US equity markets are rallying on strong earnings and “good-enough” economic data, while the ASX is lagging due to lower exposure to tech/AI and greater weight in resources and banks – which had a breather last week.

The S&P 500 gained 0.92%, the NASDAQ +1.1% and the small cap Russell 2000 +0.9% last week. The S&P/ASX 300 finished down 0.7%.

Brent and West Texas Intermediate oil both put on around US$10/barrel over the week with no progress on Iran.

We remain in a limbo period where existing inventories and demand destruction are preventing things from getting out of hand – but it’s only a matter of time before this changes.

US reporting season was generally positive and highlights a resilient consumer.

Several big tech companies reported last week, providing a positive backdrop with revenue generally ahead of consensus and increases to AI-related capex.

The Australian economy remains resilient. Last week’s Q1 consumer price index was high but in line with expectations, affirming the need for further rate rises.
Indications are that Australian consumers also remain resilient for now.

Markets appear to be marking time until the global economy starts slowing more materially.

US macro and policy

Rates

The US Fed held rates steady as expected but delivered some hawkish takeaways.

• Four out of 12 governors dissented – the most since 1992. Three of the four wanted to remove the inclusion of an easing bias in the statement. Chair Jay Powell noted there was a “vigorous debate” over the inclusion of the statement and it could be removed next meeting. Stephen Miran provided his customary vote for a rate cut.
• Powell said the bar for “looking through” the oil shock was high, given officials are already looking through the tariff shock while inflation has been high for a number of years.
• Citing concerns about Fed independence, Powell is staying on as a governor even after Kevin Warsh becomes Chair on May 15. This raises concerns of conflict with the White House.

Bond yields rallied last week due to higher oil prices, then rose faster after the Fed decision.

GDP

Elsewhere, the US economy showed stronger growth with Q1 GDP data up 2 per cent (annualised) versus the previous quarter. This was consistent with company feedback and not a surprise given the base effect of the government shutdown in Q4.

• Real final domestic demand grew 2.9% (or 2.5% excluding recovery from the government shutdown)
• Fixed business investment was the key driver, running at +10.4% annualised, due to information-processing equipment, software and data centres
• There was a partial offset from imports (+21%), driven by tech goods
• Real personal consumption slowed but remained reasonable at +1.6%, with stronger momentum over the quarter
• On the other side residential housing investment fell 8% annualised, down to 3.7% of GDP – the lowest level since Q4 2015.

The upshot is the US retains good momentum in GDP growth but is heavily dependent on tech investment.

Looking forward there will be a drag from higher oil prices – and this will build. But other energy prices are low, so the US is relatively well positioned versus other economies.

Fiscal stimulus is also providing short term support. US consumer plays which have been sold off may to surprise to the upside.

Inflation

The Fed’s preferred inflation measure, the Core Personal Consumption expenditures (PCE) price index, rose 3.2% annually to March. This is the most since 2023 but was in line with expectations.

It eased slightly on a monthly basis, to a still-firm +0.3%.

Real personal consumption expenditures grew at +0.2% monthly, showing robust support for economic growth. However, this relied on a declining savings rate – and is likely to come under pressure from rising inflation and declining government transfers.

The savings rate is still well above recession levels but needs wage growth to pick up to support continued spending growth.

Housing

New housing starts data for February and March came out last week. After falling slightly in February to 1,356K they jumped in March to 1,502K (versus about 1.4k expected), helped by warmer weather.

Homebuilding has been more resilient than feared but recent homebuilder commentary suggests a slowdown in April with permits quite weak in March.

Australia macro and policy

Inflation rose 1.4% in Q1, which is high but in line with market expectations.

Trimmed-mean CPI rose 0.8% for the quarter, which is also high, albeit slightly below consensus and the RBA forecast.

Bond yields were flat in response.

• Culprits: Services inflation (+0.8%) has remained high for the past three quarters driven largely by inflation in meals out and takeaway food. Insurance prices rose 2.2%, hairdressing and personal grooming services were up 1%, and maintenance and repair of motor vehicles gained 1.5%
• Consumer durables rose 1.4% on furniture, flooring and electric appliances, but softer housing turnover may take some pressure off. Clothing and footwear rose 3.8% due to higher silver and gold prices (the category includes jewellery).
• Offsets: At-home food inflation eased to +0.4%, but there was some medium-term upside risk from fertiliser prices. Government-administered inflation (excluding electricity prices) slowed significantly to +0.4% (eg childcare -0.7%). Housing inflation also slowed to +0.9%.

Electricity prices rose 17.8% due to the expiry of government rebates, while auto fuel prices rose +5.2%.

The Q1 data is a bit stale, given the key concern is now about higher hydrocarbon prices filtering through the economy and potentially into wage claims.

The consensus view is that we see another interest rate increase this week, and risk that further hikes will be required.

Stockland Group’s quarterly noted that total retail turnover grew 3.8% on a yearly basis to Q3 FY26, versus +3.6% in H1 FY26.

The “mini-major” category (stores between 400 and 1500 square metres such as JB Hi-Fi, Rebel Sport, Officeworks, Dan Murphy etc) and food saw the strongest growth. Homewares and apparel were the slowest.

Feedback from unlisted retailers suggests resilient spending growth.

The upshot is that there is more tightening coming in this cycle.

