Here are the main factors driving the ASX this week, according to Pendal’s head of equities CRISPIN MURRAY. Reported by portfolio specialist Chris Adams

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MARKETS continue to grind higher last week in a relatively quiet macro period, exacerbated by the northern hemisphere holiday season.

The most recent Recent US inflation data was okay.

The consumer price index (CPI) was slightly better than many expected and the producer price index (PPI) was a bit worse. But there is no evidence yet of tariffs having a larger impact than expected.

The US economy looks to be in better shape than some feared post the July payrolls shock, with survey data and retail sales indicating growth around 1.5% over the next few months.

US earnings season has played out and has been supportive for the market as well.

Market technicals are positive and suggest a continued up-trend, although systematic net long positioning is back close to its high.

The main near-term risk to markets would be a correction triggered by better US payroll data on 4th September, which could hose down rate cut expectations.

Australia got the interest rate cut all expected last week. Employment data was fine and Commonwealth Bank’s customer data released as part of its FY25 result indicated improving spending patterns.

The trends were generally constructive from the first genuinely busy week of reporting season. Commonwealth Bank was a little cautious on the margin outlook, but Westpac surprised on the upside, so that supported the overall banking sector.

Domestic insurers assuaged concerns over margins. Consumer-sensitive stocks saw solid trends continue. The main disappointments were in industrial sectors, with conditions in Victoria even softer than expected.

The S&P 500 gained 1% for the week, while the S&P/ASX 300 was up 1.6%.

Our current thoughts on markets

1. The US equity market remains in an up-trend driven by healthy earnings growth, economic resilience, the prospect of rate cuts and supportive technicals. While valuations are full and there may be some consolidation through the seasonally tougher period from late-August through September, any market fall is likely to be a short-term correction.

2. Despite the weak July US employment data, we do not believe the US economy has reached a tipping point and runs the risk of recession. Real time data suggest the economy is holding up reasonably well.

3. The largest threat to markets is if US inflation surprises to the upside as a resilient economy leads to greater tariff pass-through, which leads the Fed to believe they need to slow the economy more and therefore do not deliver on the 75bp of rate cuts the market is expecting by either January or March next year.

4. China’s anti-involution policy will be a slow-burn, selectively helping restore margins in over-supplied industries, but constrained by the need to manage economic growth. This should lead to a relatively benign commodity outlook, but no squeeze higher.

5. The Australian economy remains sluggish but should slowly accelerate as rate cuts flow through into consumption and investment. Low/no productivity growth may constrain the RBA’s ability to cut and extend their timeline. Corporate earnings should be able to deliver on moderate growth in this environment, underpinning the equity market.

Key macro issues for markets

We are watching four key macro issues, looking at each in turn:

1) US inflation trends and the impact of tariffs.
In the last week there were some relevant signals on US inflation which were okay in aggregate.

A benign July CPI print reinforced confidence in a September rate cut.

• While Core CPI rose a relatively high 0.32% month-on-month – the highest rate since January – to 3.1% year-on-year, this was anticipated and suggests the flow through of tariffs so far is in line with expectations.
• Headline CPI was +0.2% month-on-month and 2.7% year-on-year.
• The larger price rises were in categories such as tools hardware, children’s apparel and footwear which were likely related to tariffs.
• Core goods inflation was +0.3% month-on-month, boosted by used car and truck prices, which is less likely related to tariffs.
• Core services was inflated by airfares and dental. which had both been soft recently.

However the positive vibe on inflation was partly offset by the higher PPI data at the end of the week.

• Core PPI was +0.9% month-on-month, the highest since March 2022.
• However there are suggestions of distortion by the trade services component which inferred a large rise in distributor’s gross profit margins, which is unlikely. This component is often subject to material subsequent negative revisions.
• All the components of PPI which feed into the Fed’s favoured PCE deflator were benign and the component most likely tied to tariffs – durable goods – rose 0.3%. This is in line with July and below May’s 0.5% increase.

The conclusion is there is not anything in the current inflation data to derail a September rate cut.

It is also worth noting that the tariff revenues are beginning to flow through and ran at an annualised pace of $332bn in July. This indicates tariffs are being applied and we are now in the key phase of assessing the impact on inflation. We note that $300b equates to ~1% of US GDP.

2) US economic growth momentum

US growth signals have been more positive since the shock of July’s payroll data – and may constrain rate cuts.

Evercore ISI survey data has been collected for decades and is a decent real time indicator of the economy. It is suggesting that while growth was subdued in April through June, it is improving now.

