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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.

GLOBAL markets remain weak as the US and European economies continue to show greater strength than expected.

Last week’s US personal consumption expenditures (PCE) data – a measure of inflation – also came in higher than expected.

Bond yields continue to climb in response. US two-year yields broke to new cycle highs of 4.8% while 10-year yields are at 3.95% – 30 bps off their cycle highs.

The same is true in Europe, with German two-year yields at new cycle highs of 3% versus -0.5% this time last year.

Australian bonds yields haven’t quite broken to new highs. But we suspect it’s a matter of time until we test 4%.

Higher yields are a headwind to equity markets. The S&P 500 fell 2.66% last week and has now given back about 60% of the year’s gains.

The Australian market (S&P/ASX 300 was down 0.29%) held up better than the US. Reporting season is broadly signalling earnings resilience for the time being.

A firming bid for Origin (ORG, +15.4%) also helped. The Australian market has now given back about half of its 2023 gains.

Higher rates are driving the US dollar higher. Resulting tighter global liquidity adds an additional market headwind.

The S&P 500 has fallen back to its 200-day moving average support level, so this week’s payroll data will be important.

Beyond the Numbers

Crispin Murray’s
biannual ASX outlook


There is debate as to whether the mild winter is playing havoc with seasonal adjustments and the underlying economy is in fact slowing.

The downside risk comes with sticky inflation forcing the Fed to be tougher, ultimately exacerbating a second-half slowdown or recession.

US Economics and policy

Last week’s jobless claims data, PMI surveys and personal consumption all reinforced the trend of stronger-than-expected economic conditions.

In combination with the PCE reading, this has prompted the market to shift rate expectations to a peak of 5.25% to 5.5% and a slower descent from the peak.

The PCE rose 0.62% month-on-month and 5.38% year-on-year.

Core PCE rose +0.57% month-on-month, its strongest monthly gains since June 2022. It is up 4.71% year-on-year. We also saw upward revisions to recent months.

Core services PCE is the key battleground determining how quickly inflation will fall. It had its largest three-month moving-average increase for the cycle.

The bottom line is that these numbers are too hot for the market’s liking and leave the Fed in a challenging place.

At this point a return to a 50bp hike in the next meeting remains unlikely. But the bar for a pause in hikes has been lifted.

This is all underpinned by an economy holding up better than expected.

The Atlanta Fed’s GDPNow indicator remains materially higher than market forecasts for Q1 – and is still rising, driven by non-residential investment and consumption.

High-profile job cuts that have come with US reporting season are not reflected in US Initial Unemployment Claims, which remains at historical lows.

Clearly there is a direct effect of unemployment on wage inflation.

In addition, low unemployment and concern around job security have a significant bearing on propensity to spend and the savings rate. Last week’s personal consumption data highlighted the continued use of excess savings to support spending, despite the low savings rate.

We also saw more data revisions, raising the current savings rate from 3.4% to 4.7% (which is not as low as feared).

This inferred that excess savings have been run down less than thought. The potential size of excess savings also ranges widely depending on the calculation methodology.

The upshot is that it could continue to support spending anywhere between six and 12 months. This will also be tied to confidence around employment prospects. 


This week’s US payroll data – and the inference for inflation and economic conditions – will be important with the S&P 500 falling back near a technical support level.

A bounce off the 200-day moving average would be a clear positive. If the support level fails, the December low of 3800 – or even potentially a cycle low of 3600 – could be tested. The US dollar index has risen back to resistance levels.

If these are broken, it would remove a prior tailwind for equities.

Finally, the US 30-yr bond yield is approaching a key resistance point at 4%. Concern over housing will build if it breaks through. 

In the oil market, we are seeing counter-seasonal increases in crude and product inventories. This can no longer be blamed on the release of the US strategic petroleum reserve.

This is inconsistent with what you would expect, given stronger US economic data and the re-opening of China. Nevertheless, it is occurring and is downward putting pressure on oil prices.

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Brent crude currently looks range-bound between US$70 to US$86 a barrel. With spot at $US83, the near-term risk is to the downside.


Resources (-2.28%) fell as sentiment around China’s economy continue to deteriorate.

Any signs of continued recovery after the Chinese New Year have been limited, though this may simply be due to the winter.

The National People’s Congress which began yesterday will see the official announcement of new government positions and economic targets. 

Utilities (+6.22%) outperformed as the Brookfield consortium’s re-cut bid for Origin Energy (ORG, +15.43%) was more favourable than the market expected. 

ASX half-year reporting season

With only two days left we have a clear read on reporting season.

The broad theme has been stronger revenue offset by weaker margins

December-half revenue has risen 12% at an index level. About 38% of companies have beaten expectations while 18% have missed.

However this has not translated into operating leverage, since costs have risen 15% at the index level.

A margin squeeze has seen 49% of companies miss EPS expectations, versus a historical average of 30%.

Companies have signalled that costs are decelerating – though they will need to, since revenue can’t continue at this pace.

The net effect is that the misses have not flowed through to a spike in negative forward-year earnings revisions.

The mix of upgrades and downgrades to forward-year EPS was in line with historical trends.

Interest costs are beginning to build as a headwind to EPS, but still remain at relatively low levels.

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

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