Why is inflation spiking? | Insights into equities rotation | Rising interest in green bonds | Where to for rates?

As demand for AI accelerates, every part of the market will see businesses that win and lose. The trick is telling the difference. ELISE MCKAY explains

• AI spending already at 1 per cent of global GDP
• But there will be winners and losers in every sector
• Find out about Pendal’s Australian share funds

ARTIFICIAL intelligence is rapidly maturing into a durable part of the business landscape, with adoption spreading across industries and reshaping how companies operate, argues Pendal’s Elise McKay.

Despite bubble talk in some quarters, AI-related capital-spending already accounts for about 1 per cent of global GDP notes McKay, portfolio manager for Pendal Horizon Sustainable Australian Share Fund.

After recently meeting with a range of CEOs and technology leaders in the US, McKay is convinced the scale of spending marks a structural shift that will reshape industries, drive long-term productivity gains and create wide gaps in company performance.

However investors will need to carefully distinguish between companies that will adapt – and those that cannot.

“Demand for AI is accelerating – and generative AI tools are already changing how well-established businesses are operating,” says McKay

“But there are going to be winners and losers in every sector.

“The key for investors is building a framework that allows us to think about who will be a winner versus who will be a loser.”

Unprecedented capital investment

History shows capital deployment of this scale ultimately drives industry change and higher labour productivity.

“The questions investors need to be asking about generative AI is not just how big the investment cycle will be and how long it will last – but also what are the flow-on impacts to different parts of the market?

“Where will it take investments from? Where will it cause other sectors to grow?

“Where will it create entirely new sectors?

“And the biggest unknown is to what extent labour markets adjust – how are people retrained, re-educated and do they need to find new roles?

“All this creates change – at the heart of what we do as investors at Pendal is anticipate change, looking at these structural forces and how they create dispersion in outcomes.”

Portfolio opportunities

Infrastructure spending alone creates direct opportunities, says McKay.

The scale of AI investment is creating persistent supply-demand imbalance with businesses reporting a structural shortage of AI compute capacity.

Power use by data centres, the facilities that house the servers and cooling systems required for AI compute, is projected to grow 165 per cent by 2030 compared to 2023 levels.

That means US electricity demand, after years of flat lining, is now growing by around 2.5 per cent annually, with Europe also accelerating, requiring significant new transmission and an additional 20,000 trained workers.

Enterprise adoption lags capability

But while the infrastructure is being built at speed, there are emerging signs that some companies are struggling to use it effectively, says McKay.

Academic studies indicate AI’s potential to lift labour productivity by 25 to 30 per cent, but just 5 per cent of companies are reporting positive returns from agentic AI implementations – where AI systems take actions autonomously.

AI excels in domains with clear success criteria like writing software or following documented procedures, but where nuanced work and human judgment is required, success rates drop.

The risk of getting implementation wrong is material, and companies that deploy AI agents poorly risk customer backlash, says McKay.

“There’s been a lot of focus on the long-term viability of software, but we think the critical factor is whether incumbents can evolve effectively to adapt to the new AI-driven world.”

Identifying AI winners – a framework

McKay says distinguishing genuine AI opportunities from hype requires assessing how companies approach implementation across five interconnected areas.

The starting point is strategic intent. Successful companies align their AI investments with existing competitive advantages rather than treating the technology as a standalone initiative.

But strategy must be accompanied by capability – meaning quality data, skilled technical talent, and the right computing infrastructure to develop and deploy AI solutions at scale.

The third factor is execution including leadership commitment, organisational culture, and frontline teams prepared to implement AI tools in practice.

McKay says investors should also look for evidence of measurable returns and disciplined capital allocation, not just rising AI spending. Companies must demonstrate that investment translates into productivity gains or revenue growth rather than simply higher costs.

Finally, governance and risk management protect against implementation failures that may damage reputation or breach regulatory requirements.

“The build out of the internet and the electric motor peaked at around 1.5 to 2 per cent of GDP per annum – we are still not there yet with AI. This kind of capex creates opportunity and change.

“We know humans are adaptable – 60 per cent of jobs today didn’t exist in 1940s. So as this general-purpose technology gets built out, new opportunities will emerge.

“The question is: how do we as equity investors take advantage of that opportunity?”

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About Elise McKay and Pendal Australian share funds

Elise is an investment analyst and portfolio manager with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.

She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.

Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.

Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.

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

What does a lift in September-quarter inflation mean for rates? Pendal’s head of government bond strategies TIM HEXT explains

• Browse Pendal’s fixed interest funds

AUSTRALIA experienced a surge in inflation last quarter.

Headline inflation printed at 1.3% and trimmed mean (or underlying) was 1% for the three months to September.

This was slightly higher than expectations of around 0.85% for trimmed mean.

The annual numbers look more dramatic because the very low headline prints from last year’s electricity subsidies drop out.

Headline went from 2.1% to 3.2%. Underlying only moved from 2.7% to 3%.

Either way the media headlines are easy to write: “Inflation above the RBA target band”.

No doubt many will now be calling for the end of the rate-cutting cycle.

Next week the Reserve Bank will need to revise up its year-end forecasts for inflation from 2.6% trimmed and 3% headline to more like 2.9% and 3.3%.

This rules out any cuts this year.

But we must be forward looking.

What about 2026 ?

The good news is that inflation will moderate in Q4 and early 2026.

Early estimates put headline and underlying closer to 0.5% and the pace to move back to RBA target.

The full monthly numbers – which will be released from November onwards – will give us an early picture.

If employment remains weak the Reserve Bank would be back in play. 

The key will be the interaction between a stronger consumer and employment.

It’s too early to call the end of the rate cut cycle and we still expect Australian rates to converge with US rates nearer 3% by mid next year.

A breakdown of Q3 CPI

For those interested in the breakdowns, below we explain where the main source of inflation is coming through.

