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

THE announcement of the new US Federal Reserve Chair last Friday led to a sharp reversal in the previously relentless rise of metals such as silver and gold, while the US dollar bounced off recent lows.

Oil continued its rise on increasing geopolitical risks and Treasury yields were relatively muted in their response.

Global equity markets were relatively flat (S&P 500 +0.35%), with most of the price action occurring in FX and commodity markets.

The Fed maintained rates, as expected, despite a couple of dissenting votes.

The statement and Chairman Jerome Powell’s comments were generally more upbeat on the job market and overall economy, with the current monetary policy settings being described as broadly neutral.

In Australia, December Consumer Price Index (CPI) data surprised to the upside and strengthened the case for the Reserve Bank of Australia (RBA) to begin raising rates at its meeting this week.

Australian equities were similarly flat to their international peers (S&P/ASX 300 -0.02%) however mid (-2.17%) and small caps (-3.08%) were weaker, partially reversing their strong start to 2026.

At a sector level, the Technology sector (-6.61%) was again weaker while Energy (+4.19%) stocks followed their underlying commodities higher.

Macro and policy Australia

Following the strong labour force numbers published on 22nd of January, all eyes were on the December CPI release in order to give a better understanding of the RBA’s likely course of action.

This CPI release was the first to include both the full monthly and quarterly CPI data series. Most analysts and the RBA continue to focus on the quarterly data series for the time being, due to concerns on volatility and seasonal adjustments for the monthly series.

The fourth quarter headline CPI rose by 0.6% quarter on quarter and the annual rate was up 3.6% year on year (consensus 3.2%). The monthly CPI was 1.0% month on month and 3.8% year on year (consensus 3.2%).

The RBA’s preferred measure, the quarterly trimmed mean, gained 0.9% quarter on quarter and 3.4% year on year, which was above the consensus of 3.2%.

Importantly, the RBA’s most recent published forecast for this measure in the November Statement of Monetary Policy (SOMP) was only at 3.2% year on year. The RBA’s stated object for this measure is a target band of 2-3%.

This print was significant because as recently as the August 2025 SOMP, the RBA had forecast a slowing in this measure to 2.6% year on year – so this latest measure is a substantial upside surprise to its forecasts from only a few months ago.

Diving into the CPI components provided something for both the hawks and doves, especially with the mix of both monthly and quarterly data points.

One of the key drivers of inflation has been increasing housing and this was still strong on the year (+5.5%) but rising only 0.1% for the month of December.

Another key driver was electricity costs – rising over 20% for the year with the end of state-based electricity rebates.

Other strong increases were seen in international holidays and motor vehicle prices.

Governor Michele Bullock explicitly mentioned a focus on the housing, market services (excluding travel), and durable goods groups components of CPI.

She has also previously called out “sticky” services inflation – and this remained the case in this release.

There is a divergence in market views on the RBA’s response to this and other recent economic data.

However, pricing quickly moved to a 70% probability of a rate increase at the RBA’s meeting on 2nd to 3rd of February.  

A total of two rate hikes is now factored in by the second half of 2026.

The case for the RBA to maintain a “Hawkish hold” includes:

  • The quarterly trimmed mean was only a +0.1% surprise relative to the RBA’s most recent forecast.
  • The monthly components indicated a slowing in momentum of key categories of housing and market services.
  • The rising AUD provides a deflationary boost particularly via cheaper import pricing.
  • By raising rates, the RBA would effectively be admitting the three rate cuts of 2025 were at least a partial mistake.

The case for the RBA to raise include:

  • Overall, inflation remains too high with both headline and trimmed being well above the 2-3% band.
  • The inflation impulse is accelerating, with two-quarter trimmed mean run-rating at 3.9% annualised.
  • Inflation is now broad based – the share of items with inflation annualising above 2.5% is now 60%.
  • The RBA may have to make a “triple upgrade” for each of inflation, GDP and labour market at the February meeting.
  • The RBA’s 30-year inflation credibility is now at stake, especially in an expansionary fiscal environment.

Other data points released during the week included the Producer Price Index (PPI), showing a 0.8% rise in the quarter and 3.5% annually.

This, like the CPI, showed the inflationary pressures currently in the economy.

Also, the NAB Business conditions and confidence survey rebounded in December with most components suggesting solid momentum in the economy coming into the year-end.

Macro and policy US

FOMC Rate decision

The Federal Open Market Committee (FOMC) maintained the mid-point of the target range for the funds rate at 3.625%, as widely expected.

The vote was 10-2 with only Fed Governors Stephen Miran and Christopher Waller dissenting in favour of a 25-basis-point (bp) rate reduction.

As discussed previously, Miran is US President Donald Trump’s chosen temporary appointee while Waller’s vote was seen as a pre-requisite for him to remain in the running for the Fed Chair role.

The FOMC statement itself contained more upbeat language, noting “economic activity has been expanding at a solid pace” (previously moderate) and while “job gains have remained low,” (previously slowed), “…the unemployment rate has shown some signs of stabilisation.”

Significantly, previous commentary on the downside risks to employment were dropped from this statement.

In the subsequent press conference, Fed Chair Powell commented that the outlook for economic activity has improved since the last meeting.

He also noted that most of the excess core inflation looked to be related to tariffs and his belief was that these effects should fade over time.

Overall, he stated that his assessment was the current Fed policy rate was within plausible estimates of neutral (though maybe at the higher end of that range).

Fed watchers took that statement and press conference to mean that Chairman Powell had delivered his last rate cut before his term expires in May 2026.

The market is now only pricing one Fed rate cut by mid-year, with just under two cuts in total priced by the end of calendar 2026.

Federal Reserve Chair candidate

After months of commentary and speculation, President Trump provided a surprise both in terms of timing and eventual final nominee for the Federal Reserve Chairmanship, announcing that he would put forward former Fed official and economist Kevin Warsh.

Kevin Warsh’s background summary:

  • Graduate of Stanford University and Harvard Law School.
  • Investment Banking expertise: 1995-2002 at Morgan Stanley.
  • Public policy experience: President George W Bush appointed him as special assistant to the president for economic policy and as executive secretary at the National Economic Council.
  • Federal Reserve experience: Fed’s Board of Governors from 2006 to 2011.

The market immediately moved to factor in implications of this nomination, versus the other favoured candidates.

While for the last year Warsh has consistently argued that rates should come down – a somewhat necessary stance for candidature given Trump’s statements – he has historically been viewed more as a policy hawk compared to the other Fed chair candidates.

This stems from his previous time as Fed governor during and post-GFC, when he argued that higher rates were needed to kill off sticky inflation even as unemployment was rising.

However, Warsh has recently argued a couple of interesting points, such as:

  • The justification for lower rates is that the artificial intelligence revolution is set to unleash a wave of productivity growth that will ultimately be deflationary for the economy.
  • The Federal Reserve itself requires significant changes, including reducing the size of its balance sheet and rethinking economic models it currently relies upon.