The broader Evercore IS company survey is near a 12-month high. The surveys diffusion index – a signal of whether individual surveys are either improving or deteriorating – is also improving.

The data suggests the industrial side of the economy is struggling but that the consumer holding up okay.

This was reinforced by positive US retail sales data. Headline retail sales rose 0.5% in July, helped by motor vehicles and parts, while June was revised up to +0.9% from +0.6%.

Control retail sales (the preferred core measure) were up +0.5%, versus 0.4% expected, while also seeing positive June revisions.

Real consumption, measured by three-month-on-three month growth, looks to be settling into a 1.0 to 1.5% annualised range, which is in line with GDP forecasts. 

 

This is the sweet spot — low enough to allow rate cuts, but not too weak to lead to job declines.

The market remains very focused on the payrolls data due 4th September and also fed Chair Powell’s Jackson Hole speech next Friday.

3) Chinese policy initiatives

We saw some softer data for July. Industrial production growth fell to 5.7% year-on-year, from 6.8%, while retail sales rose 3.7% from 4.8% in June. Both these results were below consensus expectations.

Fixed asset investment fell -5.2% year-on-year, versus consensus expectations of +2.1%. This was the lowest level since the early Covid period.

This may reflect the impact of the anti-involution campaign and, given China’s on-going economic fragility, suggests Beijing will need to be careful as to how aggressively it applies these policies.

All this indicates a softer H2 CY2025 for China after the economy proved more resilient than expected in H1 – and indicates we will see more incremental stimulus measures

4) Australian economic growth momentum

The Australian economic outlook looks reasonable

The RBA cut rates 25bp to 3.6% as expected, with the RBA’s forecast for trimmed mean inflation of 2.5% in December 2027 probably suggesting they share the market’s view that rates fall in November and February, with another potential cut in May 2026.

They did cut their long-term productivity forecast from 1.0% to 0.7% – this is not low enough to constrain them yet on rates. However, the reality is productivity growth is 0% and may be an issue if growth reaccelerates, as it would indicate it flows through to inflation sooner.

July employment data was in-line with expectations, but better than June with employed people growing +0.25% month-on-month and unemployment falling from 4.3% to 4.2%.

• The three-month average is soft at 8k having been running at 30k and year-on-year job growth is 1.8%, versus a 2.0% long-term average.
• The underutilisation rate, which is a broader measure of slack in the economy, also fell to 10.1% from 10.3% and remains well below the long term average of 12.7%.

All this suggests the labour market is still quite tight and will encourage the RBA to remain measured. The final signal worth noting was the CBA customer data released with their earnings report, which indicates a clear improvement in discretionary spending saving in younger demographics, which is supportive signal for the economy and retail demand.

Markets

Summer holidays in northern hemisphere means market activity remains quite subdued.

In this environment — and given the positive earnings backdrop and benign macro — equity markets continue to grind higher.

US remains in good shape technically. While the mega-cap stocks have led the S&P 500, the “average” stock is still seeing tailwinds and the index is not at “overbought” levels.

The wash-up from earnings season was positive and this has reasonable breadth across sectors.

The median technology stock saw 15% EPS growth in Q2 2026, but the median financial stock was not far behind at 14%.

All sectors were positive on this measure except materials (0%), consumer staples (-3%) and energy (-13%).

So while valuations are high, they are supported by earnings momentum.

Having delivered 11% earnings in Q2 2026 (and 8% for the median stock), consensus expects 7% year-on-year EPS growth for the S&P 500 in Q3 and Q4 2026.

While the Mag 7 has been the dominant driver of earnings and revisions the dispersion to the rest of the market is set to narrow.

In Q2 the Mag 7 saw 26% EPS growth versus 7% average for the remaining S&P 493. Consensus has this at 14% and 5% respectively for Q3.

We are also seeing other global markets perform well. In Japan, the TOPIX has broken out to new highs, with decent breadth — 84% of stocks are trading above their 200-day moving average.

Australia has also hit new highs, with the resource sector no longer acting as a drag on the index.

Elsewhere, the US dollar has failed to rally and remains near its lows, oil prices remain subdued and the US 10-year bond yield is at the lower end of its recent range. All of this is helpful for equity markets.

The main risk to markets near term is a firmer payrolls data which may take some of the excitement on US rate cuts out of the market and send bond yields higher.

Australian reporting season

The theme of recent reporting seasons — both domestic and offshore — has been amplified reactions on the day of a company’s result. This continues, reflecting the impact of systematic and quant strategies.

