Monday market minutes: Baby steps

A quiet Monday ahead for the local, Asian and European markets, with America closed for the Memorial Day holiday.

Without the lead from Wall Street after last week’s surprise first weekly gain in seven weeks, investors elsewhere will watch and wait for a day to see if the new tone continues.

Last week in fact saw investors around the world get a reprieve from a nasty sell-off and regain their appetite for risk.

Data on Friday suggesting that US inflation may have peaked for the time being also helped maintain the switch of sentiment to a more positive reading even though those fears of a slowdown won’t go away.

The catalyst for the change the minutes of the Federal Reserve’s May meeting which explained the 0.50% rise and made sure the markets understood there were more to come this year.

As a result, markets now understand the Fed’s policy path, meaning no surprises and no shocks if Fed officials talk tough about controlling cost pressures.

Investors Friday were helped to accept the idea that inflationary pressures may be easing with the lower-than-expected rise in the PCE inflation rate (that’s the inflation rate in the monthly Personal Consumption Expenditure data).

Headline PCE inflation rose 0.2% year-over-year, a welcome slowing when compared to the 0.9% gain in March. On a monthly basis, today’s report revealed a slight decline in headline inflation from 6.6% in March to 6.3% in April. This was the first decline in a year and a half.

Core PCE inflation rose at an annual 4.9% in April; down from the 5.2% rate reported for March. The index is important because it and the other data in the report are watched and analysed very closely by the Fed for its policy decisions.

That slight easing added to the optimism seen in the solid gains on Wall Street on Wednesday and Thursday – as a result Friday we saw the Dow jump 575.77 points, or nearly 1.8%, to close at 33,212.96.

The S&P 500 rose about 2.5% to 4,158.24 while the Nasdaq Composite surged 3.3% to finish the week at 12,131.13.

Friday’s gain also saw all three major averages end the week higher. The Dow finished up 6.2% for the week and snapped its eight-week losing streak, the longest since 1923.

The S&P 500 added 6.5% higher and the Nasdaq lifted 6.8%. Both indexes ended seven-week losing streaks.

The Nasdaq now sits about 25.2% from its record, while the S&P 500 and Dow are off by 13.7% and 10.1%, respectively.

For the week, eurozone shares rose 4.2%, and Japanese shares rose 0.2% and Shanghai shares dipped half a per cent.


In Australia, the local market looks likely to start with a solid gain this morning of around 80 points after a big rise on the Friday night futures market.

The ASX 200 posted gains for a second week in a row, closing 1.1% higher at 7,182.7 on Friday, for a gain for the week of 0.52%.

Almost every sector finished higher with consumer discretionary and the energy sector leading the charge with gains of more than 2%. Mining giants Rio Tinto and BHP also gained more than 2%.

After solid gains Friday, the big four banks all rose for the week, though the ANZ continues to lag.

Westpac shares rose 2.2% for the week (it has a low base to climb from), CBA and NAB both added 1.9% and the ANZ edged up 0.7%.


Meanwhile watch the price of AGL shares today (Monday) after reports emerged Sunday afternoon that it could be rethinking its split proposal.

Media reports said the growing opposition from shareholders – led by Mike Cannon-Brookes to the split in AGL has produced a possible change of heart.

The demerger was to be voted on at a shareholder meeting on June 15. There’s increasing doubt that the split will be approved by shareholders in sufficient numbers.

Cannon-Brookes controls more than 11% of AGL and has support from at least one super fund with other shareholders said be in agreement with opposing the split.

The split would see the company become two – Accel Energy which would have the coal fired power and associated assets and the second company, called AGL Australia with the retail, renewable and distribution assets.

The media reports claimed AGL could launch a strategic review as early as today (Monday) which would delay any split vote and in reality force it to be suspended.

AGL’s board met on Sunday afternoon to determine next steps, with a decision possible today.

Mr Cannon-Brookes indicated on Friday he would seek two seats on AGL’s board if the plan to split the company failed.

AGL shares jumped 3.02% on Friday to end the week at $8.87. That rise more than accounted for the stock’s overall weekly gain of 2.78%.