The move to reduce the Fed balance sheet may lead to higher rates as the Fed reduces its stock of Treasuries – but one potential offset is capital reforms to the banking system to encourage Treasury holdings.

Overall, Fed observers view Warsh as an experienced official who is well credential and pragmatic in his approach, while also quelling any fears about the independence of the central bank.

Any sudden changes to policy will likely be tempered by Warsh taking Miran’s temporary seat and then needing to convince the rest of the voting members.

Markets responded to the announcement in slightly hawkish terms with rates a touch higher, a steeper yield curve, and stock futures lower.

The Warsh announcement also helped to support the dollar by reducing fears of debasement and extended dollar weakness, which led to gold and silver moving sharply lower.

Other economic data

Other data release during the week included:

  • Durable goods orders rose 5.3% in November versus consensus at 4.0%, but this was boosted by volatile aircraft orders.
  • Consumer Confidence: The Conference Board index dropped to 84.5 in January, the lowest level since May 2014.
  • Initial jobless claims dipped to 209,000 from 210,000 while continuing claims fell to 1.827 million.
  • Headline PPI rose by 0.5% in December, versus consensus of 0.2%, and core PPI increased by 0.7% versus consensus of 0.2%.

Overall, these continued recent trends in data point to a patchy US consumer but a steady jobs market while the effects of tariffs work their way through the economy

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Markets

Overall market sentiment remains elevated, with many indicators – such as ETF flows, put/call and bull/bear ratios – being close to recent highs

US equities finished up 1.5% for January. This has historically correlated with superior returns for the rest of the calendar year, relative to those years beginning with a negative January return.

Microsoft was down 12% on fears of slowing growth for its cloud computing software and questions about the returns from its significant OpenAI investments.

Meta, on the other hand, rose 10% driven by positive AI developments boosting user engagement and ad revenue.

Apple was flat despite reporting net sales rising 16% and the company struggling to source enough chips to meet its customers’ iPhone demands.

Commodities and FX Volatility

We saw extraordinary volatility in commodities, especially precious metals.

In the US, the iShares Silver Trust (SLV) was among the most-traded securities by volume last week, behind only the SPDR S&P 500 and Invesco QQQ Trust, and ahead of Nvidia, Tesla and Microsoft.

Gold hit another all-time high of $5,500/oz mid-week, having only crossed $5,000 on Monday, $4,000 in October 2025 and the $3,000 level in March 2026.

However, the nomination of Warsh as Fed Chair triggered a sharp sell-off on Friday, with gold down 9%, silver down over 25% (the worst day since 1980) and platinum down 17%.

Market observers stated that the stronger dollar and leveraged positions/margin calls exacerbated the moves.

Prior to these moves, the strength in gold has seen the gold mining sector reach 6.4% of the S&P/ASX 200, putting it in-line with major sectors such as Healthcare, Real Estate, Industrials and Consumer Discretionary while being substantially larger than five of the smaller GICS sectors.

Energy added to its strong start in 2026, with Brent crude reaching six-month highs as investors monitor US-Iran tensions.

The US dollar trade-weighted index (DXY) started the week softer on fears of intervention to support the Japanese Yen but ended higher on Friday.

Meanwhile, the AUD continued its strong run, cracking the 70 US cents level for the first time since early 2023.

Another area to watch is the reduction in Australian Investment Grade credit spreads to the lowest level since 2022. This helps at least partially offset the rise in Australian Government bond levels for borrowing costs.

About Rajinder Singh and Pendal’s responsible investing strategies

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

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

Part of Perpetual Group, 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 portfolio manager RAJINDER SINGH. Reported by portfolio specialist Chris Adams

EQUITY markets continue to defy traditional September seasonal weakness.

US equity markets have been particularly strong –  all four major indices (the S&P500, Nasdaq, Dow Jones and Russell 2000) hit all-time highs last Thursday.

US data releases were mixed but not alarming last week, continuing recent trends.

The US Fed’s rate-setting Federal Open Market Committee (FOMC) cut by 0.25 percentage points as expected last week, despite speculation that a new committee composition might affect the outcome.

The Fed statement and Chairman Powell’s comments highlighted concerns about the slowing job market, describing the move as “risk management” with further cuts signalled for this year.

Treasury yields moved higher from recent lows after the decision.

Elsewhere, other economies continue to see domestic weakness now and into the future, encouraging centrals banks to cut rates now or very soon.

Australian equities were a laggard last week. The S&P/ASX 300 dropped 0.9% and underperformed international peers.

However the S&P/ASX Small Ordinaries rose 0.4%, continuing a strong quarter of gains (up 13.6% so far).

The S&P/ASX Midcap 50 also did well, up 1.3% for the week and 9.3% for the quarter to date, versus 4.1% for the S&P/ASX 300.

At a sector level Technology (+1.8%) and Consumer Discretionary (+0.9%) were the outperformers, while Energy (-3.8%) and Resources Health care (-1.7%) were generally weaker.

US macro and policy

US retail numbers look solid with sales up 0.6% in August.

This was above consensus of +0.2% and included +0.2% of net revisions to previous months.

Retail sales – excluding volatile items such as cars, fuel, building and food – climbed 0.7%, also above consensus of +0.4%.

Even allowing for tariff-related pricing impacts coming through, these numbers were above expectations and indicate a resilient US consumer.

Meanwhile, US industrial production data gained 0.1% in August, versus expectations of -0.1%. Manufacturing output rose 0.2%, above expectations of -0.2%.

This continues a trend of the housing sector weakening noticeably compared to most other parts of the economy.

The latest mortgage application data gives some hope of a turnaround though, with a 30% week on week jump. Refinancing was a key driver, given the lowest mortgage rates in more than a year.

Finally, we saw initial jobless claims fall to 231k for the week which was a touch below consensus of 240k. Continuing claims also dropped to 1,920k, below consensus of 1,950k.

Jobless claims data has been volatile recently due to a range of factors. Trends indicate claims are drifting higher, while not deteriorating rapidly across the economy.

Sentiment seems to be deteriorating for some job seekers, however.

US rates

The most important macro event last week was the FOMC decision.

Composition of the committee created significant attention before the meeting.

President Trump’s chosen appointee, Stephen Miran, was freshly sworn in beforehand.

Lisa Cook was also able to participate due to a recent Federal Appeals court temporarily preventing President Trump from firing her.

The Fed ended up cutting interest rates 25bp and signalled two more cuts at the October and December meetings.

Interestingly there was only one dissenting vote – Miran, who voted for a 50bp cut in line with President Trump’s desire to quickly lower rates.

Other FOMC members, including some in the running to replace Fed Chair Powell, voted in line with the Chair. Some Fed observers had expected more dispersion in the results.

The FOMC statement attributed the rate cut to a shift in the balance of risks, noting “job gains have slowed, and the unemployment rate has edged up but remains low” and “the Committee … judges that downside risks to employment have risen”.

The committee removed a previous reference to “the extent and timing” of additional rate cuts in the forward guidance portion of the statement, suggesting less uncertainty about whether the FOMC will continue to lower the rate at future meetings.

