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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IT was a light week in terms of macro data.

We saw February non-farm payrolls and the Job Openings and Labor Turnover Survey (JOLTS) released which, overall, were supportive of inflationary pressure continuing to ease.

The Fed’s Chair Powell’s comments to Congress were taken positively.

Australian economic data painted a picture of an economy which is slowing, but still growing – albeit with some softer pockets.

There were few surprises from the opening days of China’s National People’s Congress sessions.

Beijing confirmed a target of 5% GDP growth for 2024.

The S&P 500 fell 0.23%, while the S&P/ASX 300 gained 1.85% due to a strong Friday.

US economy and inflation

There were a number of data prints which supported the view of a slowing economy and easing inflation.

While non-farm payrolls rose 275,000 in February – well ahead of consensus expectations – there were large downward revisions to December and January’s data.

As a result, net new jobs grew 108,000.

Average hourly earnings rose 0.1% versus consensus expectations of 0.2%, while the unemployment rate rose from 3.7% to 3.9%.

The “Quits” rate in the JOLTS data continued to fall.

This is important because there is a close correlation between it and the Employment Cost Index measure of private sector wages and salaries, with a lagged effect.

This suggests that the latter could fall below 4% in coming months.

The February ISM services index dropped from 53.4 to 52.6, below the 53.0 expected by consensus.

Demand-based components showed some strength – with New Orders rising 1.1 points to 56.1.

Employment and inflation components, however, fell.

It was also interesting to note that the Congressional Budget Office increased its estimate of population growth in the US in 2023 from 0.5% to 1.1%.

It also raised the 2024 estimation from 0.5% to 1.2%, noting the impact of undocumented migrants.

Fedspeak

Atlanta Fed President and FOMC voting member Raphael Bostic said that he expects the Fed’s first rate cut, which he pencilled in for the third quarter, to be followed by a pause.

In separate commentary, he expressed concern that businesses are too exuberant and could unleash a burst of new demand after easing boosts price pressures.

Meanwhile, in his testimony to Congress Fed Chair Powell noted that easing will probably be appropriate “at some point this year” and that the number of cuts depend on the data.

The market took Powell’s comments positively, with US Treasury yields falling and gold rising.

US election

Donald Trump had wins in both the courtroom and on the campaign trail last week.

The US Supreme Court said Trump can appear on presidential ballots this year.

The unanimous decision overturned a Colorado Supreme Court ruling barring Trump from running again due to his efforts to overturn his 2020 election loss.

Republican candidate Nikki Haley dropped out of the presidential contest after losing all but one of the Super Tuesday primaries – though she has not endorsed Trump’s candidacy.

Senate Minority leader Mitch McConnell subsequently endorsed Trump, which he’s previously been reluctant to do.

Australia

Australia’s GDP increased 0.24% in Q4 2023, which was largely in line with expectations.

The economy grew 1.55% year-on-year.

Consumer spending was positive but subdued, rising 0.1% for the quarter.

As a component, spending on discretionary items fell 0.9% quarter-on-quarter.

Housing construction activity fell, but this was offset by non-housing construction.

Importantly, labour productivity is improving following last year’s plunge, with the six-month annualised growth in productivity rising back towards 3%.

The current account surplus rose to $11.8 billion, which was well ahead of the $5-6 billion expected by the market due to a larger-than-expected rebound in net exports.

Europe

The ECB has reached its 2% inflation target, according to a Bloomberg Economics Nowcast.

The gauge, which uses 32 variables from unemployment to energy costs, fell to 1.95% after January’s drop in producer-prices was added.

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China

The first week of the National People’s Congress session did not yield much in the way of surprises.

The 2024 GDP growth target has been set at “around 5%”, which was largely as expected.

There has been rhetoric around AI, automation, technology, renewables, new energy vehicles (NEVs) and biotech as drivers of economic growth.

A special sovereign bond issuance plan, estimated to be around RMB 1 trillion for 2024, is designed to help mitigate the risk of local governments struggling to pay debt.

Markets

The small 0.23% fall in the S&P 500 meant that it only equalled its best run on record of rising in sixteen of the last eighteen weeks – last seen in 1971.

We note that on a historical basis, a strong start to the year typically has some persistence.

Going back to 1950, when the S&P 500 has risen in January and February, it has gone on to record gains over the remaining ten months of the year 92.9% of the time, with an average return of 8.1%.

That said, we also observe that this is starting to look like a relatively long run without a 2% retracement on a historical basis.

The put/call ratio is at the bottom end of its range, suggesting that sentiment remains very bullish.

In other news, as expected, OPEC+ agreed to extend the current curbs on oil supply through to June in order to support prices.

However, the gas price remains weak due to the combination of a mild European winter, high levels of gas in storage, and emerging concerns about increased supply from Qatar.

We also saw index changes on the ASX.

QBE Insurance (QBE) replaced Newmont (NEM) in the S&P/ASX 20, while Flight Centre (FLT) and Pro Medicus (PME) moved into the S&P/ASX 100, and Alumina (AWC) and Region Group (RGN) fell out.

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