at a slower rate. Seek notes that roles in Engineering, Construction and Mining as well as Resources and Energy continue to be very strong.

Markets

The Australian market saw the reversal of some year-to-date trends.

The best performing sectors were Healthcare (+4.7%), Financials (+1.7% with Banks +1.9%) and Technology (+1.5%).

In contrast, Resources shed 1.4% and Energy -7.1%.

Broadly speaking, last week saw strength in companies that benefit from an end to the Iran conflict (e.g. Qantas and gold miners) as well as a reversal in some year-to-date underperformers.

We saw underperformance from those – mainly in resources and refining – which have benefitted from higher commodity prices, as well as from defensives.

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 14 years of its 18-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  

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