Chairman Powell characterised the move as “risk management” and observers took his comments as being cautious and careful not to overcommit, while confirming an ongoing move back towards a lower neutral rate in a timely manner.

The Fed member forecasts for unemployment and inflation were unchanged for this year, but imply more growth this year and next, and slightly higher inflation next year which suggests a slower pass-through of announced tariffs to prices.

The closely-watched “dot plot” of member’s forward expectations showed an incremental step down in the expected Fed funds rate for each of 2025, 2026 and 2027 though no change in the long run rate.

Similarly, the market pricing for the 2026 future Fed rate now implies two cuts for the remainder of 2025 and another two in the first half of 2026.

Australia

Unemployment held steady at 4.2% in August, according to the latest labour force data.

Underlying employment growth was weak (-5k) and overall hours worked showed small-but-positive growth rates.

Most commentators saw this data as containing little to change the RBA’s view of the labour force or economy more generally.

Elsewhere, the federal government announced a long-awaited target to build on previously announced 2030 emissions target.

The new target is a reduction of 62-70% by 2035 from 2005 levels, compared with the 2030 target of 43%.

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This is seen to be very ambitious: emissions must fall three times faster in the 2030s compared to the early 2020s to meet the 2035 target.

The government plans to achieve this target via:

  • A significant increase in renewables in the electricity sector (solar, wind and battery storage)
  • Decarbonisation and electrification of households and transport (heat pumps, sustainable fuels and EVs)
  • Tightening of industry emissions via the existing Safeguard Mechanism
  • Significant re-vegetation and land use changes to act as a carbon sink for hard-to-abate sectors
China

Data showed weakness across the board in August activity.

Fixed Asset Investment (FAI) declined 6.3% over the year with weakness in both infrastructure and manufacturing. The latter was possibly affected by the anti-involution program.

Retail sales grew 3.4%, though this was influenced by those sectors with significant subsidies and even their contributions have been quick to slow recently.

The property downturn continues, with prices falling further.

More generally on prices, the latest CPI showed that deflation persists, falling 0.4% year on year.

This was driven mainly by food, though weak PPI also showed deflationary forces at work in the economy more generally.

New Zealand

The latest NZ GDP data came in much weaker than expected, with the second quarter showing a 0.9% contraction.

There has been volatility in some of the GDP components of GDP, along with a clear trend to weakness as 2025 progresses.

Observers of the RBNZ are now expecting further cuts at upcoming meetings with some building the case for a substantial 50bps cut.

Canada

The Bank of Canada (BoC) cut its benchmark interest rate by 25bps to 2.5%, continuing its cautious approach amid signs of economic weakness.

With recent second quarter data showing a softer job market and general economic weakness, economists now expect at least one more 0.25% cut in October or December.

Japan

The Bank of Japan (BoJ) decided to keep interest rates at 0.5%, as expected. However two board members unsuccessfully proposed a hike to 0.75%.

With a tight labour market and potential inflationary forces building, the market saw this as a signal of likely near-term rate increases.

The BoJ also delivered a plan to sell its very substantial holdings of risky assets, including ETFs, further reducing its accommodating stance.

Markets

September tends to be a poor-performing month for US equities.

However, it’s been strong month to date, reflecting previous instances of Fed rate cuts outside of recession offsetting seasonality. 

US equities rallied during the week with the S&P500, Nasdaq, Dow Jones and Russell 2000 reaching all-time highs – only the 25th time this has occurred this century.

The key impediment to reaching this milestone earlier had been the Russell 2000, which is a broader index of smaller US companies.

It breached its previous high, set in the post Covid surge four years ago.  Some observers note that this is an indicator that the equity rally is broadening and not just reliant on the Mag 7.

It has been a year since the Fed’s first cut in this cycle.

The S&P 500 performance over that period has been the strongest in the year after a cut since the mid-1990s.

Some, more bullish, commentators are pointing to analogies between the current market and that of the late 90s bull run.

Another support for the market has been the fall in the US dollar this year. Historically, this has seen strong performance across a range of global equity indices.

One market component to watch is the tech sector with the equally-weighted index making new highs and small-cap tech stocks being particularly strong.

The tech sector has the highest percentage of foreign revenue of all US sectors and so, again, the lower US dollar maybe supporting this its rally.

Elsewhere, President Trump called for the SEC to move public listed company reporting from quarterly to semi-annually (like Australia).

This change would not require congressional approval but simply a vote by the SEC where Republicans hold a majority.

If it went ahead, this change might take place in six-to-12 months.

About Rajinder Singh and Pendal’s responsible investing strategies

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

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

Part of Perpetual Group, Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. Responsible investing leader Regnan is now also part of Perpetual Group.

Contact a Pendal key account manager here

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

WHILE hard data continues pointing to a solid US economy, soft data and sentiment indicators remain weak.

The market is grappling with how much damage has been done to the US and global economies and, therefore, whether the recent market rally has been just another “buy the dip” opportunity (as in recent years) or if it is a genuine bear market rally.

Global equity markets took a break in their rally from April lows last week, with the S&P 500 down 0.5% despite a decent US earnings season.

Treasury yields drifted higher as the market watched for trade deals to ease previous macro concerns.

The Fed is also uncertain about the tariff impact, so made no change in last week’s FOMC meeting. It is maintaining its “wait and see” approach while the outlook for inflation and growth becomes clearer.

Other central banks – such as the Bank of England and People’s Bank of China – continued cutting rates in response to current and forecast domestic weakness.

Both gold and oil bounced around intra-week but ended up 3.2% and 4.3% respectively.

The S&P/ASX 300 was up 0.1%, though this disguised some significant moves at the stock and sector levels.

Banks (-2.2%) – with three of the Big Four reporting – were soft, while the Small Ordinaries (+3.5%), Technology (+2.1%), Utilities (+2.6%) and REITS (+1.3%) performed well.

US macro and policy

The ISM Services Index recovered to 51.6 in April, from 50.8 in March.

This was above the consensus of 50.2 and the recovery in the headline ISM Services Index provides some re-assurance that the service component of economy is so far holding up in the face of the tariff shock.

The new orders, employment, and supplier deliveries components all bounced, also unwinding at least some of their significant declines in March.

Initial jobless claims fell to 228K in the week ending 3 May (from 241K), which was in line with consensus.

Continuing claims fell to 1,879K in the week ending 26 April (from 1,908K), which was marginally below the consensus of 1,895K.

We note the impact of tariff uncertainty is starting to appear in some pockets – for example, Michigan initial jobless claims spiked, probably due to layoffs in the auto industry.

The US Census Bureau and Bureau of Economic Analysis revealed that the March trade deficit soared to a record $US140.5bn as consumers and businesses tried to get ahead of President Trump’s latest tariffs.

US exports for goods and services totalled $US278.5 billion (up $500 million), while imports climbed to nearly $US419 billion (up $US17.8 billion). This has roughly doubled, year-on-year.

It is important to note that the decomposition of imports shows that the surge was concentrated in only three areas: Precious metals/Gold, Pharmaceuticals and Computing/IT equipment.