Key themes last week were:

1. A rotation in banks away from CBA – and notably towards Westpac, reflecting better margin trends from the latter and conservative guidance from the former.
2. Reassurance that domestic insurance margins will hold up – despite premium growth slowing – due to a disciplined market structure (helped by consolidation) and benefits of reinsurance.
3. Positive anecdotes from the likes of JB Hi-Fi, Temple & Webster and Baby Bunting of continued resilience in the consumer and growth into FY26.
4. Industrials facing a tougher environment, particularly those exposed to southern states (eg SGH) or the US consumer (eg Amcor, Treasury Wine). We note that signs of stabilisation at Orora led to strong bounce in the stock, reflecting the discounts being applied to some of these companies.
5. A contrast of fortunes in domestic energy market stocks; Origin Energy is doing fine, while the cost of replacing coal with batteries is hitting AGL Energy’s P&L.

Beijing’s anti-involution theme had its first tangible manifestation with the suspension of a significant lithium mine in China, boosting lithium stocks.

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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

Despite ongoing tariff uncertainty, Pendal’s Global Emerging Markets Opportunities team remains positive on the outlook for Brazil

• Brazil hits by steep US tariffs
• Pendal’s EM team remains positive despite the headlines
• Find out about Pendal Global Emerging Markets Opportunities fund

IN EARLY August the US imposed sweeping new tariffs on dozens of countries.

Brazil received a special mention from President Trump, with an additional 40 per cent tariff taking the total to 50 per cent for most Brazilian imports.

The new measures were far above the initial 10 per cent tariff level imposed in April under the “Liberation Day” framework.

The sudden escalation surprised financial markets and raised concerns about broader geopolitical motives.

These tariffs are not about trade imbalances.

The US has run a trade surplus with Brazil for 18 consecutive years, including $US6.8 billion in 2024 – its fourth biggest bilateral surplus.

The real trigger is political. Brazil’s former president Jair Bolsonaro is under house arrest and faces charges of leading a coup attempt to overturn his 2022 election loss.

President Trump has publicly condemned the trial as a “witch hunt” and tied the tariff hike directly to Bolsonaro’s legal troubles, describing it as retaliation against political persecution.

Limited impact

Despite the headline figure, some sizeable exemptions will limit the impact on Brazil’s exports.

Civil aircraft, fertilisers, pig iron and orange juice are excluded from the full 50 per cent rate. Mining exports, which make up a large share of Brazil’s trade with the US, are also largely protected.

Analysts estimate the effective tariff rate will be closer to 30 per cent.

Brazil’s commodity-heavy export profile also affords some protection.

Key exports such as food, hydrocarbon fuels and other raw materials can generally be redirected to other end markets, while demand and pricing remain strong.

This reduces the risk of lasting economic disruption from US tariffs.

The Brazilian government research agency IPEA projects only a 0.01% decline in GDP and a 0.03% drop in total exports from the tariffs.

Meanwhile, Brazil president Luiz Inacio Lula da Silva this week unveiled an aid package for tariff-affected companies, including credit lines for exporters and government subsidies.

Good news for China

Geopolitically, China stands to benefit from the fallout.

China has been Brazil’s largest trading partner since 2009 and has invested more than $US73 billion in its infrastructure, energy, and agribusiness.

The recent announcement of a Brazilian tax advisory office in Beijing – one of only five globally – signals a deepening strategic relationship.

As US ties fray, Brazil’s pivot to China opens new opportunities for trade, investment, and institutional cooperation.

Lula in a strong position

Domestically, the tariffs have strengthened Lula’s political position.

A recent poll shows him leading all likely opponents in the 2026 presidential election, including Bolsonaro and his wife Michelle, who might stand.

Close ties between the Bolsonaros and President Trump are increasingly seen as liabilities in Brazil, especially amid allegations of collusion to provoke the tariff hike.

Lula has framed the tariffs as an attack on Brazilian sovereignty, reinforcing his narrative of independence and national resilience.

What it means for investors

We remain positive on the outlook for Brazil and Brazilian equities.

With a relatively strong economy, attractive valuations and the support of a weaker US dollar, Brazilian equities and the Brazilian real have both performed well this year.

We see the conditions for this to continue, irrespective of challenging headlines regarding trade tariffs.

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About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne and Ada Chan 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.

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Barrow Hanley Concentrated Global Share Fund Hedged, ARSN: 098 376 151 (Fund)

Following a recent refresh of the Pendal website, effective 31 July 2025, the click through steps required to access the Fund’s unit prices has changed as follows:

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Pendal Sustainable Balanced Fund, ARSN: 637 429 237 (Fund)

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Pendal Dynamic Income Fund, ARSN: 622 750 734 (Fund)

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Here are the main factors driving Australian equities this week, according to portfolio manager JIM TAYLOR. Reported by head investment specialist Chris Adams

• Find out about Pendal Focus Australian Share Fund

THE startling US jobs data from 1 August continues to set the tone for markets.