 1. Housing

Almost half of the headline inflation increase came from housing – even though it makes up only 22% of the CPI basket.

The Bureau of Statistics singled out dwelling prices as a key mover:

“Over the past 12 months project home builders have responded to a subdued new home market by increasing incentives and promotional offers to entice new business.

“In the last three months, a slight uptick in demand has seen project home builders in some cities reduce promotional offers and raise base prices.”

At 7.5% weight this pickup alone added 0.1% to CPI.

Property rates went up 6.3% as annual council rate rises are pushing up well ahead of inflation, adding 0.2% to the CPI.

Electricity prices were up 9% on the quarter as subsidies were removed and annual price reviews kicked in.

2. Recreation and culture

Travel prices have picked up over the quarter, up almost 3%. This added almost 0.2% to CPI.

3. Goods prices

Goods prices were up 1.3% on the quarter and are now at 3% over the year.

However, stripping out volatile items like food and tobacco the pace is nearer 2%.

If car prices resume a moderating trend then good prices should settle back towards the usual pace of 1-1.5%.

What it means for borrowers and investors

The RBA will need to talk tough on inflation in next week’s statement.

Question after question will be asked about the end of the rate cycle, or even when will the first tightening be. This is a kneejerk reaction.

Similar to the US, we think this is a short-term surge in inflation.

While new dwelling inflation will stay tight – helped by the government yet again stoking demand more than supply – other area are less of a medium-term concern.

By mid next year inflation should be back at 0.5 to 0.6% per quarter, comfortably within the RBA band.

Employment will then dictate if more cuts are to come.

As short rates move above cash we will be using the opportunity to lengthen duration.

 

 

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

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About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

Find out more about Pendal’s fixed interest strategies here

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About Pendal

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

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

Contact a Pendal key account manager

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

• Find out about Pendal Focus Australian Share fund
• Find out about Pendal Property Securities Fund

Earnings optimism, easing trade tensions and expectations of US rate cuts continue to support equity markets.

The S&P 500 gained 1.9% last week and the Nasdaq added 2.3% – their 34th record highs for the year.

While equity markets are responding positively to strong earnings, overall investor sentiment remains mixed.

Investors are hoping we’re at the early stage of the economic cycle, especially with the US Federal Reserve beginning to cut rates.

But there’s anxiety we might be late in the cycle – particularly if AI-driven returns fall short, capex doesn’t broaden out or more credit defaults emerge.

Despite markets hitting all-time highs, sentiment still reflects a degree of caution and fear.

While the government shutdown continues to limit US data releases, the Consumer Price Index was published on Friday night, since it’s a critical reference point for federal and financial contracts.

September CPI rose 0.3%, with the core measure up 0.2% month-on-month. The consensus forecasts were +0.4% and +0.3%, respectively.

The yield on US 10-year Treasury bonds finished the week at 3.99%, down 20bp since the government shutdown began almost a month ago.

CNN polling suggests President Trump’s approval rating has lifted a tad since the shutdown began. Another poll shows most Americans favour the shutdown.

Markets continue to expect two US rate cuts in 2025 – 25bp next week and 25bp in December.

In Australia the ASX200 gained 0.2%. Energy (+5%) led the market on a jump in oil prices (Brent crude +7.6%), assisted by US sanctions on two large Russian producers.

Gold had an interesting week, suffering its biggest drop in five years, though it’s still up 57% this year.

US macro and policy

Available data points painted a mixed picture.

The September CPI miss versus consensus was mostly driven by shelter – particularly Owners’ Equivalent Rent (OER) – a measure of how much rent a homeowner would pay to live in their own property.

OER rose 0.13% while rent increased 0.19%. These are the smallest monthly increases since November 2020 and March 2021, respectively.

OER seemed like a large historical outlier compared to 0.38% in the prior month and the 12-month range (+0.27% in May and +0.41% in July).

It’s a huge component of the index, accounting for 26% of overall CPI, 33% of core CPI, and 44% of core services CPI.

The headline CPI gain was the third-biggest sequential increase this year (behind January and August), but the details do not give cause for concern about a persistent reacceleration in inflation.

Among the components that rose the most in September, the majority look as though they were one-offs – for example a 4.1% gain in petrol prices contributed 12bp to the headline.

Meanwhile we saw the October Philadelphia Fed Non-Manufacturing Activity index at -22.2, weaker than the prior month (-12.3).

• This index of general business activity for firms in the Philadelphia region slowed as new orders and sales fell into negative territory.
• The new orders index fell to -17.4, the first negative reading since June. Sales fell to -2.4, the lowest level since May.

Elsewhere, a weekly index of US mortgage applications fell -0.3%, edging lower for the fourth consecutive week.

House purchases were down 5.2% after falling 2.7% the prior week, according to the Mortgage Bankers Association survey.

The average 30-year fixed rate was 6.37%, versus 6.42% in the prior week.

US housing activity is still subdued, despite lower mortgage rates and a cumulative underbuild of an estimated 2-to-3 million since 2010.

Credit

Credit stress is easing, despite some high-profile company failures over the past few weeks.

Bankruptcy filings in the US – a leading hard-data point for credit – are turning down quite sharply.

There are some areas of weakness, in particular autos where 90-day delinquency rates on car loans are picking up. We note the recent credit issues were related to autos (ie First Brands, Tricolor).

However General Motors delivered a stronger result last week and raised EPS guidance. The stock was up 15%, its second-best day since emerging from bankruptcy in 2009.

US GDP and rates

At a broader level, US GDP growth estimates continue to be solid. The Atlanta Fed GDPNow measure is tracking Q3 GDP growth at a seasonally-adjusted annual rate of just under 4%.

Rising stock and property prices have significantly boosted household net worth from $56 trillion in 2009 to $167 trillion at the end of June.

This surge in asset values has been a major driver of the current economic cycle.