When looking at broader business inventory levels, it seems clear there has been no stockpiling pre-tariff commencement, which may mean that businesses are still exposed to any tariff impacts.

We also saw the arrival of the first shipments of fully tariffed goods arriving at US ports from China.

Some reports have China-US shipping lanes seeing a 30%-50% volume drop in April, though new shipments from China to the US have risen in the past few days.

Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer met with Chinese Vice Premier He Lifeng in Switzerland over the weekend. President Trump said that if talks go well, he could consider lowering the 145% tariff he has imposed on many Chinese goods.

FOMC

As expected, the FOMC unanimously decided to keep rates unchanged.

It sees risks as evenly balanced and wants to wait for more information before reducing the funds rate again.

In recognition of the new tariff policy, the statement noted that “the risks of higher unemployment and higher inflation have risen”.

The Committee also looked through the drop in Q1 GDP and concluded that “economic activity has continued to expand at a solid pace”, while labour market conditions remain “solid” and inflation remains “somewhat elevated”.

Chairman Powell stated, “for the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance” and “we think we can be patient”.

Fed-watchers believe the desire to wait for more information suggests that policy is much more likely to be eased in July than June, with the May and June CPI reports to be released in the interim.

This also allows the FOMC to see if there are additional reciprocal tariffs on 9 July, when the 90-day delay will expire.

The market is pricing a 70% chance of a rate cut by July and a two-to-three cuts by the end of 2025, which is aligned with investor surveys.

Comments by New York Fed president John Williams flagged the possibility that the Fed could remain in wait-and-see mode even beyond July/September if the data does not clarify the outlook and balance of risks sufficiently by then.

“Over the next few quarters, we’ll definitely get increasing information about what’s going on in the economy. But again, we’ll have to wait and see what we learn from that,” he said.

He emphasised that the Fed cannot act pre-emptively because while unemployment and inflation will likely both move higher, the mix, time horizon and correct policy response remains unknown.

UK policy and macro

The Bank of England (BoE) cut its main interest rate by 0.25 percentage points to 4.25 per cent on Thursday, despite an unexpected and unusual three-way split among policymakers.

The BoE’s Monetary Policy Committee voted 5-4 in favour of the decision to cut borrowing costs by a quarter point. Of the four dissenters, two members of the Committee voted for a bigger half-point cut while two others wanted to keep rates on hold.

The rate decision comes as the US and UK announced an agreement to reduce some tariffs, in a limited number of areas, while maintaining the base 10% tariff.

China macro and policy

In its first substantive monetary response to US tariffs, the People’s Bank of China (PBOC) cut seven-day reverse repurchase rates by 10 basis points to 1.4% and also lowered the reserve requirement ratio, which determines the amount of cash banks must hold in reserves, by 50 basis points.

It is estimated this would unlock 1 trillion yuan (US$138.5 billion) of additional liquidity for the market.

Officials also announced additional measures including a re-lending tool to finance several key sectors, including technology and real estate, and reduced the mortgage rates on five-year loans for first-time homebuyers to 2.60% from 2.85%.

The broad stimulus announcements showed that officials are acting with increased urgency to bolster the economy, though some analysts believe it may have limited impact on boosting domestic confidence and credit demand levels.

Oil/LNG

OPEC+ agreed to increase output by 411,000 barrels a day next month, following a similar increase last month.

The move is seen as a strategy to punish over-producing members, particularly Kazakhstan, and to lower oil prices.

The decision sent crude prices falling, though they recovered later in the week.

The EU also set a 2027 deadline to end any remaining gas contracts that are currently being fulfilled by Russia. Russia is still supplying 19% of EU gas needs.

Markets

The nine-session “winning streak” in the S&P 500 that came to an end last Monday was the longest in more than 20 years

From a technical perspective the S&P 500 is getting close to 200-day moving average levels, which may cap any further rise in the short term

Sentiment is mixed. There are some very supportive indicators – such as bull/bear ratios – while others such as the 10-day put/call ration and equity ETF flows are less so.

Crypto funds have had best inflow in three months while Tech fund flows continue to be weak

Credit markets are a good indicator if anything in the economy or markets are showing signs of serious distress.

In this vein, US credit spreads continue to fall from their spike from a month ago. International credit spreads are up from the beginning of April, but are not ringing any alarm bells.

Australian equities

Last week saw the Macquarie Conference which is a quasi “3rd quarter” reporting season. With companies across numerous sectors updating the market, it typically presents a good read on conditions – but especially so in a period of heightened macro uncertainly.

Companies presenting at the conference experienced an average outperformance of +1.4% on their presentation day.

Companies in Energy and Tech were the strongest with 2.3% and 1.9% average relative outperformance in the day. Utilities (-0.2%) was the only underperformer.

While the Australian equity market was flat for the week, there was significant variation within the various components.

Poor performance in the banks, dragged down the top 20 while the Small Ords and Resources had a better week.

 

About Rajinder Singh and Pendal’s responsible investing strategies

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

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

Part of Perpetual Group, Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. Responsible investing leader Regnan is now also part of Perpetual Group.

Contact a Pendal key account manager here

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

GLOBAL equity markets have been mixed, with US shares uncharacteristically underperforming European and Asian markets.

Both the S&P 500 (-1.0%) and Nasdaq (-1.6%) were dragged down by the emergence of the low-cost China-based AI platform DeepSeek.

Treasuries benefited from increased equity market volatility and tariff announcements, as well as a benign FOMC meeting outcome. US ten-year government bond yields fell 7 basis points (bps).

Despite this uncertainty, indicators point to a solid US economy that is seeing steady growth without signs of any reacceleration in inflationary pressures.

Other central banks such as the European Central Bank (ECB) and the Bank of Canada continued cutting rates in response to slowing inflation and domestic weakness.

In commodities, safe-haven gold rallied to all-time highs while oil prices drifted lower. Other commodities were mostly flat for the week.

In Australia, the December quarter Consumer Price Index (CPI) surprised to the downside on both headline and underlying measures.

Despite some pockets of elevated inflation, it led the market to believe that the Reserve Bank of Australia may cut rates at its upcoming February meeting.

Australian equities followed other non-US markets higher, gaining 1.5% (S&P/ASX 300) and finishing January close to record highs.

Healthcare (+2.7%), Technology (+2.0%) (especially non-AI related) and Consumer Discretionary (+4.2%) had the strongest performance, while the weakest sectors were Utilities (-4.5%), REITS (-0.4%) and Energy (-0.1%).

Australia macro/economy

The latest CPI update clearly grabbed the most attention, but the week began with the publication of the NAB Business Confidence Survey for December.

It showed that conditions had improved from November but were still weak and tracking below the long-term average. It confirms the current cautious and pessimistic mood among many businesses.

December quarter CPI was highly anticipated by financial (and political) watchers due to its implications for the RBA’s next move. 

Overall, it was clear that inflationary pressures continue to ease – maybe a touch quicker than previously expected.

