Rajinder Singh: What’s driving Aussie equities this week?

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

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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:

• Pendal Sustainable Australian Share Fund
• Crispin Murray’s Pendal Horizon Fund
• Pendal Sustainable Australian Fixed Interest Fund
• Pendal Sustainable Balanced Fund
• Regnan Credit Impact Trust
• Regnan Global Equity Impact Solutions Fund

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.

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