Notably, the top 10 per cent of earners now account for nearly half of all consumer spending, highlighting how wealth concentration is shaping demand.

Another area of concern is around the narrowness of US capex. There is basically no growth in corporate capex outside of AI.

With weaker employment growth – and notable areas of weakness such as housing / ex-AI capex – the Fed has shifted its focus from inflation to underpinning the economy. It’s expected to be supportive with rates policy, even with stocks at all-time highs.

At the same time the current strategy for managing the US fiscal deficit and large debt burden appears to be “running the economy hot”, aiming to increase tax revenues at a faster pace than interest payments and overall debt growth.

All else being equal, this is a generally positive set-up for US equities, with strong earnings, broader support, low supply and favourable policy settings.

Australia macro and policy

It seems the economy has evolved differently than the Reserve Bank forecast in August, with stronger household consumption and stickier inflation.

This has brought into question where the neutral rate lies, but the labour market is clearly slowing with unemployment up 50bp to 4.5%

Data from recruitment website Seek shows softness in the labour market with applications per job advertisement at elevated levels, albeit leveling out.

And in a surprise to nobody, data shows house prices continue to rise, now up eight months in a row.

At the five-city aggregate level, values have risen 0.9% over the past 28 days – the strongest growth since October 2023 – assisted by the federal government’s 5% deposit scheme and the prospect of further rate cuts.

China macro and policy

China’s Q3 GDP beat expectations at 4.8% year-on-year, driven by strong exports and industrial production.

But domestic demand remains soft as retail sales and investment lag.

The property market continues to weigh on sentiment, with house prices falling in most cities except Beijing and Shanghai.

China held its 15th five-year policy plenum, covering 2026 to 2030.

The high-level snapshot shows a focus on enhancing technological self-reliance and growing the domestic market in the next five years, to insulate the economy from foreign pressures while building a sustainable engine for growth.

Further detail is likely following the “Two Sessions” in March next year.

Japan

Japan elected its first female prime minister, Sanae Takaichi.

She is seen as a market friendly, right-leaning figure, likely to increase government spending including a plan to increase defence spending from the current 1.2% of GDP to 2% by 2027.

While a positive, it will add to Japan’s already high debt levels.

Commodities

Rare earths

The US and Australia signed a $8.5 billion rare earths deal designed to reduce reliance on China for critical minerals.

The deal includes joint investments in processing facilities and plans to invest $1 billion over the next six months.

The announcement had a mixed impact on Australian rare earth stocks, with Lynas (LYC) up and down, but Australian Strategic Materials (ASM) gaining 20%.

Unsurprisingly, US rare earth stocks fell on the news.

Gold

It was a volatile week for gold, falling 5.4% over the week – its biggest drop in five years.

Gold is still up 57% this year and 6% below its all-time high.

Key drivers include central bank purchasing after the Russia/Ukraine war, seizure of Russian overseas reserves, rising geopolitical tensions and lower interest rate expectations.

Speculative buying also seems to be a major driver. We saw the highest ever quarterly ETF flow into gold in the third quarter.

ETF share of gold demand has risen 900 per cent in 2025 to nearly 20 per cent of overall demand.

While the US dollar-debasement trade is often cited, firmer bond yields would appear to contradict that theory.

Interestingly, the strongest correlation over the past two years appears to be between gold prices and Japanese government bond yields.

Oil

Oil prices surged last week.

WTI crude jumped 5.6% to US$62 and Brent rose to US$66, primarily due to aggressive new US sanctions targeting Russia’s two biggest oil companies, Rosneft and Lukoil.

 

 

These firms account for nearly half of Russia’s crude exports and about 5 per cent of global supply.

The sanctions freeze company assets in the US, ban American business dealings and threaten secondary sanctions on foreign banks and refiners that continue trading with them.

US equities

Earnings have been doing the heavy lifting in 2025 in terms of driving equity market returns, taking over from the price-earnings expansion that dominated much of the previous two years.

The three-month changes in forward revenues and earnings expectations remain very strong.

However, it’s worth noting that analysts surveyed by FactSet believe the Mag 7 is likely to post collective earnings growth of 15% in the third quarter of 2025 – more than double the 6.7% growth of the “Other 493”.

Longer-term, declining net US equity supply conditions since 2011 have probably contributed to US equity market resilience in the face of various shocks.

At the end of the day, US$1.5 trillion in annual defined benefit/contribution payments by households and employers must end up invested somewhere.

All the money that hasn’t made its way into the equity market is going into other assets, including private credit and private equity.

It’s recently been noted there are far more private equity funds in the US than there are McDonald’s restaurants.

If anything blows up in the private space (provided it isn’t systemic), we may see more money back in public markets.

Elsewhere, retail participation in stock markets remains elevated.

One way to gauge retail investor activity is by tracking the volume of stock trades executed through off-exchange platforms that cater to clients like Robinhood.

These trades are on track to account for half of total market volume this year – the first time they’ve reached that level.

US earnings season

It’s still early, with fewer than a third of S&P 500 companies reporting, but 85% have delivered positive surprises – the best showing in four years.

• Netflix’s Q3 2025 earnings results were mixed. It reported strong revenue growth and remains on track to post its best quarter for advertising sales. But it missed earnings expectations due to a one-time tax expense in Brazil cutting margins to 28%, versus guidance of 31.5%.
• Tesla’s 3Q 2025 record deliveries and revenues were above expectations, though margin compression (5.8% versus 9.6% year-on-year) weighed on EPS, impacted by lower prices and reduced regulatory credits.
• General Motors beat consensus estimates for EPS, EBIT and revenue. Volumes were ahead of expectations with North America the bright spot. The company raised FY25 EPS, EBIT and operating cash-flow guidance with management reaffirming capex and battery joint venture forecasts. The company also lowered its FY25 gross tariff impact.
• Intel’s Q3 2025 earnings results marked a strong turnaround. The chip-maker beat both revenue (+3%) and earnings expectations with strong demand for AI compute. However, Q4 gross margin guidance was 36.5% (down from 40% in Q3), due to product mix and Altera deconsolidation.

