What’s driving ASX stocks this week?

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

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A QUARTER AGO, the market had strong momentum, favourable liquidity and seasonals, but definitive signs of overexuberance. 

It could be argued it was due a correction, and this has occurred.

The answer has consistently been to buy the correction.  It never feels comfortable at the time, but this has been the correct answer – unless the economy is sliding into recession. 

We have seen extremely rapid unwinding of positioning, some soft economic data and some weak company updates. 

The market stabilised last week – a sign that it is entering a new phase. The S&P 500 was up 0.5% and the S&P/ASX 300 1.9%.

What the US is attempting to do – in fundamentally rebalancing its economy – is not something society or the market has had to deal with much over the last few decades (we’ve had other things, certainly). 

It creates uncertainty.  This is reflected in sentiment indicators within the US.  It is also being reflected in capital flows globally.

Uncertainty feeds into confidence which can and does have the ability to drive the economy.  The prospect of policy missteps is elevated.

The Fed does have some room to maneuver with a currently strong employment backdrop and only moderately high but stable inflation. 

The Trump Administration can also try and give the market confidence at various points. They have made it clear they want to create structural change without causing recession.

We suspect short-term volatility will be elevated, as we head toward a most-likely favourable long-term environment for risk-assets. 

It feels somewhat analogous to the constant back and forth we had on soft versus hard landing. This is likely to go on for an extended period of time.

The comments above regard the US and its economy – the implications for individual countries and blocs will be just as interesting, with the derivative impacts highly uncertain. 

China is pushing a consumer recovery, while Germany is stimulating via higher defence spending and has awoken.  We are already seeing major shifts.

It seems more important than ever to construct portfolios to reflect vastly different economic outcomes, to be open minded and nimble but not reactive.

David Zervos, Chief Market Strategist at Jefferies, summed it up nicely. While approving of the “withdrawal” or “detoxification” of the US economy from dependence on the government sector, he noted the risk of economic convulsions through the process.

With regard to markets, he said that how it will play out “over the short term remains difficult to predict; but with the end result being a decisive move towards spending and regulatory parsimony, the long-term outlook for risk asset returns couldn’t be any brighter”.

Thus far, the S&P 500 drawdown is playing out in line with previous examples of corrections greater than 10%.

Historically, the median outcome is that stocks start a strong rebound two-to-three months after the market’s previous top – if there is no recession. If there is a recession, equities have historically continued to sell off.

US macro and policy

FOMC

As expected, the Fed left rates unchanged at 4.25%-4.50%.

The “dot plots” of expectations for future rate cuts from the FOMC participants still suggests a further 50bps of cuts in 2025, however the distribution shifted upwards, with four now expecting a midpoint of 4.375% in December, up from one, and the number expecting only a 25bp cut lifting from three to four.

New economic projections suggest most members expect the inflationary effect of tariffs to be short-term, but that concern over the outlook for employment is increasing.

Expected GDP growth for 2025 was reduced to 1.7%, from 2.1% in December, the unemployment rate nudged up from 4.3% to 4.4% and Core PCE inflation from 2.5% to 2.8%. However, 2026 expectations were largely unchanged.

The statement noted the economy “has continued to expand at a solid pace”, unemployment has “stabilized at a low level” and labor market conditions “remain solid”.

However, it noted that “uncertainty around the economic outlook has increased.” It also removed the previous reference to risks over employment and inflation goals as being “roughly in balance.”

It has announced that the pace of balance sheet reduction will be slowed, as a result.

Equity market took the release well and consensus rate cut expectations remained steady.

Other data

The preliminary Michigan Consumer Sentiment survey dropped from 64.7 in February to 57.9 in March – well below consensus and the third straight month of declines.

Both current sentiment and expectations were lower – the latter down 10 points from February. The difference in sentiment according to political party remains stark.

US Nominal Retail Sales increased just 0.2% month-on-month (MoM) in February. We note that high-frequency data like Open Table booking and bank lending show no signs of consumer caution yet.

US weekly unemployment benefit application were largely changed at 223,000, which is a relatively low level and indicates a resilient labor market.

This may deteriorate, however, given some of the recent layoff announcements.

The National Association of Home Builders/Wells Fargo Housing Market Index dropped three points to 39 this month, versus consensus expectations of 42. This is the lowest level since August 2024.

We also note that the average US 30-year mortgage rate rose for the first time since early January, to 6.72% for the week ending 14^th March.

Expectations of lower growth and higher inflation due to tariffs are also reflected in New York state manufacturing activity, which dropped in March to the lowest level since early 2024, while measures of prices picked up.

China policy and macro

The action plan announced following the recent National People’s Congress is aimed at boosting consumption as a driver of economic growth.