Large revisions to non-farm payroll data for previous months saw the three-month average monthly private sector jobs growth drop from ~150k to ~50k.

The resulting seasonally adjusted annual rate (SAAR) growth in private jobs of 1% versus the previous three months is a level rarely seen outside of times that the economy is either entering or exiting recession.

The market reacted quickly, shifting from a 37% to a 90% implied chance of a US rate cut in September. There is now an implied 57bps of cuts for the remainder of 2025, versus 40bps prior to the jobs release. 

This reflects the view that the US Federal Reserve will react to the material shift in recession risk that the jobs data revision embodies. Two Fed members – Mary Daly and Neel Kashkari – pivoted dovishly in their rhetoric in repose to the data.

Unease about recent Treasury auctions probably limited the benefit of the more dovish Fed positioning over the course of the week.

The combination of an increased chance of near-term rate cuts and a US reporting season coming in well above prior market estimates – and demonstrating the AI theme remains intact – saw equity markets heading back to all-time highs.

The S&P 500 gained 2.4% and the S&P/ASX 300 gained 1.7%.

Under the surface, dispersion of returns has been very significant, the spread of good and bad results has normalised, and volatility on results day (for poor results) is at new highs.

If the current setting of sub-par growth and inflation upside risk remains then we can expect a continuation of quality factor outperformance, though the extent may be limited by the current valuation premium.

Elsewhere, European Central Bank President Christine Lagarde flagged that EU rates “are in a good position”, suggesting a reasonably high bar for further cuts in the face of expectations that inflation will enter undershoot territory in 2H25.

The Bank of England required an historic second round of voting to achieve the 5-4 result required to cut rates 25bps.

This week is data-heavy in the US, with July CPI on Tuesday.

Goods prices will be under scrutiny amid expectations for tariffs to start having a more meaningful impact. The PPI will be out on Thursday, while retail sales for July and preliminary University of Michigan sentiment for August cap off the week on Friday.

US Federal Reserve

President Trump announced that he would nominate Stephen Miran, a former hedge fund executive turned top economic adviser, to fill the temporary vacancy on the Fed Board of Governors caused by the resignation of Adriana Kugler. 

Kugler’s term was due to end in January 2026.

Miran’s main focus has been on the overvaluation of the US dollar as a result of its role as the global reserve currency. The US dollar trade-weighted index fell 1.0% for the week.

Miran has also previously expressed a preference for shortening Fed member terms and allowing the President more scope for firing incumbents. He has also promoted the pro-growth and deflationary aspects of tariffs.

Christopher Waller is firming in the betting as the next Fed Chair, with a 29% chance versus 9% for Kevin Hassett and 6% for Kevin Warsh, though it appears a few more names have been added to the list of potential candidates over the last week or so.

San Francisco Fed President Daly took a turn towards the more dovish Fed faction of Waller and Michelle Bowman.

Daly noted that it could take six months to find out whether tariffs will push up inflation persistently, but that while she was “willing” to leave rates on hold last week, the slowing labour market sees her increasingly uncomfortable about making that same decision in upcoming meetings.

Minneapolis Fed President Kashkari followed suit, noting that “the economy is slowing, and that means in the near term it may become appropriate to start adjusting.” He stated that two quarter-percentage-point rate cuts by the end of the year would be reasonable.

 

Macro and policy US

When the Fed held rates steady in July, part of Chair Jay Powell’s justification was that employment data remained solid, based on the June report showing the three-month average monthly addition of 150,000 jobs.

Three days later, that 150,000 jobs was revised down to circa 50,000 – suggesting the situation is not so solid.

Over the last five months the Bureau of Labor Statistics has revised nearly 600k jobs away.

Post-revisions, US private employment has increased only 52k per month over the past three months, with gains stalling outside the health and education sectors. Government jobs actually fell 16K per month over this period.

Private payroll growth is now below 1% SAAR over the past three months. Since 1970, that has only been seen three times outside of periods leading into or out of recession – in 1995, in 2005 and this time last year.

This downshift in labour demand does not suggest we are seeing a slide into recession. There is still evidence of labour hoarding and credit conditions remain benign. But a stall speed alert has been sounded.

Given a heightened sensitivity to recession risk, the July labour market report is likely to have had a significant impact on the Fed’s thinking.

Elsewhere, initial jobless claims rose to 226K in the week ending 2 August, up from 219K and slightly above the consensus expectation of 222K. 