Australian equities

The ASX trailed the US market, dragged down by Materials (-2.1%). This reflected a fall in gold prices which saw gold miners Newmont (NEM, -15.2%), Ramelius Resources (RMS, -12.9%), Genesis Minerals (GMD, -12.8%), Evolution (EVN, -10%) and Northern Star Resources (NST, -9%) as the five weakest stocks in the ASX 100.

Energy (+5%) did best on the back of a 10.4% gain in Woodside Energy (WDS). Lithium stocks Pilbara Minerals (PLS, +20.5%), IGO (IGO, +9.4%) and Mineral Resources (MIN, +7.6%) were also among the week’s strongest.

Stock news was dominated by the AGM season.

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What does today’s jump in monthly unemployment data mean for investors? Pendal’s head of government bond strategies TIM HEXT explains

• Browse Pendal’s fixed interest funds

THE RESERVE BANK has a dual mandate: keep inflation under control and promote full employment.

Usually the two move in tandem. When more people have jobs, wages go up, and inflation tends to increase.

But right now we’re seeing inflation tick up, while employment is too weak to meet labour supply – which pushes unemployment higher.

It’s not a repeat of the stagflation we saw in 2022-23 – but it may unnerve some.

Today’s release of the September employment numbers show job growth (15,000 jobs) as expected.

But the unemployment rate picked up from 4.3% to 4.5% — a level not seen since November 2021.

This is on a seasonally adjusted basis. On a trend basis it remained at 4.3%. Participation picked up, causing supply of workers to outpace job creation.

Is it a trend?

Now, one month in a volatile series does not a trend make. And survey-based employment reporting is becoming more volatile.

Unfortunately for the RBA, the October report won’t arrive until after its next meeting on Melbourne Cup Day – a meeting that takes place the week after third-quarter CPI is released.

So the RBA will go into the meeting with unemployment 0.2% higher than its year-end forecast of 4.3% — and trimmed-mean (or underlying) inflation likely 0.2% higher than forecast at 2.8%.

We therefore have conflicting rules of thumb.

Generally an upwards unemployment revision of 0.2% would lead to cuts, while a 0.2% revision in inflation would leads to a hike (or at least no cut). 

Quite the dilemma!

Of course, we will wait and see what inflation brings.

Rate-cut expectations

In the meantime, markets are pricing a November cut at 70%, up from slightly under 50% pre data.

A cautious RBA might give it one more employment report and delay a cut till December.

However, December 9 is a bit late to impact the hoped-for pick-up in Christmas spending.

At Pendal we still hold the view the RBA would like to cut in November to give the consumer a boost.

Prior to today we thought a 0.8% or lower Q3 inflation number would be needed and 0.9% would be problematic. After today a 0.9% could even bring the RBA to the table.

Our forecast for Q3 trimmed-mean inflation remains at 0.8%, while a number of forecasters we respect are at 0.9%. So it’s unlikely markets can push the rate-cut odds much higher than 80% near term.

For longer-dated bonds there is more scope to rally back to the low end of recent ranges at 4%, but as always that will depend on global rates.

Into 2026 though we still expect the Australian economy to pick up as tax cuts, rate cuts and improving confidence in housing bring back the good old wealth effect.

Near term, given pricing, we have shifted long duration positions from the front end to the back end of the curve, though we will respect recent ranges. 

 

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

---

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 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

MIXED US economic data has morphed into scant data due to the government shutdown.

On one hand, we’re seeing strong spending, decent corporate cap-ex and resilient employment support solid corporate earnings and underpin full equity-market valuations.

On the other, we’re seen slowing labour demand, flat real labour income and a lagged inflation pulse heightening recession fears.

A lack of data means less clarity around which scenario is unfolding.

We will see September CPI data – originally scheduled for October 15 – released before the next meeting of the rate-setting Federal Open Market Committee on October 29.

Last week was pretty quiet on the news front until Friday, when geopolitical tensions between the US and China reared as Washington threatened more tariffs in response to restrictions on rare earths, sending the market down.

The S&P 500 finished down 2.4% for the week, while S&P/ASX 300 was off 0.3%.

On the AI front, US tech company AMD rose 30% on the announcement that OpenAI was buying US$300 billion of microchips over five years, with an option to buy 10% of the company.

The market is – once again – questioning the circularity in financing the chip roll-out.

There are also questions about the profitability of the chip rental model, with a story Oracle had 14% gross margin on US$900 million in sales in its Nvidia cloud business in the three months to August.

Elsewhere, an investigation into the collapse of auto parts company First Brands is raising questions about the implications of the explosion in private credit and standard checks and balances that may have been subverted in the company’s debt-fuelled growth.

This is significantly lower than Oracle’s overall gross margin of around 70%, reflecting the high cost of chips and aggressive pricing of the rental.

In terms of ripple effects, investment bank Jefferies has fallen about 25% since the bankruptcy, over concerns about its exposure of its funds to First Brands.

Gold continued its inexorable march, up another 2.5% on the week, with other commodities such as copper (-4.1%) affected by Friday’s geopolitical friction.

Quarterly reporting season in the US starts this week, with the major banks kicking things off.

US macro and policy

The NY Fed’s national survey of consumer sentiment showed expectations for household finances over the next 12 months fell in September – the first time since April.

The downbeat survey result likely stems from an uptick in 12-month inflation expectations and increased concerns about the probability of losing a job in the next 12 months.

The Michigan consumer sentiment index fell marginally to 55 in October, from 55.1 in September. About half of the survey was done prior to the government shutdown, so the weakness was possibly not as significant as it could have been.

