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Jim Taylor: What’s driving ASX stocks this week

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

MOST eyes were on a generally positive US reporting season last week, with the S&P 500 up 0.89% while the S&P/ASX 300 fell 0.28%.

US economic data was mixed, but did little to change the current narrative of slowing economic growth.

In Australia the headline consumer price index (CPI) for Q1 2023 was a little ahead of consensus expectations, but lower than Q4 2022.

The market is now expecting the RBA to maintain current rates at its May meeting.  

Elsewhere, quarterly production reports from the miners have been generally disappointing, with higher costs and lower volumes, for a variety of reasons.

Australian inflation

Headline CPI came in at 1.38% for Q1 2023.

While this was above consensus expectations of 1.30%, it was well below the 1.90% of Q4 2022.

Annual growth is running at 7.0% versus 7.8% in Q4 2022.

Measures of underlying inflation were marginally softer than expected.

The trimmed-mean CPI rose 1.2%, down from 1.7% in Q4 2022 and below the 1.4% consensus expectation.

It is also 0.2% lower than the RBA estimate in February’s Statement on Monetary Policy.

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The breadth of the inflation impulse continues to diminish.

The share of items in the CPI basket rising more than 3% year-on-year fell to 60%, from 76% in the previous quarter. 

The moderation in inflation is driven by goods, with year-on-year growth falling from 9.5% to 7.6%.

Price discounting by retailers saw falls across furniture (-4.6 per cent), major and small appliances (-3.8 per cent and -3.6 per cent) and clothing (-3.2 per cent).

Services inflation accelerated from 5.5% to 6.1% year-on-year. Rental prices increased 4.9% within the basket, the largest annual rise since 2010.

US Economic data

There were some mixed messages from economic data last week, but on balance seems enough to lock in a 25bp hike from the Fed for May.

The core Personal Consumption Expenditure (PCE) deflator rose 0.3% month-on-month for March, in line with consensus.

Upward revisions to the result for January and February mean the annualised number came in at 4.9%, above the 4.7% expected by consensus.

Pendal Horizon Fund

A concentrated Aussie equities portfolio aligned with the transition to a sustainable, future economy

The Core PCE services ex-housing figure, which is closely watched by the Fed, came in at 0.24% month-on-month. This is the lowest reading since July last year and down on the 0.36% result for February and the 0.44% average increase over the prior three months.

Consumer inflation expectations as measured by the Conference Board continue to be contained. The median inflation expectation for twelve months hence fell from 5.5% in March to 5.3% in April. This is the lowest level since April 2021.

Wages and employment

While inflation trends are reassuring, strength in employment costs seems enough to keep the Fed on track for a rate hike this month.

The Q1 2023 Employment Cost Index (ECI) rose 1.2% versus consensus expectations of 1.1%. It is up 4.9% year-on-year.

Within this, private sector wages-ex-incentives rose 1.3%, or 5.2% annualised, which is an increase from the 4.3% recording in Q4 2022.

While this is a break in the trend of slowing wage growth, data from Bank of America which looks at consumer deposit data to measure after-tax wage and salaries, suggests that the three month moving average has fallen to 2.0% annualised. This is down from the peak of 8.0% by the same measure in Q2 2022.

Elsewhere, weekly jobless claims fell from 1,868k to 1,858k. This is fewer claims than consensus expected and underscores the notion of a resilient labour market.

However layoffs continue and are broadening out from the tech sector. The largest layoff announcements for April are from David’s Bridal (9,000 jobs), 3M (4,000 jobs) and EY (3,000 jobs).


US GDP grew by 1.1% quarter-on-quarter in Q1 2024. This is down from 2.6% in Q4 2022 and below consensus estimates of 1.9%.

Consumer spending remains robust, up 3.7% quarter-on-quarter versus 1.0% in Q4 2022. However this was more than offset by weaker inventory investment, which took 2.3% off Q1 growth.

Housing also dragged, with residential investment taking 0.17% off growth.

That said, this was less than the 1.4% and 1.2% drag form the third and fourth quarters of 2022, respectively.

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Crispin Murray’s Pendal Focus Australian Share Fund

New home sales have proved stronger than expected. Sales increased 9.6% to an annualized 683,000 pace in March.

There is an argument this is driven by low turnover in the existing homes markets, with owners unwilling to sell and re-finance at higher rates.


The air-pocket in US earnings that some feared has not materialised in this quarter.

Aggregate earnings for the S&P 500 have fallen 3.7% in Q1, versus expectations of 6.7% as at the end of March. Aggregate revenue has grown 2.9%.

Of the 53% of companies that have reported, 79% are ahead of consensus EPS expectations, versus a five year average of 77%. 74% have beaten consensus revenue expectations, versus a 69% five year average.

In aggregate, earnings are 6.9% above expectations, below the five-year average of 8.4%.

Some key takeaways:

  • UPS: Noted that parcel volume trends deteriorated over the quarter, with US domestic volumes down in the high single-digits year-on year in March, versus low single digits in January.
  • Microsoft: Revenue was up 7% and net income ahead of expectations. Management noted that customers are exercising some caution.
  • Amazon: The market liked the strength in the international business, however reacted negatively to management’s observation that the cloud-based business is seeing slower growth as customers become more prudent in spending.

About Jim Taylor and Pendal Focus Australian Share Fund

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

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