The plan’s seven parts, with some key elements, are:

1. Promote income growth. Boosting spending power via higher minimum wages, stabilizing stock and real estate markets, as well as subsidies and measures to support rural economies.
2. Improve consumption capacity. Giving people the means and confidence to spend via better access to credit and stronger social safety nets (eg childcare, pensions and healthcare support). 
3. Improve consumption of services and public benefits. Better access via measures such as elderly-friendly infrastructure, community-based childcare, home services industry standards and steps to improve tourism.
4. Upgrade large-item consumption. Encouraging purchases of items like cars and home appliances via subsidies and trade-in programs. Also measures to support affordable housing.
5. Improve consumption quality. Implement product standards and promote domestic brands, support further technological innovation such as AI and encourage sustainable products.
6. Improve consumption environment. Enhance consumer rights and tackle issues such as fake goods and unfair pricing. Upgrade infrastructure and improve convenience of the consumption environment.
7. Remove restrictive measures. Easing regulations that hinder consumption and improve credit availability. 

Elsewhere, year-on-year growth of industrial production (IP) came in at 5.9% for January-February, versus 6.2% in December but ahead of consensus expectations at 5.3%.

Fixed asset investment grew 4.1% (versus 3.2% expected) up from 2.2% in December. Retail sales rose 4.0% (3.8% expected) up from 3.8% in December.

There has been some front-loading of demand and production from a recent trade-in program and a boost in exports looking to get ahead of tariffs, so this growth may moderate in coming months.

Other policy and macro

The OECD cut global GDP growth forecasts from 3.3% to 3.1% for 2025 and from 3.3% to 3.0% for 2026, citing the uncertainty relating to trade barriers among G20 nations.

Mexico and Canada saw the largest reductions, but China was lifted from 4.7% to 4.8% in 2025.

The February Eurozone consumer price index (CPI) was revised lower to +2.3% year-on-year, versus the earlier flash reading of +2.4%.

The Bank of England’s Monetary Policy Committee left the benchmark policy rate at 4.5%.

Australia policy and macro

Employment

Employment data came in much weaker than consensus, falling -53k in February (seasonally adjusted) from January, versus -30k expected. This is after a year of almost continual upside surprises.

Hours worked fell -0.4% month-on-month.

The Australian Bureau of Statistics cited fewer older works returning to work post the holiday period, noting the participation rate dropped from 67.2% to 66.8% driven by change in the age cohorts 55 years and older.

The unemployment rate fell from 4.11% to 4.05% and underemployment from 6.0% to 5.9%, indicating that capacity remains relatively tight.

Indicators suggest labour demand remains stable and supported. 

Tariffs

On tariffs, current estimates suggest 2-8% of Australia’s $30bn in exports to the US will be hit in the next round, in the event of no exemptions. Affected areas include beef and pharmaceuticals.

Budget

Commentators broadly expect strong revenues, but offset by further spending and no change to the expectation of further deficit spending.

There is a likelihood of further rebates or “cost of living” measures given the upcoming election.

The spending outlook could hit a snag in the event of a minority government – based upon the 2010-2013 experience – depending on who formed it. Betting markets still imply a 2/3rds chance of this outcome, reflecting how tight the race is.

Elsewhere, March quarter manufacturing activity remains below average, whilst business investment has eased but remains above average.

Advertised salary growth is remaining stickily high at 3.6%.

Markets

Bond yields were down across the curve in US, with the 10-year down 7bps to 4.25%. The Australian equivalent fell 2bps to 4.40%.

Commodity prices were up small, on the whole. Gold (+14.8%) and copper (+27.6%) are the standouts calendar year-to-date.

Global equity indices were up over the week. The EUROSTOXX50 is the best performer in 2025, up 11.19%, which would not have appeared on too many bingo cards.

The current US drawdown is nothing out of the ordinary thus far – and is currently less than the average intra-year drawdown of 14.1% going back to 1980.

The correct response historically has been to buy the dip…unless the economy is heading into recession.

The rebalancing of systematic strategies away from equities appears to have played out and has already hit the low end of its 10-year range for a measure of commodity trading adviser (CTA) strategies.

Measures of investor net leverage and long/shorts suggest that fundamental investors have also shifted back to the bottom end of five-year ranges in terms of US equity exposure.

Retail investors have been slower to move.

The Goldman Sachs risk appetite indicator has diminished, but only back to a ‘neutral’ level.

Ther were some interesting company-specific updates to note:

• Nike Q3 revenue rose 3%, beating expectations. China was weak but North America and EMEA were better than expected.
• Fedex reduced its FY profit outlook for a third consecutive quarter, calling out waning consumer confidence and the impact of trade wars. 
• Homebuilder Lennar’s forecast for quarterly orders missed analysts’ estimates, with the co-CEO noting “a challenging macroeconomic environment for homebuilding.”

 Australian equities

The week finished with solid gains across the board for the ASX and its sectors, but was choppy throughout.

The S&P/ASX 300’s 1.9% gain brings it back to down -2.3% for the month.

Consumer staples (+4.0%) had the best week on news flow out of the Government review into supermarkets.

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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