Initial claims have been within a range of 210-to-250K for the last year. However, a couple of leading indicators suggest we may return to the top end of that range soon.

First, labour firm Challenger, Gray and Christmas’s July measure of job cut announcements, excluding federal government, was 13% above its 2024 average. 

Also, the Cleveland Fed estimates that the number of layoffs notified in June WARN filings was 24% above the 2024 average.

Continuing jobless claims increased to 1,974k in the week ending 26 July, up from 1,936K the week before.

This is the highest level in four years and is further evidence that payrolls are rising below the pace required to keep the unemployment rate steady.

The current level suggests a roughly 0.2pp increase in the unemployment rate, which was reported as 4.2% just over a week ago.

This, alongside other indicators consistent with higher joblessness, suggest the unemployment rate will rise in coming months and may exceed the FOMC’s end-year forecast of 4.5%.

Macro and policy Australia

The focus this week will be the RBA’s August Monetary Policy decision – due on Tuesday – and the accompanying Statement on Monetary Policy.

The market overwhelmingly expects the RBA to cut the cash rate by 25bps to 3.60% in a unanimous decision.

We will also see updates on the labour market and wage growth.

Markets

US 2Q25 reporting season

With 90% of S&P 500 companies having reported, fears of a post-Liberation Day earnings rout have been squashed.

The blended earnings growth rate for Q2 S&P 500 EPS currently stands at 11.8%, well above the 4.9% expected at the end of the quarter.

Thus far 81% of companies have beaten consensus EPS expectations, versus a five-year average of 78%.

The blended revenue growth rate is 6.6% and 81% of companies have surpassed consensus sales expectations, better than five-year average of 70%.

In aggregate, companies which are beating expectations are doing so by 8.4%, which is better than the 6.3% average over the last four quarters, but below the five-year average of 9.1%.

Companies are reporting sales that are 2.4% above expectations, which is better than both the 0.9% one-year positive surprise rate and the five-year average of 2.1%.

56% of companies raised their full-year EPS guidance, versus a long-term average of 46%.

Looking at year-to-date returns from the S&P 500, the market cap-weighted return has been 9.5%, but the median S&P 500 stock has only returned 3% and remains 12% off its 52-week high.

At the top end of the distribution, a basket of AI-exposed equities has returned 26%, among the strongest of any investment theme. The market has also rewarded themes such as cyclicals outperforming defensives and large caps outperforming small caps.

There has been divergence within themes. Among defensives, for example, the AI-exposed Utilities sector has done well while Health Care has lagged. Within cyclicals, commodity-exposed sectors like Energy and Materials have lagged other areas like Industrials.

 

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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

Outlook for US inflation | What’s driving equities? | Be cautious with Korean equities

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

• Find out about Pendal Focus Australian Share fund
• Watch now: Crispin Murray’s bi-annual Beyond The Numbers ASX outlook

IT was a macro-heavy week, with the Federal Reserve’s expected decision to hold rates steady taking centre stage, while a subsequent data print revealed cracks in the labour market.

The bulk of US reporting season continued, with US tech stock earnings mostly exceeding expectations, further underpinning the push into AI.

It was also a big week for tariffs, with the overall rate now at 18% and implementation now being delayed to 7 August.

In Australia, CPI came in lower and cemented expectations for a rate cut on 12 August.

In China, the July Politburo meeting was muted, with potential stimulus measures deferred.

As a result, the S&P/ASX 300 fell slightly by 0.01% for the week, faring better than the S&P 500’s 2.34% decline.

US macro and policy

It was a big week on the macro front, with the Fed meeting front and centre. Rates were kept on hold, as expected, but commentary from Powell was interpreted as less dovish.

That initially drove down September rate cut expectations from 68% to 43%, before weaker-than-expected labour market data on Friday drove a sharp reversal back to 87%.

But bad news is good news for equities, as the expectation of a September cut is now well above 90%.

On outlook, there was little change to the FOMC statement and no change to forward guidance. In the press conference, Chairman Powell said that the economy “is not performing as though restrictive policy is holding it back inappropriately”.

He also mentioned the labour market is in balance (but with downside risk), inflation remains above target, and we are only at the early stages of tariff pass-through to inflation.

In summary, maintaining “modestly restrictive” policy “seems appropriate” for now, in his view.

Unfortunately, that view was immediately challenged by Friday’s labour market data. July payrolls were 73k versus expectations of 104k. More importantly, May and June saw large downward revisions (125k and 133k, respectively).