At a headline level, the CPI rose 0.2% quarter-on-quarter (QoQ) – versus expectations of 0.3% – and 2.4% year-on-year (YoY) versus the 2.5% expected.

Importantly, this is now lower than the RBA’s most recent December forecast in November’s Statement of Monetary policy of +2.6%.

Similarly, the Core (or trimmed-mean measure) CPI was up 0.5% QoQ versus expectations of 0.6% and up 3.2% YoY versus the 3.3% expected.

Notably, there continues to be a divergence in Goods versus Services inflation in the Australian economy.

The annual Goods inflation of +0.8% (driven by lower electricity, fuel and new dwelling prices) is now the lowest since 2016, while annual Services inflation remains elevated at +4.3%.

Services inflation was mainly driven by high rents, healthcare and insurance costs in the quarter – though some of these components are showing signs of slowing. As an example, rents continue to see annual inflation of +6.4%, however, the latest quarterly read was only +0.6%.

Government subsidies partially distorted numbers, but overall, they were interpreted as giving the RBA latitude to begin reducing the cash rate with the first cut even as soon as the February meeting.

Commentators noted that, due to the RBA board’s reduced schedule, the next meeting after February’s would be early April – potentially in the middle of a Federal election campaign.

Several economic forecasters moved their first rate cut expectations from mid-2025 to this month. This is now reflected in the market pricing a February cut at over 90% probability, with a total of at least two further cuts over the remainder of 2025.

We also note some recent work done by Macquarie Macro Strategy on the drivers of labour productivity in Australia. Headline productivity has slumped since 2021 and is running well below trend, prompting much handwringing in recent times.

However, Macquarie’s work suggests that the mining and public sectors are responsible for much of the decline:

  • The mining sector has delivered a compound annual growth rate (CAGR) of -0.1% labour productivity since 2002, albeit in a highly cyclical pattern.
  • The public sector (which includes health and social assistance, education and training, public administration and safety) has had 0.3% CAGR since 2002.
  • However, the rest of the private sector (ex-mining) has had 1.1% CAGR since 2002 and, while having fallen from its highs, remains largely on its long-term trend growth trajectory.
US macro/economic

As widely expected, the US Federal Reserve’s FOMC kept rates on hold, but both the statement and Chairman Powell’s press conference were scrutinised for any markers on the future trajectory of rate moves.

The January statement described the unemployment rate as having “stabilised at a low level in recent months”, where previously it had “moved up but remain[ed] low”.

Additionally, inflation was described as remaining “somewhat elevated” where previously it was said to have “made progress”.

These were interpreted as slightly hawkish, with a small increase in the two-year yield as a result.

However, Powell stated in his press conference that these changes were not intended to send a signal, but merely clean up the language of the statement.

He also added that he still thought policy rates were “meaningfully restrictive”.

So overall, following a slightly hawkish statement with a dovish press conference, there was little net news and the FOMC is seemingly willing to wait for more economic data and details of President Trump’s policies before deciding its next course of action.

The market is pricing in just under two cuts for the remainder of 2025.

In other data:

  • Weekly initial jobless claims dropped to 207k, from 223k, and below the consensus of 225k.
  • US Personal Income and Spending saw real consumption rise by 0.4%, which was above the consensus of 0.3%.
  • The Employment Cost Index (ECI) – the Fed’s key measure of wages – rose by 0.9% in December quarter, in line with the consensus, and takes the annual rate to 3.8%.
  • Q4 GDP was a respectable 2.3% annualised. The GDP deflator rose 2.2%, which was less than expected.
  • US PCE inflation came in muted in December – as signalled by the CPI and PPI – for the second consecutive month.

In summary, the US economy registered a solid 2024 with decent growth in consumption and employment, while inflation continues to moderate. This reinforces Chairman Powell’s comments that policy rates are in a “good place”.

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Other macro/economic

The Trump administration followed up on prior threats and announced tariffs on its top three trade partners.

Canada and Mexico will face 25% tariffs (but only 10% on Canadian oil), with an additional 10% for China on top of existing tariffs.

It is unclear if there are any exceptions that will be carved out, though those countries are expected to respond with their own retaliatory tariffs.

In Europe, the ECB governing Council lowered borrowing costs for a fifth time since June to a rate of 2.75%.

The Council expressed confidence on declining inflation, while the major concern has now shifted to the anaemic growth in the Eurozone.

This was highlighted by the largest economy in Europe – Germany – announcing its GDP had contracted by 0.2% in the fourth quarter, which was more than expected.

The Bank of Canada reduced rates by 25bps but suspended all future guidance due to the uncertainty of trade tariffs imposed by the US.

Markets

Some high-level themes:

  • The “January barometer.” January was a good month for equities, which has typically been a good indicator of S&P returns for at least the next six months. When January is positive, the average six-month return of the S&P 500 is 6.9%, versus only 0.6% otherwise.
  • Gold. The threat of tariffs and global policy uncertainty has pushed gold to an all-time high again and is now threatening a technical “breakout” to the upside. The AUD gold price is over $4500/ounce.
  • US reporting season. About 163 S&P 500 companies (40% by market cap) have reported 4Q results, with aggregate Sales growth up 4.9% and Earnings growth up 11.3% – surprising by 1.0% and 5.8%, respectively. Companies are beating on both the top and bottom lines, suggesting strong underlying fundamentals.
  • DeepSeek and AI. The recent release of the Chinese-based supposedly low-cost, open-source large language models has challenged the leadership position of the US tech giants. While the accuracy of the claims is still being debated, it did lead to sharp moves in AI related stocks with Nvidia experiencing the largest single-day drop in market cap in share market history (-$US589 billion – just under $1 trillion AUD).
  • The “Mag 7”. This handful of companies dominate US and international share markets, leading to global ramifications if any of them struggle to perform. From a technical standpoint, Nvidia has breached some key levels which may further dampen sentiment on the stock and sector in the near term.

Global equity indices with relatively smaller listed technology sectors, such as the UK FTSE100 (~1%), S&P/ASX 200 (~3%) and the EuroStoxx 600 (~6%), may be relative beneficiaries on any continued AI uncertainty.

In Australia, equities had a decent return for the week, capping off a solid start to 2025.

REITs, Utilities and Energy were the weakest sectors, with Tech (especially non-AI tech) and Consumer Discretionary continuing their strong 2024 returns.

About Rajinder Singh and Pendal’s responsible investing strategies

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

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

Part of Perpetual Group, Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. Responsible investing leader Regnan is now also part of Perpetual Group.

Contact a Pendal key account manager here

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

GLOBAL equity markets had a solid start to December, supported by the increased likelihood of a rate cut at the Fed’s FOMC meeting this week.

Both the S&P 500 (up 1.0%) and Nasdaq (up 3.4%) hit all-time highs during the week, while US Treasuries rallied on relatively benign macroeconomic prints.

Overall, these indicators point to a solid US economy that is seeing an uptick in post-election confidence and activity, but without signs of any reacceleration in inflationary pressures.