The survey’s current conditions component rose to 61 from 60.4. But the expectations index – which has historically provided a better guide to momentum in consumers’ spending – fell to 51.2 from 51.7. This is the lowest reading since May. 

September Fed minutes

The minutes from the FOMC’s September meeting noted that “most” participants thought it would likely be appropriate to “ease policy further over the remainder of the year”.

“Some” noted that relatively easy financial conditions warranted “a cautious approach in the consideration of future policy changes”.

While “almost all” participants supported the committee’s decision to lower the Fed funds rate by 25bp in September, “a few” participants saw “merit in keeping the federal funds rate unchanged at this meeting”. One participant, Governor Stephen Miran, would have preferred a 50bp cut instead.

A narrow majority of 19 officials pencilled in at least two additional cuts this year, giving somewhat of a base for more cuts in the remaining meetings (October and December).

On the flipside, seven officials pencilled in no further reductions this year. This highlights the big job that Chair Jay Powell has in building consensus among the voters.

The search for the next Fed chair continues. CNBC reports Treasury Secretary Scott Bessent has narrowed the list to five candidates: current governors Michelle Bowman and Christopher Waller, previous governor Kevin Warsh, National Economic Council Director Kevin Hassett and BlackRock executive Rick Rieder.

Australia/NZ macro and policy

The Westpac consumer confidence survey retraced further in October, falling another 3% on top of a 3% fall in September.

This has reversed the uptick from May to August when expectations about further rate cuts in Australia was providing a material impetus to confidence.

Weakness was broad based.

Across the Tasman, the RBNZ reduced rates by 50bps to 2.5%, reflecting concerns around “prolonged spare capacity” and the intention to provide “a clear signal that supports consumption and investment”. They flagged that further rate cuts were possible.

Markets had attached about a 45% chance for a 50bps rate cut going into the meeting and have now priced in nearly two more 25bps cuts (one in November and another by May).

Europe macro and policy

Finnish and European Central Bank official Olli Rehn warned there was a danger inflation could drop below 2%.

“At the moment we are roughly at that target – in that sense, the situation is currently good,” he said.

“However, over the next couple of years, there are downside inflation risks in sight – due, among other things, to the strengthening of the euro and stabilisation of wage and service inflation.

“There is a great deal of uncertainty in the air – stemming both from geopolitical tensions and the uncertainty created by the trade war – and that’s why we make decisions meeting by meeting, based on the latest data and analysis, using overall judgement.”

His conclusion? “In times like these, monetary policy is as much art as it is science.”

German industrial production fell 4.3% in August after the 1.3% rise in July, well below consensus of -1%.

Autos were down 18% and machinery and pharma was down about 4%. Industrial orders are at a roughly 2012 low.

The $1 trillion unlocked for defence and infrastructure spending cannot come quick enough for the manufacturing heart of the EU.

China macro and policy

Early data shows subdued consumer spending during China’s Golden Week holiday period.

China state media reported retail sales growth of 3.3% year-on-year in first four days of holiday, versus 3.4% for all of August, on a 5.7% ramp-up in trips.

Analysts noted softness in the figures, which would likely disappoint policymakers and consumer stock investors.

Elsewhere, the head of China’s Passenger Car Association, Cui Dongshu, said dealers in China were in urgent need of financial assistance as fierce price war and overcapacity in EV production left many of them struggling.

Cui said new car sales were causing losses among dealers, with many operating on negative cashflow. The government should offer more financial and funding support, and guide banks to be more flexible with dealers, he said.

Markets

The Goldman Sachs US equity sentiment indicator turned positive for the first time since February, suggesting broad investor positioning in the equity market is neutral.

The indicator combines positioning data from a variety of investor types, such as institutional, retail, and foreign investors.

Of the components, passive fund flows and retail margin debt are the only metrics looking stretched, at +1 standard deviation relative to the past 52 weeks.

 

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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

What do weak growth and strong market returns in China mean for investors? Here’s an explanation from Pendal’s Global Emerging Markets Opportunities team

• Tech and dollar diversification drive China interest
• Weak economic indicators contrast with strong equity returns
• Find out about Pendal Global Emerging Markets Opportunities fund

THE relationship between economic growth and equity market performance is not a simple one.

Sometimes strong growth goes with weak market returns, and sometimes vice versa.

China is an interesting case in point.

The economy is not in crisis, but growth is weak. For example, rail-freight volume growth was negative in the year to August and property sales were down 7%.

Despite this, returns have been strong with MSCI China index up 43.1% (in USD).

A number of factors are driving this, including the ongoing success of China’s heavyweight technology companies in attracting investors.

China has also emerged as the main beneficiary of global investors and governments seeking to diversify their exposure to the US dollar.

On the trade side, geopolitical friction with the US and expanded use of financial sanctions have encouraged many economies to expand the use of the renminbi.

The share of China’s trade invoiced in its own currency has more than doubled since 2019. More than half of cross-border receipts are now settled in renminbi, up from less than 1% in 2010.

Belt and Road Initiative partners in Asia are increasingly using renminbi for trade and investment financing.

At the same time, swap lines extended by the People’s Bank of China to more than 30 central banks around the world provide a liquidity safety net that rivals the IMF in scale.

Borrowing trends show a similar evolution.

Since the West started sanctioning Russia in 2022, Chinese banks have shifted most of their overseas lending from dollars into renminbi, tripling the outstanding stock of renminbi-denominated loans.

Sovereign issuance has followed.

Hungary, Russia and others have issued RMB-denominated onshore “panda” bonds, while “dim sum” RMB bond issuance in Hong Kong has surpassed its previous peaks.

This is creating a deeper pool of offshore renminbi assets for investors, who are attracted by record-low funding costs and a desire to diversify away from dollar assets.

Hong Kong sits at the centre of this transition.