The unemployment rate, which Powell is more focused on than NFPs (non-farm payrolls), also ticked up to 4.25% from 4.12%. Most other data also came in weaker, which combined to drive September rate cut expectations sharply higher. The dollar also partially reversed its recent rebound.

The credibility of recent data came under scrutiny by President Trump, firing the head of the Bureau of Labor Statistics hours after its release. “Important numbers like this must be fair and accurate; they can’t be manipulated for political purposes,” Trump stated.

While this change is unlikely to have a significant impact, Trump has another opportunity with the Federal Reserve. Governor Kugler, who missed the July meeting, announced her resignation six months ahead of schedule.

This vacancy is seen as potentially accelerating the selection of the next Chair, with the appointee possibly acting as a shadow Chair until Powell’s term ends next year. This view is reinforced by Trump’s continued criticism of Powell over past weeks.

According to Polymarket odds, Kevin Warsh is the leading candidate for the next Chair, followed by Kevin Hassett and Chris Waller.

Whoever it ends up to be, the addition is likely to add to pressure to cut given the two dissenters at the July meeting are Trump appointees.

Interestingly it was also the first double dissent since 1993.

In other economic news, US GDP saw a beat, although the data was significantly influenced by fluctuations in net exports due to tariffs which reversed the trend seen in Q1.

Tariffs

With the labour market showing some cracks, inflation remains the primary obstacle to a September cut, with two CPI prints due between now and the next FED meeting.

Tariff outcomes are crucial in the near term, as the current CPI composition has shifted towards goods and insurance rather than services.

Last week, Trump announced an updated list of reciprocal tariffs, with the overall rate expected to land at 18%, up from 2% at the start of the year and closer to 30% on Liberation Day.

The US market has largely shrugged off new measures, particularly given subsequent adjustments. Even Powell noted that tariff effects on inflation might be short-lived as “one-time base effects”.

However, with worsening jobs data and signs of a spending slowdown, the potential impact of tariffs cannot be ignored.

One challenge for the Fed is the lag between when tariffs are agreed and when they show up in goods prices. According to Powell, most tariffs are currently being paid upstream by companies rather than consumers.

This is unlikely to last however as based on Fed surveys, companies will eventually pass on the additional costs, meaning the full impact on consumers is yet to be seen. Budget tax cuts may help, partially funded by $30bn per month in tariff collections, but it is unclear if this will be sufficient.

It is also worth noting the risk that if/when the Fed next cuts rates, mortgage rates may not fall as Bloomberg has highlighted during last year’s cuts.

US reporting season

Outside of macro data it was a big week for US earnings, particularly within the tech sector.

We are now two-thirds of the way through Q2 reporting season with over 80% of companies having reported a positive EPS surprise. Year-on-year earnings growth is also averaging over 10%.

Despite the generally strong results, the S&P 500 finished down over 2%, with only the utilities and communications sector posting gains.

The overall drop in the S&P masked reporting beats by AI bellwether stocks Microsoft and Meta:

• Microsoft beat expectations with EPS of $3.65 vs. $3.37 expected and projected next year’s capex to exceed $100bn, a 14% increase year-over-year.
• Meta also exceeded expectations, driven by ad growth and AI, forecasting 2026 capex at $97bn vs. $68bn in 2025.
• Amazon’s results were less impressive, but the company is increasing spending, citing the early stages of AI development. The CEO emphasised the need to build capacity to meet customer needs and highlighted electricity supply as a constraint for expanding cloud services.

Outside of tech, the earnings were more mixed:

• UPS missed earnings and withdrew FY guidance amid macro uncertainty, with Q2 volumes falling 7.3% to 16.6 million packages – worse than Q1.

• United Health continued to struggle with rising medical costs. This trend prompting Trump to ask 17 major pharmaceutical companies to slash prescription drug prices to match those overseas. Companies have until September 29^th to respond.
• Southwest Airlines lowered FY profit guidance to $0.6-0.8bn from $1.7bn at the start of the year. However, domestic leisure travel stabilised in Q2, though business travel remains down due to government spending cuts.

This tale of two markets was underscored by the underperformance of the Russell 2000 which was down -4.2%.

While the AI narrative appears on firm footing, consumer and tariff exposed sectors appear more fragile. As such a two-tier market appears likely to persist for some time.

Commodities

Moving to commodities, materials was the weakest sector, reversing much of the previous week’s gains.

Energy was the one bright spot, with LNG benefiting from pledges to buy more from the US as part of trade deal negotiations.

Oil also gained, but over the weekend, OPEC+ agreed to a 548k barrels per day increase in September. This move appears aimed at reclaiming market share but likely adds to a forecast global surplus later this year.

