The Point

Elise McKay: What’s driving ASX stocks this week

AI chip maker Nvidia – which continued to surge in price after last week’s blow-out first-quarter result – increasingly looks like “more than just another stock”, says Pendal’s Elise McKay.

“At present it appears to be a key driver of markets – touching almost every aspect of the global economy,” says Elise, an analyst and PM with Pendal’s Aussie equities team.

“Its influence is felt everywhere – from the geopolitical need for sovereign AI; to the productivity and cap-ex boom affecting economic growth; to increased demand for the commodities powering data centres; to the wealth effect of rising stock markets, which helps consumption.”

The velocity of demand for Nvidia’s graphics processing units continues to grow, with demand expected to outstrip supply until at least 2025.

Nvidia notes that corporations are now the fastest-growing segment for data-centre demand. But at the other end of the scale, there are now some 15,000 to 20,000 generative AI-related start-ups.

Pendal holds a number of ASX-listed stocks likely to benefit from the Nvidia effect.

Three charts that show the advantage of an active approach to fixed income

It’s been a bumpy road for fixed income – here’s the data on why now’s the time to consider allocating to an active manager, writes Pendal’s AMY XIE PATRICK

Anthony Moran: what’s driving Aussie equities this week?

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

IT’S been a bullish period for assets after the US monthly Consumer Price Index (CPI) broke its run of hawkish surprises – instead, delivering in line with expectations and validating the recent decline in bond yields and the US Dollar Index.

We also saw a continuation in the run of softer, but not disastrous, economic news – reinforcing the narrative’s switch back from “no landing” to “soft landing”.

In response, US equity markets hit fresh highs; the S&P500 gained 1.60%, the S&P/ASX 300 rose 0.98%, while commodities and bonds also moved higher over the week.

As a result of recent data, the market is now pricing 45 basis points (bps) of rate cuts in the US this year – with an 85% chance of a first cut by September.

At the same time, the Atlanta Fed GDPNow tracker estimates that the US economy will grow 3.6% in Q2 2024.

On balance, this combination is positive for markets and – given the slower pace of change in the data – may support this environment through the Northern summer.

However, Federal Reserve Chairman Jay Powell noted that while he expects inflation to come down, his confidence is not as high as it had been and that it may take longer than expected for restrictive policy to help bring inflation down to target.

So, bond yields overshot in mid-April, but it is hard to see them moving much lower from here in the short term given the large pullback from peak.

We also need to keep a close watch on company earnings for any sign of impact from a slowing economy.

Amy Xie Patrick: There’s more to life than Term Deposits

THE RESERVE BANK held the Overnight Cash Rate steady at 4.35% on May 7 for the fourth consecutive meeting.

At first look, this makes 12-month term deposits seem attractive.

The 2022 “everything sell-off” still haunts many investors, while the allure of higher interest rates and certainty of returns is hard to turn down.

At the margin, however, investors we speak to are starting to wonder whether there is more to life than term deposits — even in a higher interest rate environment.

Our answer? Yes!

Tim Hext: Looking beyond the noise at this year’s Budget

Despite a half-hearted post-Budget “higher-spending, higher-inflation” narrative, bond yields were “sharply unchanged, to quote the cliché”, says Pendal’s head of government bonds, Tim Hext.

“I think the RBA will see the Budget for what it is: a mixed bag of measures that will leave them hopeful of further inflation relief, but wary of whether the 2-3% target band can be achieved and sustained.”

Some Budget hawks are calling for higher rates to combat inflation they expect from new spending measures and future deficits based on conservative commodity price forecasts, Tim says.

“My view is we are sufficiently past the pandemic that supply chains can handle a modest rise in consumer spending without stoking inflation.”

A number of direct Budget measures – especially the $300 electricity subsidies – should help the CPI, Tim says.

Federal treasury is forecasting inflation of 2.75% for 2024-25, while Tim expects the RBA to revise its forecast down from 3.2% to around 3%.

In a short analysis piece, Tim goes into more detail and covers the impact on bond issuance.

Crispin Murray: What’s driving the ASX this week?

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