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Crispin Murray: What’s driving Aussie equities this week

Here are the main factors driving the ASX this week according to our head of equities Crispin Murray. Reported by portfolio specialist Chris Adams.

A CONTINUED drop in bond yields, a weaker US dollar and lower oil prices helped markets squeeze higher last week in a relatively quiet period on the macro front.

The S&P 500 rose 1.6% and the S&P/ASX 300 lifted 1.5% last week.

The key question is whether we are seeing the US economy slow enough to relieve inflationary pressure via labour markets and commodity prices.

This would allow the market to conclude the forward pricing of rate increases had peaked, regardless of Fed rhetoric. 

The other related issue is how weak the economy gets and what this means for earnings.

There are several possible scenarios:

  1. A softer economy leads to falling bond yields and commodity prices. Earnings weakness is limited, allowing equities to continue rallying — potentially back to August highs (about 7% above current levels) 
  2. A softer economy is followed by a significant earnings downturn, which after a near-term rally sees the market reverse to prior lows
  3. Inflation remains stubbornly high, meaning the rate path needs to stay higher for longer despite a softening economy. This creates greater risk for economic and earnings downside and sees the market fall to new lows. All scenarios are plausible at this stage.

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Equity markets are tied to the US dollar, the oil price and bonds yields.

It will be important to watch how oil performs following the OPEC meeting on December 4 and any potential Moscow reaction to price caps.

Bond yields are hostage to the outlook for inflation. The US dollar would likely weaken on signs of a softer economy and the rate outlook easing off — but would bounce back on signs of persistent inflation.

US Economics and policy

Minutes from the Fed’s last meeting suggest it is likely to pause rate hikes, reflecting the need to weigh up the lagged and cumulative effects of rate increases so far.

There was a reference to some members seeing the ultimate peak as higher than previously thought. This was the point Powell used in his press conference to try to contain any easing in total financial conditions.

Fed speakers continue to emphasise a lack of consistent evidence that inflation is coming down.

They continue to see embedded inflation as the key risk — and as a result prefer to err on the side of over-tightening. 

A variety of lead indicators such as shipping prices, import prices, crude oil prices and surveys of expectations are moving in the right direction.

Two issues continue to underpin inflation:

  1. Supply chain shortages in certain areas. Several companies have recently flagged difficulties in obtaining certain parts. Part of the problem is that some industries re-tooled to different functions during the pandemic, prompting a structural decline in the number of suppliers of some industries.
  2. Labour. Wages remain stubbornly high, underpinning service inflation which is not yet showing signs of falling.

There are some anecdotal signs of softening in labour demand.

The US National Retail Federation — the world’s biggest retail trade association — expect seasonal hires of 525,000 versus 670,000 last year. This week’s US employment data will be an important test of this.

Initial reports for Black Friday weekend indicate strong retail sales (partly due to inflation.

Mastercard data suggest in-store purchases increased 12%, e-commerce sales rose 14%, apparel sales climbed 19%, restaurants jumped 21% and electronics lifted 4%.


There are widespread reports of protests about Covid lockdowns. Whether this leads to more loosening or harsher clampdowns is unclear.

It is hard to get a near-term read on China.

Covid cases are rising as the country goes into winter with limited hospital ICU capacity and no new vaccines yet approved.

The resources sector has remained largely resilient. The market is choosing to look through near-term weakness to focus on the re-opening trade.

As expected, the People’s Bank of China further reduced its bank reserve ratio requirements by 25bp to 11%.

This is part of an effort to bolster the economy in the face of rising cases and lockdowns. 


The ASX has now recovered back above its August highs.

Financials, energy and resources have led the way. Staples, property and small caps have lagged.

Stocks expected to benefit from lower bond yields led the market higher last week. REITs, industrials and banks were the strongest sectors.

Miners lagged, driven mainly by weaker lithium stocks.

Chinese spot lithium prices have been falling. Monthly sales of electric vehicles (EVs) fell 21% in October, though there was some seasonality and impact from lockdowns.

EVs made up 19.4% of new registrations in October, versus 21.8% in September. There is some concern of excess lithium inventory in the channel. This is a volatile sector with a lot of momentum and is prone to sizeable drawdowns. Unlike other commodities the outlook for demand remains very strong and supply is likely to be constrained. Any inventory issue is likely to be short lived.

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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  

Contact a Pendal key account manager

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at November 28, 2022. PFSL is the responsible entity and issuer of units in the Pendal Focus Australian Share Fund (Fund) ARSN: 113 232 812. 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

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