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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WHILE geopolitical headlines are dominating, they have not yet driven major shifts in markets.

The S&P 500 was off 0.1% last week, while the ASX 300 was down 0.5%. There were only small moves in currencies and bond yields. Oil was up 3.7% and gold was down 1.8%.

So far, markets have largely shrugged off the Middle East conflict but with the US officially joining in active combat over the weekend, that might change. The next move from Iran will be critical. 

We have seen some risk premium come into the oil price, though physical flows have been largely unaffected. Action to close the Strait of Hormuz – through which roughly 20% of the world’s oil trade flows – could change that too.

Central banks globally are looking to cut rates to stimulate somewhat anaemic outlooks – the extent to which an inflationary oil price shock may alter this mechanism seems to be the main implication markets are focused on. 

Elsewhere, the US FOMC meeting was – as expected – uneventful. There was little meaningful news flow on tariffs, but some weaker data on the US housing market.

We are entering a period with strong seasonal effects in market and tax-loss selling ahead of the end of financial year so there may be some unusual moves over coming weeks.

US macro and policy

FOMC

The Fed unanimously voted to keep rates in the 4.25-4.5% range and is leaving its options open, stating that uncertainty about the economic outlook “has diminished but remains elevated” and that “the Committee is attentive to the risks to both sides of its dual mandate”.

In his press conference, Chairman Powell said that there might be some small cracks in the US labour market – and all but four of 19 participants noted that the outlook for unemployment was more uncertain than usual – but that the Committee was not concerned at this point. 

He also noted that current settings were moderately restrictive and well positioned to be able to manage the risks and uncertainties they face.

Most members are also seeing the inflation outlook as unusually uncertain, with the risks skewed to the upside. Powell emphasised the importance of keeping longer-term inflation expectations well anchored to ensure that a one-time, tariff-induced increase in the price level does not become an ongoing inflation problem.

Other macro data

Headline retail sales were -0.9% in May, versus -0.6% expected, with net revisions to previous months of -0.3%. However, “control” retail sales, which exclude the most volatile items, rose 0.4%, slightly ahead of +0.3% consensus expectations, with net revisions of +0.2%.

Sales ex-autos dipped by 0.1% versus +0.3% expected. Net revisions were -0.2%.

Industrial production fell by 0.2% in May, versus flat expectations.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) builder confidence in the newly built single-family home market was 32 in June, down from 34 in May.

This index has only been lower twice since 2012 – in December 2022 (when it hit 31) and in April 2020 when it slumped from 40 to 30 at the start of the pandemic.

Housing starts fell 9.8% (versus -0.8% expected) in May to an annualised rate of 1.26 million homes, which is the slowest pace since the pandemic. Initial jobless claims are spiking, but this is a usual trend at this point in the year. Employment in the US remains a major watch-point.

Global macro and policy

The UK Consumer Price Index (CPI) eased, rising at 0.2% month-on-month and 3.4% year-on-year.

Bank of England kept rates at 4.25% as expected, though more committee members than anticipated had voted for a cut.

The Eurozone CPI was 0% month-on-month and up 1.9% year-on-year.

The Bank of Japan also kept rates unchanged and reported a reduction in Japanese government bond purchases of ¥200B each quarter, starting from April 2026.

In China, it is worth noting that while the month-on-month shift in newly built home prices remains negative, it has improved sharply from this time last year. If this flips back to positive, it could see a swift improvement in China consumer confidence, such as we saw in late 2022/early 2023.

Macro and policy Australia

The Australian unemployment rate remained steady at 4.1%. Underemployment at 5.9% fell to a new cycle low. Hours worked rose 1.3% in the month.

The number of employed people fell 2,500 for the month after rising 89,000 in April.

Despite this volatility in month-to-month data, the underlying pace of employment growth remains solid. The employment to population ratio remains around record highs of 64.3%.

Markets

Oil markets remain watchful on the Israel-Iran conflict and the risk of a wider and more prolonged conflagration.

Physical flows remain uninterrupted thus far, although Iran has indicated the possibility of closing the Strait of Hormuz.

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The price has risen more than 20% in June, but the level itself (Brent crude US$77/bbl) is not stretched versus where it has been trading previously – there is further risk should the conflict escalate and affect physical flows.  

We note on underlying fundamentals that global crude oil inventories are low, China’s oil demand has improved somewhat sequentially, and OPEC+ members also appear to be complying with production targets.

Turning to equities, there are a number of interesting observations:

• Historically, S&P 500 selloffs in response to geopolitical volatility going back to the Second World War have been a median of 17 days with a median of 16 days to recover.
• Bloomberg reported that the number of conversations about “reshoring” in the S&P 500 earnings season spiked to 60 (and to 193 in the small company Russell 3000). For the S&P 500, most of the conversations were in the healthcare, industrial and utility sectors.
• There are some signs of softer sentiment, with the AAII net Bullish verses Bearish sentiment indicator shifting back into negative territory after briefly swinging positive.
• Positioning also remains cautious, with cyclicals versus defensives exposure having plunged in April to historically low levels.
• Despite narratives to the contrary, foreign inflows to US stocks are annualising at the second largest year ever, behind 2024.
• Next-twelve month earnings estimates for the S&P 500 have hit an all-time high, regaining ground lost after the initially tariff announcements.
• Retail buying of the US market slowed from the extremely high levels of March and April, but still remains strong at US$23bn inflows.

In global equities, we sawsolar names lower following the release of the US Senate’s draft of the “Big, beautiful bill” that retained the phasing out of solar, wind, and energy credits by 2028.

Residential construction company Lennar noted it continues to see softness in the housing market due to affordability challenges and a decline in consumer confidence.

Payment stocks like Mastercard, Visa and PayPal came under pressure after passage of the Genius Act in the Senate, which establishes a pro-growth regulatory framework for crypto stablecoins and Coinbase’s launched a new stablecoin-based payments platform.

Global recruitment firm Hays issued a profit warning ahead of its FY25 close, noting activity levels have softened in the June quarter, with broad-based weakness in permanent roles globally reflecting low levels of client and candidate confidence as a result of macroeconomic uncertainty. They noted that temporary employment and contracting activity continues to be more resilient.

Australian equities

In Australia, Resources (-2.5%) was the weakest sector, though there was strength in Energy (+5.5%), while Materials (-4.2%) was the weakest GOCS sector.

Technology (+1.4%) and Industrials (+1.0%) were both solid.flow out of the Government review into supermarkets.

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