Devon Funds Morning Note - 29 September 2025

Tuesday 30th September 2025

Tariffs and Turnarounds

Global

US equity markets ended higher on Friday, 26 September, snapping a three-session losing streak after core inflation data (PCE) met expectations. The S&P 500 gained 0.59% to close at 6,643.70, the Dow Jones Industrial Average advanced 0.65% to 46,247.29, and the Nasdaq Composite finished up 0.44% at 22,484.07.

Core inflation in the United States, as measured by the Federal Reserve’s preferred personal consumption expenditures (PCE) price index, was steady at 2.9% year-on-year in August 2025, exactly matching both July’s level and consensus expectations. On a monthly basis, the core PCE index rose 0.2%, continuing the recent trend of moderate price increases.

Headline PCE inflation, which includes food and energy, ticked up slightly to 2.7% year-on-year (from July’s 2.6%), with a 0.3% increase in prices for the month. Both measures remain above the Federal Reserve’s 2% inflation target, but the report failed to spark a notable market reaction, as traders had anticipated these figures and policy expectations were left unchanged.

Personal spending and income were stronger than forecast, rising 0.6% and 0.4% respectively, which highlights the ongoing resilience of US consumers even as policymakers continue to focus on stubborn inflation. The persistence of core inflation, attributed in part to higher import tariffs and passthrough effects, has kept pressure on the Fed, but the central bank is widely expected to deliver another 25bp rate cut by year-end, in keeping with its 2025 policy outlook.

Looking at commodities, Iron ore and Chinese steel rebar fell 2.1%, and 1.3% respectively. Brent crude continues its rise +1.0% to US$70.1/bbl while coal and uranium both fell 4.0% and 1.1%.

Bloomberg and sources reported over the weekend that OPEC+ will likely raise output by 137,000 oil barrels a day in November. With the group meeting on October 5th,this comes as Iraq has recommenced exporting oil from its northern region after more than a two-year period. Up to 190,000 barrels a day are expected to flow back into international markets, a development which could help offset recent disruptions linked to Ukrainian drone attacks on Russian refineries but may add downward pressure if global inventories build.

In Europe, markets rebounded firmly with banks and industrials leading the recovery after recent losses and investors reassessing the impact of new US tariffs.

The Euro Stoxx 50 closed up 1.0% at 5,499.70, reversing a two-session dip and locking its largest daily gain since mid-September. Weekly performance was also positive with a 0.73% rise, and the index is now just 0.7% below its March record high and up 9.3% year-on-year. Gains were led by banks (BBVA, BNP Paribas, Nordea, Intesa Sanpaolo all up 2%+), industrials, and steelmakers such as ArcelorMittal (+2.6%) after the European Commission confirmed plans for 25–50% tariffs on Chinese steel imports.

The FTSE 100 advanced 0.77% to 9,284.83, its fifth-highest close in history. The index gained 0.74% for the week, supported by construction, insurance, and mining stocks, and sits just 0.4% below its all-time record set in August. The biggest laggards on the day were select healthcare stocks, pressured by the White House’s 100% tariff on patented pharmaceuticals—Novo Nordisk (-3.5%) and Roche (-0.6%) declined as the broader healthcare sector underperformed.

Asian markets closed broadly lower, the Shanghai Composite fell 0.65% to 3,828.11, ending a two-day advance after the Trump administration announced fresh 100% tariffs on branded pharmaceuticals, 25% duties on heavy trucks, and up to 50% tariffs on imported furniture.

New Zealand

The S&P/NZX 50 index closed 0.32% lower at 13,112.22, marking its second consecutive day of decline and the sharpest weekly loss in two months (-0.9%). The local market mirrored broader global weakness, with investors recalibrating interest rate expectations following strong US economic data.

Leading the declines: Auckland International Airport fell 2.2%, Infratil dropped 3.6%, Contact Energy slipped 2.1%, and Mercury NZ eased 0.8%.

Synlait Milk’s FY25 results highlight early signs of operational recovery and stabilisation. The net profit after tax reached NZ$0.8 million, a noteworthy turnaround from last year’s NZ$182.1 million net loss, though the underlying adjusted loss still stands at NZ$39.8 million for the year. Group EBITDA nearly doubled year-on-year to NZ$107.2 million (unadjusted NZ$50.7 million), reflecting renewed profitability in Ingredients and growth momentum in Advanced Nutrition and Consumer divisions.

The balance sheet improved markedly, with net debt reduced by 55%, driven by positive operating cash flow, cost discipline, and the signed agreement to sell North Island assets to Abbott Laboratories for NZ$307 million. The sale is expected to be completed by April 2026 and, alongside a major bank refinancing, will strengthen Synlait’s financial position and help unlock further investment in core segments.

Operational highlights included a record milk price for suppliers (NZ$10.16/kgMS) and notable growth in exports to new Southeast Asian markets. Foodservice volume was up 92%, although profitability remains in a build phase. One-off manufacturing costs and production challenges at Dunsandel have been resolved, and strategic resets have started to yield benefits, with stronger performance in value-added and margin-rich products.

Australia

The S&P/ASX 200 rose 0.17% to close at 8,787.70, recovering from early losses and rounding out its first weekly gain in four weeks (+0.2%). The mining sector led advances, gaining 1% on strong copper prices, lifted by ongoing supply concerns after Freeport-McMoRan’s Grasberg mine force majeure, with BHP (+1.3%) and Rio Tinto (+1.2%) hitting multi-week highs. Mining stocks posted a 6.7% weekly gain, their strongest return since September 2024.

Energy shares also outperformed, up 1.9% for the week, buoyed by oil prices reaching near three-month highs as US inventories fell and OPEC+ production comments stoked supply concerns. Major bank shares were mixed, with Westpac gaining 0.7% and Commonwealth Bank sliding 0.7%.

Healthcare underperformed as Australian pharmaceutical stocks fell sharply in response to President Trump’s announcement of a 100% tariff on all imported branded and patented pharmaceuticals, effective 1 October 2025. CSL, the ASX’s largest biotechnology player, fell 1.9% while Telix Pharmaceuticals dropped 3.5%, with the S&P/ASX 200 Health Care index losing 1.4% for the day.

CSL responded to the announcement by noting it has significant US manufacturing and is currently expanding its presence there, maintaining guidance that the tariff should have no material impact on its revenue forecast or NPAT for FY26. However, the blanket nature of the tariff and the lack of implementation detail have driven a sector-wide selloff, capturing not only companies directly exporting from Australia but also those with US operations or ongoing R&D investments in the region. Sector leaders expect more clarity in the coming weeks but, for now, the announcement has heightened volatility and weighed heavily on Australian healthcare and global pharmaceutical stocks.

Coming up this week, we have the RBA cash rate target announcement, the ANZ business confidence report, S&P global manufacturing PMI data, Australian trade balance and New Zealand building permits release, to name a few.

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