Most metals retreated, with copper on Comex seeing the most dramatic fall after Trump reversed tariffs on refined products, which constitute the vast majority of copper imports.

Lithium also saw a sharp reversal of recent gains, with equities following suit. Speculation around material supply interruption in China has, thus far, not been substantiated.

China

China equities ended the week lower, with the key July Politburo meeting offering little new information. 

Rather, it emphasised the implementation of existing policies, which arguably reflects the fact that growth YTD has exceeded the official target and US-China tariff risks have reduced.

The so-called ‘involution-style’ competition did not attract much comment, with official guidelines deferred to later in the year. However, subsequent releases quoted Xi as vowing to “break involution,” indicating that policies to reverse deflation are likely to continue.

As a case in point, we saw announcements from Meituan and Alibaba aiming to curb disorderly price competition and GCL Technology to shut a third of its solar-related production capacity during the week.

There was no boost to real estate, which was a slight surprise given weakness has re-emerged since April. The commentary there was centred on delivery of high-quality urban renewal programmes, which the market believes are unlikely to deliver meaningful change.

Overall, the meeting contained few surprises, with the shift towards structural rebalancing (anti-involution; boosting consumption) still in progress. As such, expectations for additional stimulus are likely pushed back to late Q3/early Q4, coinciding with the 4th Plenum in October where the next five-year plan with be detailed. 

Similarly, expectations for additional rate cuts have been delayed, with the Politburo statement removing the April meeting’s wording about cutting policy rates and reserve requirement ratios at the appropriate time.

This has been interpreted as pushing the timing of additional cuts to Q4 when growth pressures are expected to re-emerge, which could see the resource sector remain stagnant until then.

Backing up the wait-and-see approach is a likely further delay in the implementation of US-China tariffs, with a meeting in Stockholm agreeing a 90-day delay (to mid-November), albeit this remains subject to Trump approval.

The risk here is that there could be degradation over August/September – similar to 2024. Factory output remains weak with manufacturing PMI down 49.3 in July from 49.7 in June, and port traffic is coming off highs – potentially indicating an end to front-loading ahead of tariffs.

Property also remains weak, with China’s top 100 developers seeing their combined value of new home sales dropping 24% year-over-year in July. Sales also fell 38% from June.

Australia

Domestically, the main news was the softer than expected CPI, leading to a ~100% chance of a 25bps cut later this month and over two cuts by November, up from the start of the week.

Q2 CPI printed at 2.1% year-on-year vs. 2.2% expected and 2.4% prior. June CPI was 1.9% year-on-year vs. 2.1% expected.

Quarter-on-quarter CPI was 0.7% vs. 0.8% expected and 0.9% prior. Tobacco added 2% due to biannual indexation which was last applied 1 March, with alcohol and tobacco comprising 6.58% of the CPI weight.

Support for a cut this month looks more assured after the Reserve Bank deputy governor noted the previous shock decision should be viewed as an unusual occurrence. He also said cash rate decisions should be predictable and in line with market expectations.

Australian equities ended largely flat with the S&P/ASX 300 returning -0.01%, reversing the sector moves from the previous week.

The strength in Consumer Discretionary (+2.4%), Industrials (+1.5%), and Financials (+1.5%) offset the weaker Energy (-1.9%) and Materials (-4.0%).

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About Jack Gabb and Pendal Focus Australian Share Fund

Jack is an investment analyst with Pendal’s Australian equities team. He has more than 14 years of industry experience across European, Canadian and Australian markets.

Prior to joining Pendal, Jack worked at Bank of America Merrill Lynch where he co-led the firm’s research coverage of Australian mining companies.

Pendal’s Focus Australian Share Fund has an 18-year track record across varying market conditions. It features our highest conviction ideas and drives alpha from stock insight over style or thematic exposures.

The fund is led by Pendal’s head of equities, Crispin Murray. Crispin has more than 27 years of investment experience and leads one of the largest equities teams in Australia.

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

 

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Tariffs will show up either in inflation or corporate earnings — but the implications are starkly different for portfolio decisions, argues Pendal’s head of income strategies AMY XIE PATRICK

• Three straight quarters of falling earnings growth in the US
• Key watchpoints: contract-roll offs, earnings revisions, China’s Politburo meeting
• Find out about Amy Xie Patrick’s Pendal Monthly Income Plus fund

TARIFFS will show up either in inflation or corporate earnings — but the implications are starkly different for portfolio decisions.

Despite higher input costs from new tariffs, US consumer inflation has barely budged.

