Wall St rallied on Friday, setting up the ASX for a good day out to start the week.
US government data that showed inflation had begun to wane in April, buoyed the market. In fact, it was the Dow Jones first week in the green since March. It snapped its longest losing streak since 1932.
Inflation was just one driver.
Interest rates also fell, corporate credit spreads tightened and according to Mahmood Noorani, chief executive of research firm Quant Insight, investor expectations for future Federal Reserve rate increases moderated.
The Dow Jones Industrial Average gained 575.77 points, or 1.8%, to close at 33,212.96, rising for a sixth straight day in its longest winning streak since December 2021.
The S&P 500 rose 100.40 points, or 2.5%, to finish at 4,158.24 while the Nasdaq Composite jumped 390.48 points, or 3.3%, to end at 12,131.13.
This all augers well for the ASX this week, following its own strong finish to last week.
The S&P/ASX 200 climbed 1.1% to 7,182.7 or 76.8 points on Friday. It gained 0.5% since last Monday to post the second consecutive weekly gain.
Ten out of the 11 categories on the index rose, with energy and consumer discretionary leading gains.
The Aussie dollar also surged to US71.4c, the same level it reached in early May.
Retail stocks overperformed today as Australian retailers recorded the fourth consecutive month of sales gains.
ABS data shows a record $33.92 billion was spent in stores and online during April.
Here’s what we saw (source Commsec):
- The Aussie dollar firmed from lows near US71.25 cents to highs near US71.65 cents and was near US71.60 cents at the US close.
- The Japanese yen held between 126.75 yen per US dollar and JPY127.20 and was near JPY127.11 at the US close.
- Global oil prices advanced on Friday. Traders expect that strong global demand for crude products will continue. The Brent crude price rose by US$2.03 or 1.7% to US$119.43 a barrel. The US Nymex crude price added 98 cents or 0.9% to US$115.07 a barrel. Over the week Brent rose by 6.1% with Nymex up 1.6%.
- Base metal prices rose by as much as 4% on Friday with nickel up the most. Over the week, aluminium, lead and tin fell with aluminium down 3.1%.
- Other metals rose with zinc up 3.8%.
- The gold futures price rose by US$3.70 or 0.2% to US$1,851.30 an ounce. Spot gold was trading near US$1,853 an ounce at the US close. Over the week gold rose by US$9.20 or 0.5%
- The iron ore futures price rose by 94 cents or 0.7% to US$133.41 a tonne. Over the week iron ore fell by US95 cents or 0.7%.
Australian market
What to expect
Wealth Within founder and chief analyst Dale Gillham says, “While the market has traded higher this week, it has really lacked direction, which is not surprising given the continued volatility. Remember, as I stated previously, this doesn’t necessarily mean the market will be bearish, nor does it mean it will be bullish, it just means that right now it is time to be patient.
“In my last report, I indicated that I still believed most, if not all, of the fall had already occurred but that this was unconfirmed, which is still the case. The more our market rises over the next few weeks, the higher the probability it will hold above the recent low of May 12 at 7,157 points before the market turns to test the low, which it will do at some point in time. If the market does fall away over the next few weeks, it needs to hold above the low of May 12 if we are to see a bullish market into the third quarter of 2022.
“While there are opportunities currently unfolding in the market, I continue to urge investors to exercise caution, as the current mood can change quickly. So, until a direction is confirmed, it is wise to sit back and wait until the dust settles.”
No demerger for AGL
AGL Energy (ASX:AGK) Limited will not demerge and its chief executive Graeme Hunt and chairman Peter Botten will leave the company.
Following the executives’ departure, the company will now conduct a strategic review of its business
“While the board believed the demerger proposal offered the best way forward for AGL Energy and its shareholders, we have made the decision to withdraw it,” Botten said.
“The board will now undertake a review of AGL’s strategic direction, change the composition of the board and management, and determine the best way to deliver long-term shareholder value creation in the context of Australia’s energy transition."
The review will consider the best way forward for shareholder value taking into account decarbonisation pressures and energy affordability issues.
It will assess strategic plans developed for AGL Australia and Accel Energy and new approaches from third parties regarding alternative transactions.
“Having regard to anticipated voter turnout and stated opposition from a small number of investors including Grok Ventures, AGL Energy believes the demerger proposal will not receive sufficient support to meet the 75% approval threshold for a scheme of arrangement," Botten said.
"AGL has already spent $160 million of the $260 million cost of the demerger proposal and said it will start a search process immediately to identify new board members. A review of the company's strategic direction will be handled by a board subcommittee co-chaired by Vanessa Sullivan and Graham Cockroft using both internal and external resources.”
The news was music to Mike Cannon-Brookes ears as he has been agitating for change for months, calling it a “huge day for Australia”.
Shares in AGL last traded at $8.87.
US markets
Shares in computer hardware firm Dell rose 12.9% on better-than-expected earnings. Clothing retailer Gap lost 6.6% after trimming profit forecasts but shares in American Eagle Outfitters rose 4.3% despite similarly downgrading its outlook.
The Dow Jones index closed higher by 576 points or 1.8%. The S&P 500 index rose by 2.5%. And the Nasdaq index gained 390 points or 3.3%. Over the week the Dow rose 6.2% and the S&P 500 rose 6.6% - both posting the biggest gains since November 2020. And the Nasdaq gained 6.8%.
European markets
Were also higher on Friday.
Technology led gains, up 3.3%, with industrials up 2.3%. The pan-European STOXX 600 index rose by 1.4% to be up 3% on the week. The German Dax index lifted by 1.6% and the UK FTSE index gained 0.3%.
In London trade, shares in Rio Tinto rose by 1.3% while BHP shares rose by 3.5%.