Some three-quarters of offshore renminbi trading is conducted there.

The Hong Kong stock exchange has surged back to the top of global equity IPO rankings, with more than 200 companies in the listing pipeline.

Capital flows from the mainland through the Stock Connect scheme are driving record trading volumes, with the total value traded through the Hong Kong exchange in the third quarter of 2025 up 150% on a year earlier.

The result is that diversification away from the US dollar is not creating global financial fragmentation – rather it is channelling more activity into China’s orbit, anchored by the renminbi and mediated through Hong Kong.

In the Pendal Global Emerging Markets Opportunities Fund portfolio we remain defensively positioned regarding China’s economy, but hold exposure to Chinese technology companies and to the Hong Kong capital markets industry.

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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.

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

AT THIS point the market expects the US government shutdown to last two weeks, taking about 20bps out of Q4 GDP growth, and not affecting the outlook for two more Fed rate cuts in 2025.

In combination with the run-up to the Chinese Mid-Autumn festival, this has made for a quieter time on the macro front, with limited economic data releases.

Last week US bond yields fell, reversing the previous week’s move, while oil prices dropped sharply (Brent crude -8%).

This combination supported risk assets with gains in equities (S&P 500 +1.1%), gold (+2.8%), and copper (+7.3%), while bitcoin (+13.2%) reached a new all-time high of more than US$125k.

This all highlights the ample level of liquidity and appetite for risk.

The Australian market was particularly strong, with the S&P/ASX 300 gaining 2.3%, led by gold and copper stocks.

Financials (+3%) and Health Care (+4.8%) did well, while small caps also continued to perform (S&P/ASX Small Ordinaries +4%).

US macro and policy

With no US payroll data due to the government shutdown, the market looked for other sources of insight.

September payroll data from Automated Data Processing was softer at -32k jobs, reinforcing a perception that employment growth has stalled, which in turn supports the case for a 25bp October rate cut.

Lay-off data from Challenger remains benign, indicating there is not a rapid deterioration in jobs market and therefore no need for a 50bp cut.

The issue remains the lack of hiring, which is at cycle lows.

The September US ISM manufacturing survey, a sentiment indicator, was one of the few data releases for the week.

• The manufacturing index was at 49.1, versus 49.0 expected. The production sub-component was better than expected, while the new orders were weaker. Hiring intentions improved off a low base but continue to signal a weak labour market.
• The services component fell by two to 50, versus 51.7 expected, but remains in the range it has been for months.
• New orders reversed their August spike back to 50.4.
• The employment component did improve +0.7 to 47.2, however this remains consistent with a weaker labour market, albeit this has not been a good lead indicator in this cycle.

In aggregate, survey data continues to indicate that while growth in the US remains sluggish, it is not yet at a tipping point.

US Government shutdown

To summarise the stand-off, Republicans say they proposed a clean extension of government spending authority with no strings attached, which runs to the middle of November.

Democrats say a clean extension isn’t good enough, because health subsidies are set to expire at the end of the year, while the premiums affected are announced November 1. This is the last opportunity to resolve that issue, the Dems say.

In addition, they see a risk that any bipartisan spending deal – of the type Congress typically relies on to get these Bills done – can be undone by the Republicans, either because the Trump Administration doesn’t end up spending the money, or the Rescissions process which means the president can submit spending cuts to Congress that can be implemented with a simple majority.

The resolution is believed to be some commitment from Trump regarding health policy and potentially some form of subsidies.

The market is remaining reasonably sanguine as the political battle plays out. Consensus expects a two-week shut-down, with October 15 a pressure point. This is when payments to the military are due, and history indicates governments want to avoid defaulting on this.

A two-week shutdown would have a minimal effect on growth, but reinforces the likelihood of a Fed cut.

US growth outlook

Our view remains that the US economy begins to re-accelerate in Q2 2026, on the back of the fiscal stimulus from the Big Budget Bill (which is expected to contribute about 0.9% to growth in 2026 plus rate cuts.

Consumption is set to slow from the recent strong pace – probably driven by a greater wealth effect than economists expected – but should remain reasonably supportive of growth.

Investment spending – particularly AI-related – will also slow, but again provides a base level of support for the economy.

Japan

The Liberal Democratic party’s leadership race was won by Sanae Takaichi, who will become Japan’s first female PM.

Her skew is expected to be towards growth, more fiscal stimulus and dovish monetary policy.

The Bank of Japan may defer a potential October rate hike as they get clarity on policy direction and hold back in case a snap election is called.

Markets

Liquidity is one of the four factors we are watching to see if the market can sustain current levels. The others are growth, long-end bonds and AI.

Liquidity barometers continue to look supportive for markets. ETF flows are picking up, Bitcoin reached new all-time highs and we are entering a seasonally strong period.

AI bellwether stock Nvidia is creeping to new highs after a three-month consolidation.

The S&P 500 has seen a fall in the proportion of stocks above 200-day moving average and at 20-day highs, which suggests there is some loss of momentum near term.

The most meaningful move in the US market last week was in health care, which has materially lagged the overall market on concerns relating to pricing and tariffs.

The sector has fallen from about 16% of the S&P 500 in early 2020 to under 9%, converging on the weighting for the industrials sector and only just above the market cap of Nvidia.

It bounced and outperformed on the announcement of an indicative deal between Pfizer and the Trump administration relating to tariffs.

The key component relates to the risk of a most favoured national (MFN) clause, which could force pharma companies to realign pricing in US with other developed markets, reducing their margins.

The proposal limits any MFN to Medicaid, which already has lower prices and at less than 10% of the market is relatively small in scope.

There was also a commitment to price new products in line across developed markets and to invest more into US.

This move helped the Australian health care sector, which rose 4.8%. The tariff issues here are different in nature given most ASX-listed companies are not pure pharma stocks, but it highlights the impact of sentiment on sector performance.