There is plenty of interest for followers of international politics, though, with ongoing developments in France, South Korea and the Middle East. The implications for markets are not entirely clear, but it does affect confidence at the margin.

Australia released some mixed economic data points, with the September quarter GDP dominating discussions in both the economic and political spheres.

The Australian economy’s performance remains sluggish – with real GDP growth only slightly positive, due largely to public sector demand and strong immigration, and the per-capita recession continuing.

The market has brought forward the likelihood of the RBA’s first cash rate cut, though future CPI prints remain key.

Australian equities didn’t follow international markets higher, however, with the S&P/ASX down 0.2% for the week.

Technology (up 1.7%) and Consumer Discretionary (up 1.8%) continued their strong performance, while the weakest sectors were REITS (down 2.6%), Utilities (down 1.3%) and Energy (down 1.0%).

Fed commentary watch

On Monday we heard from Christopher Waller, a member of the Federal Reserve Board of Governors, whose remarks were regarded as dovish and risk friendly.

Waller discussed the case for a cut versus a skip in December, saying that “at present I lean toward supporting a cut”.

He also said he would be paying close attention to JOLTS (the employment report), as well as November CPI/PPI inflation and retail sales, and would shift to favour a skip if the data “surprises to the upside” and “alters my forecast for the path of inflation”.

Elsewhere:

  • Mary Daly (San Fransisco Fed President) said an interest rate cut this month isn’t certain but remains on the table for policymakers.
  • Adriana Kugler (Fed Board member) expressed optimism about the economy, saying inflation appears to be on a sustainable path to the central bank’s 2% goal.
  • John Williams (New York Fed President) added that more rate cuts are likely needed “over time”
  • Fed Chair Jerome Powell said that the FOMC can “afford to be a little more cautious” on moving policy toward a neutral setting given the current strength of the economy.

In summary, Federal Reserve officials indicated that they expect the central bank to continue cutting interest rates over the next year, but stopped short of saying they were committed to making the next reduction in December.

Beyond the Numbers, Pendal

US economy

We saw an early read on Black Friday retail sales, with Mastercard’s SpendingPulse reporting that 2024 sales rose 3.4% compared with last year. Online retail sales increased 14.6% while in-store sales were up marginally (0.7%).

On Tuesday, we saw the release of the Institute for Supply Managements Manufacturing PMI, with the latest reading increasing to 48.4 from 46.5. While this indicator showed continued weakness in factory demand, it did exceed Wall Street’s 47.5 forecast.

Various components of the index indicated improvement on the previous month and, importantly, the forward-looking New Orders component showed increasing business confidence, with an expansionary 50.4 print.

There was a big focus on employment data last week, starting with the Job Openings and Labor Turnover Survey (JOLTS) – it confirmed recent labour market trends, where tightness in the jobs market is easing but remains in good shape overall.

The JOLTS data surprised to the upside, with overall job openings rising 372k to 7.74 million in October 2024. While this has come back from a peak of 12 million, it is still elevated when compared to pre-pandemic levels.

The JOLTS Quit tally rose 228k, taking the quit rate to 2.1% – the highest since May. The quit rate is important as it shows workers are confident leaving current employment and seeking a new job, making it a good predictor of future wage growth.

Initial jobless claims for the week ending 30 November rose by 9k to 224k (versus consensus at 215k) mostly on volatility around the Thanksgiving holiday, which came five days later than last year.

Cost-cutting measures announced at Boeing and Stellantis suggest jobless claims will rise through year-end and into mid-January.

The most anticipated data release of the week was the November non-farm payroll Employment Report on Friday.

Headline payroll growth bounced higher to 227k versus 36k in October, but the latter was affected by hurricanes and strikes. The unemployment rate ticked up to 4.2% from 4.1%.

This data was regarded as solid and as expected, but without too much upside surprise to stoke any fears of reaccelerating inflation.

Importantly, if the Fed wants some insurance against unemployment rising further, it is likely to cut rates by 25 basis points (bps) again in December as indicated in recent Fed board speeches.

We are still to see CPI data before the Fed meeting, but the market is already pricing most of a 25bp cut for December and up to three more cuts for calendar 2025.

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Australian economy

There were a few mixed data points for Australia last week:

  • Similar to the US, early indications on Black Friday sales showed solid performance. National Australia Bank’s transaction data showed overall spending was up 4% year on year.
  • Official retail trade data from the ABS rose 0.6% in October, beating expectations of 0.4%. Annual growth increased to 3.4%, which is the highest rate since May 2023. Within components of this release, growth in discretionary spend categories was particularly strong.
  • Credit growth in October 2024 rose 0.6% for the month and 6.1% year-on-year, which is the fastest pace since May 2023.
  • Residential building approvals bounced up 4.2% month-on-month in October 2024 to 185k annualised, which is the highest level since December 2022.
  • CoreLogic’s November house price series showed national house prices increased just 0.1% in the month – the weakest Australia-wide result since January 2023. There was large divergence across states, with Brisbane and Perth still growing well but down from previous high levels. Sydney was just below the national average, but Melbourne’s property (and economic confidence) woes continue.

The most watched economic release was the September quarter National Accounts, which showed GDP rising just 0.3% quarter-on-quarter, below the 0.5% consensus expectation.

Of most concern was the decomposition between the public and private components of the domestic economy, which showed that almost all of the economic growth was from the Government sector.

This continued a trend of weak Private sector demand over recent quarters.

Public sector demand has now risen to 29% of GDP, which matches Covid-19 emergency spending levels and represents some of the highest levels seen over the past 60 years – and this is before any new spending associated with the Federal election.

Aside from government spending, the only other support to the economy has been strong immigration levels.

Once this is accounted for, GDP per capita contracted for the seventh straight quarter, which is significantly worse than most of our international peers.

This softer GDP print saw the market move from pricing only one RBA cut to three by the end of 2025, with the first cut fully priced by April 2025.

Other global macroeconomic developments

Oil: OPEC+ delayed an output hike for a third time as the oil market faces a looming supply surplus that’s weighing on prices. The group will start increasing production in April instead of January and unwind cuts at a slower pace, in line with expectations

China: China’s top leaders plan to start the annual closed-door Central Economic Work Conference (CEWC) next Wednesday to map out economic targets and stimulus plans for 2025. Market watchers are looking/hoping for more concrete confidence building measures, particularly given Chinese property market concerns.

Europe: Traders are trimming their European Central Bank rate-cut wagers, though rates markets still have a cut still priced for 12 December – and a further five for 2025.

Geopolitics: Government instability in France and South Korea and the collapse of the Assad regime in Syria is not helping investor confidence outside of the US.

Markets

We are in a seasonally strong point for markets. Only once since 1928 has December been the worst month of the year performance-wise.

Historically, November and December are particularly strong return months in US Election years.

We see similar themes looking at the first month following Trump’s election victory in both 2016 and 2024.

There has been strong performance in risk-on cyclical sectors (Financials, Consumer Discretionary, Industrials, Small Caps), with weakness in defensives (Healthcare, Real Estate) and China-related (Materials) areas.

