What’s driving ASX stocks this week | Pendal Group
Hi there! Welcome to the new look Pendal website... Take a two minute tour to see what we’ve changed.

Mainstream Online Web Portal

Investors can view their accounts online via a secure web portal. After registering, you can access your account balances, periodical statements, tax statements, transaction histories and distribution statements / details.
Advisers will also have access to view their clients’ accounts online via the secure web portal.

What’s driving ASX stocks this week

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

THE Reserve Bank managed to wrong-foot most of the experts last week, raising rates after April’s pause.

The US Fed also raised 25bps, but signalled it was now open to pausing further rate rises.

A number of important US data releases continued to paint a mixed signal for the economy. 

The Australian market went through its unofficial third-quarter reporting season at last week’s Macquarie Australia Conference.

There was volatility in bond markets last week. Equities and commodities were mostly softer, but helped by a strong rally on Friday. The S&P/ASX 300 fell 1.17% while the S&P 500 was down 0.78%.

It was mostly stock-specific news that moved share prices in Australia. Two of the big four banks reported, which was instructive of future performance for the sector.

US employment and manufacturing data

It was a big week for US employment data.

Firstly, the Job Openings and Labor Turnover Survey (JOLTS) confirmed other recent data that the US jobs market was solid, but gains were slowing. 

JOLTS is typically used as a measure of labour market tightness. Last week’s numbers confirmed that some of the post-pandemic pressures were starting to ease.

The number of layoffs continued to trend higher. Overall job openings — while still high — fell from 9.97 million in February to 9.59 million in March.

The drop in job openings was concentrated in construction and retail trade, which implies the re-opening story is slowing.

Find out about Pendal Sustainable Australian Share Fund

Initial unemployment claims printed 242,000 for the week ending April 29, down from a revised 229,000 in the prior week. The four-week moving average rose to 239,000.

The latest Challenger Report, which tracks employment trends, indicated that hiring trends for the first four months of 2023 were the weakest since 2016.

The final big US employment data point late in the week was non-farm payrolls.

US payroll employment rose a solid 253,000 in April, soundly beating expectations of +180,000 — though there were notable downward revisions to prior months.

The headline US unemployment rate fell to 3.4%. Participation was flat at 62.6%.

The same report indicated that average hourly earnings were robust, up 0.5% month-on-month and still growing solidly at 4.4% year-on-year.

Overall, these datapoints paint a picture of a jobs market that remains solid, though the momentum is clearly slowing.

The absence of a decrease in average hourly earnings rate will be watched closely by Fed policy makers.

In terms of private business conditions indicators, the US Manufacturing PMI — a monthly index measuring the economic health of the manufacturing sector — was released on Tuesday.

The headline number was 47.1, which is still in mild contraction territory. New orders at 45.7 indicate there is no turning point any time soon.

A decent correlation between US bank lending conditions and the PMI indicates further softness, given recent concerns in the US financial system, particularly in regional banks.

The Fed meeting

The Fed raised rates 25bp to a range of 5% to 5.25% at last week’s meeting, despite recent concerns over stress in the US banking system.

However the rate-setting Federal Open Market Committee hinted at a pause in the hiking cycle by removing “the committee anticipates that some additional policy firming may be appropriate” from its post-meeting statement.

The FOMC balanced this hint toward a June pause with a message that it retains a hawkish bias.

The committee said it would take into account the totality of the data “in determining the extent to which additional policy firming may be appropriate”.

On his conference call, Fed chair Jay Powell also noted:

  • “We’re no longer saying that we anticipate” further increases; which was “a meaningful change”
  • The US labour market remained tight. Labour demand still exceeded supply, though some progress was being made
  • It’s possible the US would have a “mild recession,” but Powell’s forecast remains for modest growth
  • The Fed funds rate was at a 16-year high — “not far off” from a restrictive level

In a Q&A, Powell said market expectations for rate cuts in 2023 might be incorrect if inflation was sticky.

This might dampen the view of a very short pause, before cuts are in needed at the back end of 2023.

All in all, there was quite a bit of nuance for the market to digest. US two-year Treasuries in particular experienced  significant intraday volatility.