The reason? Contract lags in supply chains and Chinese producers absorbing the pain. The first offset may not last — but markets have yet to price in what happens if they do.

That’s why Pendal has already booked profits and dialled down risk in our income strategies, including trimming equity allocations.

With market optimism still running high, the risk-reward is less compelling, so we’re keeping our powder  dry for better entry points.

Tariffs and inflation: the missing pass-through

Since Donald Trump’s “Liberation Day” in APril, tariff pass-through into US CPI has been far weaker than most expected.

Historically, US inflation surprises and actual inflation have moved together (see the graph below). This time, they’ve diverged sharply.

Where are the tariffs?

Purchasing manager surveys show input prices rising (see below)  — a sign that tariffs are indeed biting at the producer level.

Normally, higher input costs push up consumer prices. This time, the relationship has broken down.

Feeling the pressure: Purchasing managers on input prices & US CPI

One likely reason: existing contract prices in supply chains. Sellers may want to raise prices, and buyers may be willing to accept them, but until contracts reset, pass-through to CPI is limited.

This delay won’t last forever.

When contracts roll off, either producers absorb the cost hit or they pass it on. Either way, corporate earnings are at risk.

While the current earnings season for the S&P 500 has been solid, the trend is heading down: three straight quarters of falling earnings growth, as you can see in the graph below.

The market has yet to price-in the “pinch”

China’s ‘anti-involution’ policy: a structural challenge

It turns out Chinese producers have been absorbing a lot of the pain, and since before Trump’s election odds were sealed in 2024.

China’s Producer Price Index (PPI) has diverged from commodity prices, suggesting heavy discounting even as input costs rise, as you can see below.

Heavy discounting

This points to a bigger structural problem: overcapacity.

In solar panels, China’s supply is more than twice global demand. In EV batteries, supply exceeds demand by 30 per cent — figures highlighted in a recent Morgan Stanley report.

Beijing’s “anti-involution” policy — essentially, a campaign to stop companies from undercutting each other — faces an uphill battle when too much capacity is chasing too little demand.

(Involution refers to a state of intense, often unproductive competition that leads to diminishing returns and economic stagnation.)

As China struggles with deflationary forces, the US may continue to see muted effects from tariffs in CPI.

Bottom line for portfolios

Whether tariffs show up in US CPI — and for how long — matters for both bonds and equities.

If bonds fear a more serious inflation problem, it also won’t be good news for equities.

On the other hand, if US corporates fail to pass tariffs on for whatever reason and margins become compressed, the near-term implication would be a pull-back in equity markets.

After all, analysts have maintained expectations for earnings growth to accelerate in coming quarters.

Key watchpoints include contract-roll offs, earnings revisions and China’s upcoming Politburo meeting.

Pendal Global Emerging Markets Opportunities Fund (APIR: BTA0419AU, ARSN: 159 605 811)

Pendal Global Select Fund (APIR: PDL6767AU (Class R), PDL4472AU (Class W), ARSN: 651 789 678)

(each a Fund).

Effective 1 August 2025, the buy-sell spread for the Pendal Global Emerging Markets Opportunities Fund and the Pendal Global Select Fund (Class R and Class W) will decrease to reflect a reduction in the Funds’ transaction costs. 

The buy-sell spread for each Fund will decrease as set out in the table below:

Table 1: Old and New Buy-Sell Spreads

Fund Name	Old (%)		New (%)
	Buy	Sell	Buy	Sell
Pendal Global Emerging Markets Opportunities Fund	0.30%	0.30%	0.25%	0.25%
Pendal Global Select Fund- Class R	0.20%	0.20%	0.15%	0.15%
Pendal Global Select Fund- Class W	0.20%	0.20%	0.15%	0.15%

More about buy-sell spreads

The buy-sell spread is an additional cost to you and is generally incurred whenever you invest in or withdraw from a Fund. The buy-sell spread is retained by the Fund (it is not a fee paid to us) and represents a contribution to the transaction costs incurred by the Fund such as brokerage and stamp duty, when the Fund is purchasing and selling assets.

The buy-sell spread also reflects the market impact of buying and selling the underlying securities in the market. Importantly, the buy-sell spread helps to ensure different unit holders are being treated fairly by attributing the costs of trading securities to those unit holders who are buying and selling units in the Fund.

As transaction costs may change depending on various factors such as market conditions and brokerage costs, buy-sell spreads may also change without prior notice. You should, therefore, review each Fund’s current buy-sell spread before making a decision to invest or withdraw from a Fund.

For the latest buy-sell information, please refer to our website www.pendalgroup.com, click ‘Products’, select the relevant Fund and click on ‘View fund information’.