Health care has lagged the S&P/ASX 300 by 26% in 2025. A significant part of this is CSL, driven in part by the US health care sector de-rating, though Ramsay Health Care, Cochlear and Sonic Health Care have also underperformed.

We also saw good performance from financials, helped by the prospect of fewer rate cuts which supports bank margins and insurers’ investment income.

Resources were strong (+1.8%) led by gold stocks with Northern Star (NST) up 7.3% and Evolution Mining (EVN) +6.8%. Copper names such as Sandfire Resources (SFR, +9.5%) also did well.

Small caps also continued their outperformance.

Part of this is index composition with gold a much larger weighting. However it also reflects higher beta names in the index with stocks like Droneshield (DRO, +52.3%) and Zip (ZIP, +10.3%) continuing to re-rate and Eagers Automotive (APE, +19.4%) benefitting from an accretive deal.

Defensive sectors such as utilities (-0.5%) and consumer staples (-0.1%) lagged, as did energy (-2.0%) on the fall in oil.

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About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund has beaten the benchmark in 12 years of its 16-year history (after fees), across a range of market conditions.

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

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

Here are the main factors driving the ASX this week, according to portfolio manager OLIVER RENTON. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share Fund

FATIGUE and rotation dominated markets last week.

The S&P 500 fell 0.3% while the S&P/ASX 300 ended 0.2% higher. Bond yields ticked up slightly, gold was up 2.8% and oil gained 5.2%.

Equity valuations are close to dot-com bubble levels, causing some discomfort for investors.

Historically, the latter half of September is also the weakest period for markets.

However, fundamentals and liquidity appear to remain strong.

In Australia, there was sharp sector rotation. Resources and energy outperformed, while healthcare and interest rate-sensitive stocks lagged.

Weak employment data initially increased expectations of a September rate cut, but these were promptly reversed following stronger August inflation figures.

US economic data was mixed, with most releases unremarkable. Notable exceptions such as new home sales were dismissed as outliers.

The economy shows modest improvement, with slightly higher inflation. Tariffs and trade issues resurfaced, particularly affecting healthcare and kitchen sectors.

Limited details left markets interpreting official communications and social media updates. Fed speak continued to be bifurcated.

Looking forward, the cadence in news flow is starting to increase as the new financial year progresses and AGM season approaches.

US macro and policy

The flash composite PMI – a leading economic indicator which provides an early estimate of the private sector’s economic health – fell to 53.6, below the consensus of 54.

Services PMI dropped to 54.5 and manufacturing PMI decreased to 53 – both slightly below consensus.

Despite the slight decline, the composite PMI’s Q3 average of 54.4 still signals moderate economic growth.

Improved financial conditions, reduced tariff uncertainty and tax clarity from the “One Big Beautiful Bill Act” have driven the recent uptick.

However other indicators such as regional Fed surveys and the ISM services index – a key indicator of the health of the US services sector – suggest limited improvement.

Recent economic data shows 2Q GDP was revised up to 3.8% versus an expected 3.3%.

Consumer spending (headline Personal Consumption Expenditures or PCE) was also revised higher to 2.5% compared to the previous estimate of 1.6%.

The GDP Price Index rose 2.1% and the Core PCE Price Index increased 2.6% quarter-on-quarter higher than the 2.5% consensus.

Although revisions to earlier data indicate stronger consumer spending, broader services spending is still lagging, only up 2.6% which is in line with its average pace last year.

Real spending on goods only grew at a 1.8% annualised pace which is well below the roughly 4% average pace in 2024, likely conveying the impact of tariffs.

The goods trade deficit narrowed to $85.5 billion in August from $102.8 billion. Wholesale inventories fell 0.2%, and retail inventories were flat.

Durable goods orders rose 2.9%, mainly due to aircraft orders, but core orders also improved, suggesting some easing of tariff-related uncertainty.

New home sales surged to 800k in August, up from 664k in July, exceeding forecasts.

However, this 20.5% monthly jump was regarded as an anomaly, given the historical month-on-month volatility and that the underlying trend in new home sales has been weaker this year. The market largely ignored this data point as an outlier.

US mortgage demand surged 29.7% last week as Fed rate cuts began. Refinance applications jumped 58% in one week to levels not seen since the 2020 pandemic.

Initial jobless claims fell to 218k for the week ending 20 September, and continuing claims dropped to 1.93 million.

State-level claims appeared reliable after recent errors were corrected, but seasonality and calm weather may have suppressed claims data, possibly overstating labour market strength.

To summarise the slew of economic data released last week into one line – the economy’s momentum looks strong in Q3 but is unlikely to last and spur a sustained rebound.

Tariffs

President Trump unveiled a fresh round of tariffs – 100% on branded drugs, 25% on heavy trucks, 50% on kitchen cabinets and vanities and 30% on upholstered furniture – citing a surge of imports.

The 100% tariff on branded pharmaceuticals will apply to all imports unless a manufacturer has begun US production.

This was announced in tandem with a US Commerce Department national security investigation into imports of PPE, medical devices, robotics, and industrial machinery.

As it stands more generally, only about one-third of tariff impacts have been reflected in consumer prices.

Fedspeak

Markets monitored a flurry of Fed commentary for directional clarity. But the messaging instead highlighted a continued bifurcated tone.

St Louis Fed president Alberto Musalem and Atlanta Fed president Raphael Bostic said last week’s quarter-point rate cut was appropriate to address rising unemployment.

Both stressed that lowering inflation remained the main priority.

Fed governor Stephen Miran argued that tariffs, immigration restrictions and tax policy had reduced the neutral interest rate, suggesting rates should be much lower to avoid economic harm.

The Fed’s Michelle Bowman cautioned that policymakers risked falling behind and must act quickly to cut rates as the labour market weakens.