The Tech sector has performed a touch below the S&P 500 on both occasions.

We do note sentiment is getting very toppy, with Equity ETF flows more than two standard deviations above their average back to 2017.

About Rajinder Singh and Pendal’s responsible investing strategies

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

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

Part of Perpetual Group, Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. Responsible investing leader Regnan is now also part of Perpetual Group.

Contact a Pendal key account manager here

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

GLOBAL equity markets made a solid start to the second half of 2024, supported by easing rate pressures in the US.

A short week in the US due to the Independence Day holiday didn’t stop both the S&P 500 and NASDAQ finishing the week at all-time highs – breaking through the 5,500 and 18,000 levels, respectively, for the first time.

US Treasuries rallied on weaker macroeconomic data prints, with the release of softer numbers for jobs, unemployment and purchasing managers’ indices (PMI).

Overall, these indicators incrementally point to a US economy that is slowing and so reducing any ongoing inflationary pressures.

While the Federal Reserve continues wanting to accumulate more evidence, further softer data in line with the data released this week could allow the committee to consider interest rate cuts as soon as the September meeting.

There was plenty to interest followers of international politics, with ongoing developments in the US presidential election, French National Assembly voting, and the UK general election, though the implications for markets are not entirely clear and straightforward.

In Australia, we saw further evidence of economic resilience following last week’s strong CPI print, with May retail sales and building approvals data surprising on the upside – accompanied by continued strong price growth across capital city housing markets.

Some commentators continue to push the view that – unlike other central banks – the RBA’s next interest rate move will be up.

Overall views are mixed, as reflected in the latest RBA minutes.

Australian bonds fell in response, with ten-year yields up 9 basis points (bps). This contrasts with the 9bps fall in US ten-year yields, indicating different positions in the interest rate cycle for the two economies.

The S&P/ASX 300 gained 0.71%, lagging the 1.98% gain in the S&P 500 and 3.51% rise in the NASDAQ.

Commodity prices supported resource sector returns for the week. However, most ASX companies are now in black-out until August’s reporting season, so there was little news on the stock front.

Beyond the Numbers, Pendal

US macroeconomics

On Tuesday, we saw the release of the Institute for Supply Management’s Manufacturing PMI, which showed the latest reading declining to 48.5 from 48.7.

This indicator has now been in contraction (i.e. less than 50) for 19 out of the last 20 months going back to October 2022.

Various components of the index such as Production, New Orders and Employment indicate broad contraction, so the briefly positive March 24 reading now looks the outlier compared to recent trends.

Jerome Powell, Chairman for the Fed, spoke at a European Central Bank (ECB) conference in Portugal.

He argued that the latest data shows evidence of continued disinflation and said he expects inflation to fall to the “low to mid-twos” a year from now.

He also argued that progress has been made in balancing the labour market and suggested that the Fed would respond to an unexpected weakening of the labour market.

Initial jobless claims continued their grind higher, printing 238k (up from 234k).

Importantly, the four-week trend is now at the highest level since August 2023, showing the degree of softening the labour market has experienced during the calendar year to date.

The JOLTS Quit Rate further supported the case that wages growth is easing towards historically average levels.

On Thursday, we saw the release of the other key ISM measure – the June Services PMI – which, at 48.8, significantly surprised to the downside.

This was well below the consensus of 52.7 and May’s reading of 53.8, and is the lowest level since May 2020 in the depths of Covid shutdowns.

While this series has been volatile, similarly to the Manufacturing PMI, numerous components showed broad weakness.

Interestingly, the prices component of the ISM Services survey continues to remain subdued.

This is important because it has been a pretty good lead indicator of one the Fed’s preferred inflation indicators, core Personal Consumption Expenditure (PCE) services ex-housing, in the past few years.

It is now also back pre-Covid levels.

The last key economic release of the week was the June payrolls, which came in at 206k versus consensus of 190k. However, net revisions to previous months were a large 111k decline.

The unemployment rate edged up to 4.1% from 4.0%.

Interestingly, these numbers are getting close to triggering the Sahm rule – a measure to identify the start of a recession developed by former Fed economist Claudia Sahm.

It looks at the changes in the three-month average unemployment rate relative to recent lows and is triggered once it hits 0.5%. The latest unemployment figures reading takes this measure to 0.4%.

The Fed minutes also came out, highlighting that it is in no rush to ease but that it is open to changing quickly if inflation and employment moderates.

The minutes mentioned that modest progress towards reducing inflation in recent months though labour markets are normalising, with a watch on unemployment in response to weakening demand.

After this week’s macro data, the market is now pricing an 80% chance of a Fed rate cute by the September 2024 meeting, up from approximately 70% before this week.

A total of two rate cuts are expected by the end of 2024, and almost five full cuts for the next year to June 2025.

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Global macroeconomics

Europe

Eurostat published June inflation for the Euro area of 2.5% headline and 2.9% core (year-on-year).

This, along with comments from speakers including ECB President Lagarde at the Sintra conference, indicate that it currently remains on track for a September rate cut.

China

We saw the release of various PMIs.

The Caixin Composite and Services PMI were 52.8 and 51.2, respectively, indicating modest expansion.

However, the widely watched Manufacturing PMI component surprised at 51.8 (versus 51.5 consensus). This is the highest level since May 2021 and the eighth consecutive month of expansion.

This helped support the 6.1% gain in iron ore prices last week.

New Zealand

New Zealand’s central bank meets on 10 July, with rates forecast to stay on hold. Expectations are for a first cut in August, given ongoing softness in recent data.

Australia

May’s retail sales surprised to the upside, up 0.6% month-on-month versus consensus at 0.3%.

Building approvals rose 5.5% in May versus expectations of 3.0%.

While both series can be quite volatile, these data points are notable as recent trends in both have been on the softer side.

House prices continued their recent strength, with the latest CoreLogic data showing the rate of growth of 0.6% month-on-month country-wide and 0.5% month-on-month among state capitals.

Brisbane and Perth remain strong while Melbourne looks lacklustre, which is in line with our anecdotal feedback on their respective economies.

The RBA released minutes from the June meeting and there were no major surprises, with forward guidance consistent with Governor Bullock’s post-meeting press conference i.e. “not ruling anything in or out”.

In particular, the discussion focused on the case for hiking rates or keeping them steady, rather than any reduction.

This reinforced the view of some forecasters that next direction or rate moves is up rather than the downward trajectory forecast for most other central banks around the world.

Markets

There are a few observations to make at the halfway point of the calendar year:

  • Historically (since 1928), when the S&P 500 is positive in the first half of the year, it follows with a positive second half 74% of the time, with an average 5.70% return. After a first half with gains of 10-20% (remembering that it delivered 14.5% in 1H 2024), the second half has had positive returns 88% of the time with an even stronger 8.58% average return.
  • The second half in presidential election years has delivered a positive return in 83% of years.
  • In data going back to 1950, July has seasonally been a strong month, followed by weakness in August and September.
  • Strong EPS growth estimates continue to support US equities and the 9% consensus EPS growth for 2Q 2024 is the highest since Q4 2021.
  • There are no signs of any stress in credit markets, with US corporate BB spreads remaining subdued and at recent low levels.