Short-term earnings look fine, but we are more cautious around discretionary retail and housing-related names in the medium term.

Other macro insights

The Eurozone’s economic outlook is looking much more challenged.

Q1 GDP slowed to +0.1% quarterly, while April’s CPI rose +3% yearly, up from 2.6% the previous month. While this is no worse than feared, Europe appears at greater risk of stagflation than other parts of the globe.

This is before the impact of higher oil prices on the economy (which EU is more exposed to).

The European Central Bank (ECB) and Bank of England (BOE) both left rates unchanged as expected.

The BOE noted weakening growth as an offset to inflation.

The ECB was more hawkish, as expected, warning that upside risks to inflation and downside risks to growth had increased.

Both central banks appear biased towards addressing inflation first, with a hike at the June meeting.

Commodities

Oil rose through the week given a lack of progress towards opening the Strait of Hormuz.

The longer this drags out, the longer it will take longer for supply to be restored after production shut-ins and shutdowns.

Right now, inventory releases and demand destruction – particularly in developing countries – is helping offset the supply shortage.

Asian economies have seen a raft of shortened working weeks, restrictions on transport and fuel rationing.

Australia continues to find incremental supply. The federal government announced it had secured 450mL of diesel and 100mL of jet fuel.

We are seeing some demand destruction in developed economies also.

Traffic volumes are already declining in the US and Australia. But the supply gap should increase from here – requiring more demand destruction.

There is also some circularity. Right now, the US economy is relatively insulated, allowing President Trump to stall talks and an agreement.

Conditions in the US may need to get worse before the conflict is resolved.

The UAE’s exit from OPEC is long-term bearish for oil but has little impact in the short term.

The UAE was operating near peak utilisation and will need to do repairs after the conflict ends. But long term the Emirates want to increase their supply.

US oil exports are surging, helping to fill the shortfall. But there has been no increase in shale production yet. Listed players, which dominate production, remain capital-disciplined.

It is interesting to note that LNG prices have not risen as much as expected – up only a fraction of the surge seen in response to the Ukraine conflict in 2022.

This has helped alleviate some of the conflict’s pressure on European power prices and Asian economies.

It comes as Chinese LNG demand has been softer than expected due to the impact of more investment in renewables – as well as the abundance of domestic coal as a substitute.

We are also seeing LNG demand destruction in markets like India.

Gold has been negatively correlated to oil in this episode.

Weakness in AUD terms means downgrades on mark-to-market for Australian gold miners. Given their large margins this means issues like higher diesel costs are dwarfed by the commodity price impact.

More broadly, the resources stocks have benefited from the market focus on the supply impacts from the Iran conflict.

We are mindful of the risk that the focus shifts to the demand impacts of weaker economic growth and sees the sector roll over.

Markets

US equities are hitting record highs, given less economic sensitivity to the Iran conflict and greater exposure to AI/tech.

The tech sector was initially softer last week after reports OpenAI missed an internal revenue target (which the company later refuted).

But Anthropic’s revenue growth suggests this is driven by competition rather a slowdown in industry growth.

A strong result ultimately saw tech rebound.

Almost two-thirds of the S&P 500 has now reported with 61% beating consensus by more than a standard deviation.

Only 5% of companies have missed estimates.

But because of the uncertain macro backdrop, the reward for beats has been small.

Four AI “hyper-scalers” (Amazon, Alphabet, Meta and Microsoft) reported last week, beating consensus on sales, earnings and capex guidance.
• Alphabet rose 10% after reporting acceleration in Google Cloud growth
• Amazon gained 1% on stronger Amazon Web Services growth
• Microsoft fell 4% as growth in Azure didn’t accelerate meaningfully
• Meta lost 9% as capex guided higher despite disappointing user growth and not delivering operating leverage.

The upshot is AI infrastructure demand continues to grow.

Alphabet noted it was compute-constrained and cloud revenue would have been higher if it had the capacity. Their 2027 capex was set to “significantly increase” over 2026.

This is a positive read-through for local AI infrastructure providers such as NextDC (NXT).

Other results demonstrated a robust consumer:
• Fast-moving consumer good companies P&G, Mondelez and Unilever all showed volume growth after a softer December quarter
• Fiber Packaging companies also saw improving volume growth
• Casinos demonstrated resilient land-based revenues
• Quick service restaurants are delivering continued growth in the US as well

The impact of tax refunds is likely helping support things. But the risk is to the downside as Iran conflict drags on.

Australian equities

The ASX underperformed the US with less exposure to AI/tech and the key sectors of resources and banks taking a breather.

Utilities and healthcare were weaker on stock-specific news, while ongoing fears of a consumer slowdown weighed on consumer discretionary.

On the positive side the energy sector followed oil prices up. With economic concerns weighing on other sectors, we saw outperformance from REITs and the defensive industrials. 

IMPORTANT INFORMATION: This document has been prepared by Enhance Financial Partners, ABN 45 146 707 173 AFSL 515518, based on our understanding of the relevant legislation at the time of writing. While every care has been taken, Enhance Financial Partners makes no representations as to the accuracy or completeness of the contents. The information is of a general nature only and has been prepared without consideration of your individual objectives, financial situation or needs. Before making any decisions, you should consider the appropriateness for your personal investment objectives, financial situation or individual needs. We recommend you see a financial adviser, registered tax agent or legal adviser before making any decisions based on this information.