Treasury secretary Scott Bessent criticised Fed chair Jerome Powell for not signalling rate cuts. Bessent called for rates to be lowered by 100-150 basis points before year-end.

Powell described the current situation as challenging, noting that inflation risks were tilted upward and employment risks were to the downside.

He warned there was no risk-free path forward.

Fed official Austan Goolsbee also expressed discomfort with aggressive rate cuts, saying inflation remained above target and was worsening.

Oil and energy

Oil rose 2.2% after four consecutive days of declines, driven by concerns over Russian supply disruptions.

NATO announced it would use all available options, including military measures, to defend against further Russian airspace incursions.

US Secretary of State Marco Rubio reaffirmed America’s commitment to NATO, while Russia considered a diesel export ban for some companies following new Ukrainian drone attacks on Russian oil refineries and pipeline facilities.

Canada’s prime minister called for western allies to impose secondary sanctions on Russia to increase pressure on President Putin.

Elsewhere, Iraq and Turkey reached an agreement that could resume crude exports from Kurdistan after a two-year pause related to a payment dispute, potentially returning 230k barrels per day to the market.

The energy sector gained, with crude climbing 2.5% after US Department of Energy data showed a 607k barrel inventory draw, compared to expectations for 232k.

In China, President Xi announced plans to cut greenhouse gas emissions by 7-10% by 2035.

Xi outlined targets for non-fossil energy to make up over 30% of consumption and for wind and solar power capacity to reach 3.6 billion kW, six times the 2020 level.

Australia macro and policy

Headline inflation was stronger than expected, rising 3% year-on-year. This increase reflected broad-based strength in underlying inflation, not just volatile items.

Services and key categories such as dining, household and media services, and housing contributed to the increase.

The trimmed mean for Q3 is estimated at 0.9% quarter-on-quarter, above the RBA’s earlier 0.63% forecast.

Markets are now pricing in no more RBA rate cuts this year.

RBA governor Michele Bullock believes the upside in inflation is broadly in line with expectations, suggesting inflation will settle around the midpoint of the target band.

Labour data

The Australian labour market softened in August, with employment falling 5.4k compared to a 26.5k increase in July and well below consensus expectations for a 21k gain.

The weakness was driven by a 40.9k drop in full-time jobs. A 35.5k rise in part-time roles was not enough to offset the decline.

The participation rate edged down to 66.8% from 67% in July.

The unemployment rate remained steady at 4.2% for the third consecutive month, in line with consensus and just below the RBA’s 4.3% forecast for the year.

Underemployment improved slightly to 5.7% in August from 5.8% in July.

Job vacancies, based on ABS data, fell 2.7% in the three months to August, consistent with the gradual rise in the unemployment rate. Monthly job ad data indicate vacancies should stabilise in the near term.

Labour market turnover remained low in the August quarter, likely constraining wages growth. However, the proportion of employees expecting to change jobs in the coming year is returning to more normal levels.

Markets

There were not a lot of headline market moves this week, but many tangible shifts occurring beneath the surface.

The ASX300 sector breakdown revealed notable rotation: IT, consumer discretionary, financials, industrials, and staples all falling around 1%.

Healthcare continued its poor run, down 2.7%, and REITs slipped 2.4%.

Staples and IT have underperformed the index this calendar year, with healthcare lagging further.

Energy improved this week but remains behind the index year-to-date. Resources led with a 5.9% gain, up 20% for the year versus the index’s 10% rise.

The top ASX100 performers for the week were dominated by resources including gold, while healthcare, rate sensitives and financial names were among the bottom performers.

Micro-caps were higher with the S&P/ASX Emerging Companies Index gaining 4.2%.

The S&P/ASX Small Ordinaries was also up 0.8%, driven by a 5.4% rise in small resources, while the small industrials declined 1.1%.

US and Australian bond yields rates rose, with the Australian 10-year up 14bps.

Oil gained 5.2% after year-to-date declines. Copper had a strong week due to supply disruptions.

Gold remained resilient, up 44% this year and on track for its second-best yearly gain ever.

While the US indices appeared fatigued most global indices posted modest gains for the week.

There were also a number of interesting observations of note this week:

• Although September is typically a poor performing month, when US central bank cut interest rates with no recession, markets often post a gain.
• So far we are seeing this playing out with the S&P 500 going 37 trading sessions without a drop of at least 1%. This is the longest streak in the year; with the record over the last five years being 53 days.
• The Russell 2000 also joined its larger cap index peers, reaching a fresh all time high after four years.
• The next 12 months of estimated S&P 500 operating margins are at cycle highs, indicating companies are achieving more with less. This supports robust corporate earnings despite recent job data revisions, making widespread labour market deterioration unlikely.

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About Crispin Murray and 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 an independent, 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 here.  

Contact a Pendal key account manager here.

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

Effective Tuesday, 30 September 2025,we have updated and reissued the Product Disclosure Statement (PDS) for the:

• Pendal Sustainable Australian Fixed Interest Fund – Class R; and
• Pendal Sustainable Australian Fixed Interest Fund – Class W,

(collectively, the Fund). 

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

Description of Fund

Effective 30 September 2025, the Fund will have the flexibility to invest in non-Australian dollar denominated fixed interest securities, when market conditions are supportive. The Fund will generally hedge back any foreign currency exposures to Australian dollars to the extent considered reasonably practicable. The PDS for the Fund has been updated to reflect this.    

We have also clarified that the Fund may hold a limited allocation to non-investment grade securities and securities that are not rated by external credit rating agencies.

The way the Fund is managed has not changed.

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

We have enhanced our ESG disclosure to provide further detail on the Fund’s sustainability assessment process.

Our sustainability assessment process seeks to identify issuers, that in our view, have strong sustainability credentials for investment and aims to avoid issuers that we consider to have poor sustainability outcomes.

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 costs and estimated transaction costs.