Europe macro

Eurozone inflation rose 0.7% in April. Over 12 months it was up 7%, compared to a 6.9% figure in March.

This was broadly in line with consensus. The underlying Consumer Price Index was still persistently high at 5.6%.

After three hikes of 0.5 percentage points, the European Central Bank followed with a more moderate 25bp increase to 3.25%. This matched market expectations.

Unlike the Fed, ECB president Christine Lagarde made it clear she was not about to pause and expected to hike further.

“We have more ground to cover and we are not pausing,” she said. “That’s extremely clear.”

Some ECB members advocated for a bigger hike. But in a partial concession the ECB statement said it expected to halt reinvestments under its stimulatory Asset Purchase Program from July.

That should increase the run-off rate from 15 billion Euro to 25 billion Euro per month.

China macro

China’s markets were closed part of the week for the May Day Golden Week holiday. However we did see the release of manufacturing data from China’s National Bureau of Statistics (NBS).

NBS manufacturing PMI unexpectedly declined to 49.2 in April, below consensus expectations of 51.4. New orders fell to 48.8 from 53.6, indicating lacklustre demand.

Despite the moderation, non-manufacturing PMI stayed elevated at 56.4. Services and construction both pulled back slightly — but were still firmly in the recovery zone.

RBA outlook

The RBA defied consensus expectations and lifted the cash rate by 25bps to 3.85%, despite pausing its run of rate hikes in April.

The bank’s forward guidance was interpreted as being on the hawkish side. Governor Phil Lowe noted that “some further tightening of monetary policy may be required”.

The timing of the rate hike surprised many RBA watchers who had only just revised down rate expectations following a softer-than-expected first-quarter CPI print on April 26.

Just prior to the announcement, the market was priced for an 11 per cent chance of a 25bp hike, while 22 of 30 surveyed economists expected the RBA to remain on hold.

The RBA only slightly adjusted its inflation forecasts, which indicate 4.5% by end 2023 and 3% by mid-2025.

These are a touch weaker than February’s forecasts, but they have inflation getting back to the top edge of the 2-3% target band at the same time as previously.

GDP is forecast to slow this year a little more than previously expected to 1.25% (previously 1.6%), before strengthening to 2% by mid-2025 (previously 1.7%).

This left RBA watchers generally struggling to explain last week’s hike.

There was debate around communication issues, as well as the potential role of the government’s recent RBA review and recommendations.

The RBA statement’s focus on the services component of inflation is worth noting.

“Services price inflation is still very high and broadly based and the experience overseas points to upside risks,” the statement said.

“Unit labour costs are also rising briskly, with productivity growth remaining subdued.”

As pandemic shortages ease, goods inflation has started to roll over.

But the RBA is clearly concerned about the increasing contribution of services inflation to overall inflation levels in the Australian economy.

Markets

The S&P 500 is up a healthy 8.3% this year.

But there are some concerns about market breadth with the “average” stock underperforming mega caps in the S&P50.

US quarterly earnings season is closing out, with 86 per cent of companies having reported. 

Actual earnings so far been down about 3 per cent, which is better than an expected drop of about 7 per cent.

Sales growth has been strong and margins better than feared. 

Some commentators hope we’ve seen the worst of the negative earnings revisions.

Brent crude oil dropped another 5 per cent to $75.30. It’s now below the level before last month’s OPEC production cut and significantly below pre-Ukraine war levels.

Macro uncertainty is definitely a factor. But some are also pointing to an unwind of speculator positions exacerbating moves in a relatively low-volume period.

Gold is trading at close to all-time highs around US$2017/Oz. But the commodity has struggled to get past this level on previous occasions since many buyers — especially retail — choose to sit out of the market at these levels.

It is worth noting the AUD Gold price is well above previous levels at more than A$3000/Oz.


About Rajinder Singh and Pendal’s responsible investing strategies

Rajinder is a portfolio manager with Pendal’s Australian equities team. He 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 responsible investing strategies including:

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Responsible investing leader Regnan is part of Pendal Group.

Contact a Pendal key account manager here


This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at May 8, 2023. PFSL is the responsible entity and issuer of units in the Pendal Sustainable Australian Share Fund (Fund) ARSN: 097 661 857. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

Keep updated
Sign up to receive the latest news and views