On the political side, President Biden’s re-election odds have plummeted.

Markets are trying to identify beneficiaries of a Trump victory, and if history is a guide, the Financials sector was a clear winner in 2016/17.

There were no surprises in the result or market reaction to the UK election, with moves in equities, bonds and the currency all muted on Friday.

Australian equities

Australian equities gained last week but lagged global markets.

All the positive returns were driven by Resources, with Industrials generally flat to down.

Tech and Utilities were weakest, but this follows very strong 1H returns for both sectors.

Within Resources, Anglo American suspended production of its Grosvenor metallurgical coal mine in Queensland following an underground fire.

The mine was due to produce 3.5 million tonnes this year, which is 1% of the seaborne market but 20% of Anglo’s volumes – throwing a spanner into its plans to divest the business following the failed approach from BHP a few months ago.

The suspension, along with a fire at Allegheny in the US and against a backdrop of multiple production downgrades by BHP this year, had the effect of tightening the met coal market and pushing prices higher.

About Rajinder Singh and Pendal’s responsible investing strategies

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

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

Part of Perpetual Group, Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. Responsible investing leader Regnan is now also part of Perpetual Group.

Contact a Pendal key account manager here

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

GLOBAL equity markets took a breather last week, while bonds continued to sell off as they have so far throughout February.

Stronger-than-expected US inflation numbers weighed on both asset classes. Core CPI — and the services components in particular — stayed stubbornly high.

Other key US data releases were mixed.

Overall, these indicators increase the likelihood that the US Federal Reserve will want to accumulate more evidence of sustained disinflation before making its next change in rates.

Markets already had moved to a view of a first cut in May or maybe even June, rather than March as hoped earlier in the year.

In other international economic news, two G7 countries – Japan and the UK – dipped into technical recessions.

Commodities have been relatively resilient, with oil holding onto its previous gains, and copper and lithium enjoying some relief after a difficult 2024 so far.

In Australia, the unemployment rate edged up and Australian bonds followed US bond yields higher.

We saw reporting season moving up a gear with numerous important results coming out.

Early indicators suggest that in aggregate, companies are delivering revenue in line with expectations, but with upside on earnings due to better margin management.

The S&P/ASX 300 gained 0.23% while the S&P 500 fell 0.35%.

US macroeconomics

Last week, we saw two important US inflation indicators: the producer price index (PPI) and consumer price index (CPI).

The headline PPI advanced 0.3% in January, which was a stronger than the 0.1% expected.

The acceleration in core PPI was an even bigger surprise, increasing by 0.5% versus consensus of 0.1%.

Another concern is that some components of PPI, especially health care, were strong in January and these are aligned with those used in the Fed’s preferred measure of inflation – the personal consumption expenditures (PCE) core services ex-housing (CSEH) index.

Some economic forecasters increased their predicted PCE inflation as a result.

The CPI report was the most influential of the week’s economic indicators.

Headline CPI for January came in higher than expectations, up 0.3% month-on-month and 3.1% year-on-year versus consensus increases of 0.2% and 2.9%, respectively.

Core CPI advanced 0.4% and 3.9% year-on-year, which also was higher than consensus. 

Strength in housing-related Owners Equivalent Rent (OER) and Core Services ex-Housing drove this result.

This was the highest Core CPI reading in eight months, prompting a sell-off in the S&P 500 and an increase in bond yields.

While CPI is still decelerating, the concern is that the pace of this decline has stalled – requiring the Fed to keep rates up higher for longer.

The case for this is supported by the gap that has opened up between Core CPI and PCE Core Services ex-Housing measure.

There were some noteworthy trends in the CPI components:

  • Services inflation remains consistently higher and stronger, though some forward-looking indicators suggest rent should have a moderating effect.
  • Commodities and food effects have continued to reduce slowly over the last 12-18 months.
  • Energy is having a deflationary effect, though this could easily reverse with base effects and changing prices.

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Following the release of the CPI numbers, the Fed’s Chair, Jerome Powell, held a closed-door meeting with US House members.

Here, he reportedly said words to the effect that the CPI numbers were consistent with the Fed’s expectations and that they would look at the upcoming PCE report to give them some more information.

Elsewhere, January retail sales were also disappointing, down 0.8% month-on-month.

Housing starts were soft, down 14.8% month-on-month in January, but poor weather has been blamed for depressing both indicators.

Initial Jobless Claims remained low at 212,000, indicating that US labour markets still appear resilient.

On Tuesday, we saw the release of the NFIB small business survey, which showed that US business sentiment remains at recessionary levels.

However, the survey also showed small businesses continue to moderate price rises.

In terms of consumer sentiment, the University of Michigan update showed consumers feeling significantly more optimistic than the low levels in 2023.

Historically, this has correlated with S&P 500 market performance.

Global macroeconomics

US goods imports data demonstrates the sharp decline in China’s share of the US market.

As a percentage of total US imports, China has fallen from a peak of more than 20% prior to Covid back to 13.7% in December 2023 – roughly the same level as 2004.

Mexico has overtaken China with 15.3% of US imports, which at least partly reflects the outcome of “near-shoring”.

Elsewhere, the EVRISI survey of company sales in China shows that sales have fallen back to near-record lows and are only just above the Covid trough.

Japan and the UK dipped into technical recessions with a second quarter of economic contraction in Q4 2023. Germany also contracted but had been flat in the previous quarter. 

Japan’s three-decade economic slide continues, with the country slipping from the third to fourth-largest economy in the world after the US, China and Germany.

Australian macroeconomics

The unemployment rate rose to 4.1% (consensus 4.0%), which is the first time above 4% since Jan 2022.

Employment was flat, the number of unemployed rose 22,000, and the number of hours worked dropped 2.5%, though there may be seasonal effects at play.

It’s only one month of data, but it is in line with other indications that the Australian economy is starting to show signs of slowing.

The trend in employment growth slowed considerably towards the end of 2023.

Also, the shift from full-time to part-time employment as the composition of hours worked indicates a degree of under-utilisation within the Australian labour force, which is important in helping slow inflation.

ASX earnings season

It’s still relatively early days, but it’s been a decent start to ASX half-year reporting season.

Australian companies seem to have navigated relatively subdued revenue growth by increasing margins and delivering decent EPS outcomes.

An analysis of management commentary indicates that companies are, if anything, a bit more optimistic (or at least less pessimistic) about current positioning and the outlook for the year ahead.

About Rajinder Singh and Pendal’s responsible investing strategies

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

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

Part of Perpetual Group, Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. Responsible investing leader Regnan is now also part of Perpetual Group.

Contact a Pendal key account manager here

Fund Manager commentary for the month and quarter ended 31 December 2017 covering market reviews, BT Investment Management fund performance and our outlook for the period ahead.

Access the monthly commentary here.

Access the quarterly commentary here.