The Australian sharemarket finished the week higher, although ongoing geopolitical uncertainty and mixed corporate and economic data kept the ASX 200 trading in a choppy range. The index rose 0.37% over the week. Labour market data was a key focus, with the unemployment rate rising more than expected to 4.5%, tempering expectations of a further cash rate increase. Consumer Staples was the standout sector, climbing 2.90%, with Woolworths gaining 5.15% following a JPMorgan upgrade. Financials (2.31%) and Energy (2.58%) sectors also delivered solid gains as bond yields moved higher and commodities continued to rally. In contrast, the Utilities (-3.66%) sector came under pressure as investors rotated towards risk-on assets amid positive signals surrounding the US-Iran conflict. Industrials (-2.24%) and Telecommunications (-2.37%) were also among the weakest performers, with Brambles tumbling 22.25% after issuing disappointing revenue and growth forecasts.
US sharemarkets extended their gains over the week, supported by easing bond yields and lower oil prices amid optimism surrounding US-Iran peace negotiations. The Technology sector (1.0%) also advanced, led by HP, which surged 21.29%, while other hardware names moved higher on growing optimism around demand for AI-powered PCs. Utilities (3.41%) and Health Care (3.32%) outperformed as a pullback in yields prompted sector rotation into defensive areas, making stable dividend income streams more appealing to investors. By contrast, Communication Services (-1.86%) was the weakest-performing sector, as consumer sentiment fell to its lowest level in three years, fuelling concerns over a broader slowdown in consumer spending and the flow-on impact to advertising and media revenues. Take-Two Interactive was the sector’s weakest performer, declining 6.14% on expectations of softer revenue.
European sharemarkets rallied broadly over the week, helped by a pause in the US Dollar’s recent strength and growing hopes of de-escalation in the Middle East. The Technology sector led the gains, jumping 6.31% as AI-linked stocks continued to surge. Infineon Technologies AG rose 12.62%, driven by strong demand for its power management chips used in AI data centres. More broadly, every sector in the European market finished in positive territory, with Retail (+5.10%), Travel & Leisure (+5.02%), and Telecommunications (+4.47%) all posting strong gains. Delivery Hero climbed 13.86% amid speculation of a potential takeover approach from Uber.
Stock & sector movements
What caught our eye
The Budget meets Reporting Season
The Federal Budget landed during a busy stretch of Australian company reporting, so investors have had a lot to digest. Company results were already showing a market that is becoming more uneven. The Budget just added another layer, with policy changes that are likely to help some sectors while making life harder for others.
The Budget is clearly not a broad boost for the economy and the sharemarket. It is more about shifting money and incentives around. Meaning the impact on equities is likely to be more selective than market wide. That said, zooming out a bit first, one could argue the changes to capital gains tax could lead to some weakness in shares. On this, we expect the impact to be well contained, given international investors are protected, super funds retain concessional treatment and personal retail investors make up a relatively small part of the market.
The likely winners
The clearest area of support is new housing. Changes to negative gearing and capital gains tax are designed to steer more investment towards new builds, which may help companies exposed to building materials, construction and housing supply. It will not solve the housing shortage on its own, but it may improve the backdrop for parts of the market tied to new development. This may help companies such as Boral, James Hardie, Brickworks and CSR.
Financial advice and investment platform businesses could also benefit. As tax and structuring rules become more complicated, more investors and business owners may look for advice. In that sense, complexity can create demand for businesses that help people navigate the system. Names like Hub24, Netwealth and Generation Development Group could be beneficiaries here.
There are also pockets of support in healthcare and aged care, where additional funding may help selected providers. Some consumer names may also get a small lift from household support and small business measures, though we would be careful not to overstate this. Consumers are still selective, and cost-of-living pressure has not disappeared.
The likely losers
The banks are the obvious pressure point. CBA and the other major banks remain strong, profitable businesses and still play an important role in many Australian income portfolios. But they are heavily linked to housing activity. If investor lending slows and turnover in established housing falls, revenue growth becomes harder to find. That does not mean the banks are suddenly unattractive. It does mean expectations need to be realistic, particularly after a strong run in share prices. Recent bank results have already shown that when valuations are high, the market can be quick to question whether earnings growth is strong enough to justify the price.
Mortgage lenders, real estate listing businesses and companies exposed to established property turnover may also face a tougher period if activity slows. For these businesses, the issue is not just house prices, but the number of transactions taking place. Real estate listing and property-exposed names such as REA Group, Domain and Stockland could also feel some pressure if established housing turnover slows.
The mixed areas
Healthcare is a good example of why investors need to look beneath the headline. Some parts of the sector may benefit from extra funding, while others exposed to NDIS changes, private health insurance settings or tighter government spending may come under pressure.
Retail is also mixed. Household support may help at the margin, but it is unlikely to change the fact that many consumers are still watching their spending.
Putting it all together
The Budget has not derailed the Australian equity market, but it has changed the conversation. In our view, this is an environment for being a bit more selective. The broad index may largely move with interest-rate expectations and sentiment, but the real opportunities are likely to come from identifying companies that can grow earnings despite a more uneven policy and economic backdrop.
Locally, the focus will be on the April inflation data, with year-on-year inflation expected to increase 1.3%. Additionally, we will hear from RBA Monetary Policy Board Member Carolyn Hewson to get a better understanding of the RBA's perspective on artificial intelligence.
Overseas, attention will turn to the US economic data, including quarterly GDP figures along with a range of labour and corporate indicators due for release. Markets will also be closely monitoring the ECB's Monetary Policy Meeting Accounts for insights into the region's upcoming interest rate decision.