What’s driving ASX stocks this week?

Here are the main factors driving the ASX this week, according to Pendal portfolio manager PETE DAVIDSON. Reported by head investment specialist Chris Adams

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GLOBAL equity markets are climbing the wall of worry, with most indices now 25% above their post-Liberation Day lows and close to all-time highs.

This suggests investors are backing a Goldilocks version of the US economy with not too much inflation from tariffs (as exporters “pay to play” by absorbing tariffs through lower production margins) and just enough spending growth from consumers to keep growth intact.

The US technology sector has reached record highs, fuelled by optimism that strong earnings will persist following the passage of Trump’s One Big Beautiful Bill Act (OBBBA) on 4 July, which includes tax cut extensions for individuals and new permanent capital expenditure deductions for companies.

NVIDIA’s market capitalisation reached a historic US$4 trillion last week, equivalent to 2.3x the total value of the ASX200 and approximately 30 times the size of Commonwealth Bank (CBA).

Additionally, NVIDIA is reportedly planning to launch a new AI chip specifically designed for the Chinese market in September.

Last week’s key headlines included US copper tariffs, a US Department of Defence rare earth offtake agreement and, domestically, an unexpected pause in rate cuts by the RBA.

On tariffs, the Trump administration noted a pending letter to the European Union – delivered over the weekend and imposing 30% tariffs on both it and Mexico – alongside threats of a 35% tariff on Canada and plans for a blanket 15% or 20% tariffs on most other trading partners.

The market was largely inured to these developments last week, perhaps seeing them as a negotiating tactic and preferring to wait for final resolution.

The S&P/ASX 300 fell 0.3% last week. Resources (+0.5%) fared better on a firmer iron ore price – underpinned again by tariff news with the US threat to hit major iron ore producer Brazil with a 50% tariff.

The S&P 500 was also off 0.3% and is +7.2% for the year.

There has been a change in leadership so far in 2025 with European (Euro STOXX 50 +12.8%) and UK (FTSE 100 +11.8%) markets performing well on expectations of far greater fiscal stimulus and a reindustrialisation of Europe. German defence names have been particularly strong.

At the margin these markets are also benefitting from a shift away from dollar assets, with the US Dollar trade-weighted index (DXY) down 10% for the year.

Indian and Chinese equities are also lagging.

US treasuries were relatively quiet, with 10-year bond yields edging up 7bps and remaining contained at the long end.

Commodities were generally stronger, led by copper which jumped 9% after the announcement it will face a 50% US tariff – the same rate as steel and aluminium.

The US uses about 6% of global copper and is expecting a surge in demand, mostly in tech and data centres applications. The Trump administration wants to secure its sovereign supply and bring smelting and refining back onshore.

Copper is now up just under 40% for the year. Lithium remains soft, down 18.5% for the year, in part reflecting reduced EV subsidies in many countries.

US macro and policy

It was a slow news week for macro data in the US.

The June FOMC minutes showed most members are waiting for more clarity on the effects of tariffs before altering rates.

A July rate cut is unlikely, but weaker labour data could prompt action in September.

The committee expects possible 25bp cuts in September, October, and December, though opinions remain divided.

The NFIB Small Business Optimism index inched down to 98.6 in June from 98.8 in June. This is better than this year’s lacklustre average of 93.0, though still far from its peak at 105.1 post Trump’s election, before tariffs dampened the mood.

While business owners’ optimism bounces around, hard data like hiring and investment plans remain soft. With fewer respondents than usual even bothering to answer the survey, things might be rougher than they appear.

Mortgage Applications leapt by 9.4% in the week ending 4 July to reach their highest level since February 2023.

The gradual decline in the 30-year average conventional mortgage rate to 6.77%, from 6.93% four weeks ago, is likely to have helped to bolster demand.

Some consumer surveys, however, also point to a pick-up in optimism and improved perceptions of job security over the last couple months.

The further decline in Initial Jobless Claims (to 227K last week, from 232K the week before) was largely driven by states with relatively large auto sectors where figures can be noisy due to annual summer shutdowns.

Meanwhile, continuing claims increased to 1,965K in the week ending 28 June, continuing to suggest a future rebound in the unemployment rate, which fell from 4.2% in May to 4.1% in June.

There were several developments on the tariff front, with the Trump Administration announcing:

• A 50% tariff on copper, in line with aluminium and steel.
• A 35% tariff on Canadian imports starting next month
• A 50% tariff against Brazil – which is a major supplier of beef, coffee and orange juice to the US. As a major supplier of iron ore, a large tariff is potentially positive for Australia.
• Intended tariffs of 15% or 20% on most other trade partners.
• A 200% tariff on pharmaceuticals is being considered – but the US will give companies extended time to build the manufacturing facilities in the US before applying tariffs if they don’t. Like copper, the aim is to bring manufacturing back to the US.

Tariff revenues have quickly risen from the range of US$6-8bn per month, to over $20bn in May.

A projected US$30 bn per month would equate to US$360bn per annum – the problem is that the US Budget Deficit is US$1800bn and is increasing, thanks to the Trump OBBA, which is projected to add US$240 bn in deficits per annum for next decade.

China macro and policy

Beijing has announced further population growth stimulus measures – with cash payments for children born after January 2025.

There was also further rhetoric related to recent comments around the need to remove excess capacity in core industries – such as steel. The risk here for Australia is that reduced steel capacity results in lower demand and pricing for iron ore, despite higher steel margins.

There was also some social media speculation that the leadership will be holding a meeting to help revive the property sector.

Australia macro and policy

The RBA surprised the market with its decision to leave the cash rate unchanged at 3.85% against expectations of a 25 bp cut.

The decision to pause the easing cycle was “about timing rather than direction” with the RBA just “looking for further confirmation we are on the forecast path”.

Governor Bullock reasoned a “cautious approach” was warranted, because year-over-year growth in the quarterly trimmed mean inflation had only just returned to the 2-3% target band (2.9%yoy), labour conditions were tight with negligible productivity growth, and because global uncertainty remains elevated.

The high number of dissents – the vote passed 6-3 in favour – also caught attention, highlighting clear debate over the appropriate policy stance.

Multiple economists previously calling for a July rate cut pushed back those expectations, but retained terminal rate forecasts of 3.10%, implying three more 25 bp cuts. Bond yields shifted ~14 bp higher across the curve.

Australian equities

July has seen a continued rotation from growth into resources/cyclicals, despite a slight bounce in US bond yields and further tariff agitation from Trump.

Stocks like James Hardie (JHX), BlueScope Steel (BSL) and Sims (SGM) have all benefitted from sector rotation, as have some of the weaker stocks in FY25 such as Amcor (AMC), Orora (ORA) and Light & Wonder (LNW).

The re-rate looks to be outpacing fundamentals in some instances – for example, BSL’s North American steel spreads have stabilised and there is an emerging risk around cost inflation and increased discounts.

Since the RBA surprise “hold” decision, the ASX 200 is flat, while the AUD/USD cross is +0.3% and Australian Government 10-year yields are +10bps.

Banks notably outperformed after the decision while, interest sensitive and defensive sectors have been weaker.

AREIT update

The AREIT sector returned 12.9% in FY25, against 13.8% for the S&P/ASX 300.

Performance was led by Charter Hall Group (CHC, +76.6%), driven by lower bond rates and signs that commercial real estate values have bottomed and, as a result, we have seen a pickup in fund flows and transaction activity.

Goodman Group (GMG, -0.6%) was a drag on the sector, unwinding previous outperformance with the market concerned about the capital required to build its data centres.

We expect stronger EPS growth for the sector, particularly from the retail REITs, affordable housing and fund managers.

We see a stronger-for-longer cycle for quality asset owners, as rising demand (helped by population growth) is met with limited supply – with higher construction costs meaning a majority of proposed developments are uneconomic.

Residential apartments, like many other forms of commercial real estate, are trading below replacement costs.

The sector has a twelve-month-forward dividend yield of 3.4% (5.5% excluding GMG), a price/earnings of 19x (14.7x excluding GMG) and three-year EPS growth rates of 5-6% or more, which is a historical high (4.2% excluding GMG).

Meanwhile we are seeing signs of equity managers buying AREIT cover and reducing active underweights.

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

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