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Albanese calms fossil fuel nerves as battle for AGL heats up: What we learned this week

Lewis Jackson  |  28 May 2022Text size  Decrease  Increase  |  
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War comes to AGL

Fund manager Geoff Wilson and his merry band of 100,000+ investors are wading into the battle over AGL Energy’s future. Famous for snapping up struggling Listed Investment Companies (LICs), Wilson bought a stake in AGL via his ASX-listed WAM Strategic Value (Ticker: WAR) and is reportedly mulling voting against the demerger plan—putting him on team Mike Cannon-Brookes. The tech billionaire became AGL’s biggest shareholder earlier this month and is building a coalition of investors to vote down management’s proposal to spin off the company’s coal generation assets. Management’s plans require a 75% vote of approval at the 15 June meeting.

In a separate blow to AGL leadership, superannuation fund HESTA announced it will vote with Cannon-Brookes and (presumably) Wilson.

Davos set worries about deglobalisation

World leaders, chief executives and journalists descended on Swiss alpine village Davos this week for the World Economic Forum. Attendees are concerned the decades long expansion of goods, money and people across borders is coming to an end. Fingers are being pointed at all the usual suspects: angry populists, Russia’s invasion of Ukraine and the simmering tension between China and the US. Billionaire George Soros warned civilization itself “may not survive” following Russia’s invasion of Ukraine.

Albo gives resources sector a nod

Fossil fuel executives heaved a sigh of relief after Prime Minister Albanese said a crossbench stacked with parliamentarians intent on more climate action won’t sway his policy agenda. Hovering one seat short of a majority, the Prime Minister will hope to govern the lower house in his own right. Declaring himself willing to listen to “positive ideas”, the Prime Minister said he plans to “implement exactly what we said we would.” The Greens want to halt new coal and gas projects and aggressively phase out existing ones.

Snap triggers (another) tech selloff

The social media company tumbled 43% to US$12.80 on Tuesday after warning profits would be lower than expected due to a deteriorating macroeconomic environment. The shockwave hit other advertising dependent businesses like Alphabet and Facebook, which fell 5% and 7%, respectively. After listing to great fanfare back in March 2017 at US$17, Snap closed on Thursday at US$14.81, a 13% loss for anyone unfortunate enough to have stayed the course.

Explosives and fertilisers in vogue

The global boom in coal and fertilisers are a potent cocktail for Australia’s Incitec Pivot. A leading global explosives and fertiliser manufacturer, Morningstar analysts hiked profit forecasts by 100% for fiscal 2022 after Incitec reported record results this week. Russia is the world’s largest fertiliser exporter and sanctions are impacting supply and keeping prices sky high. The other half of the business is booming too. Sales of explosives to US coal producers rose 17% in the first half compared to a year ago as soaring gas prices shifted demand to coal. Incitec also announced on Monday it will demerge its fertiliser business. If approved, shareholders will retain interests in both businesses.

Corporate price hike intentions plateau

The number of businesses planning to raise prices has steadied. Just over a third of businesses plan to increase prices more than usual over the next three months, according to ABS data released on Thursday. Intentions are unchanged since the March survey. Those raising prices blame costs of goods and services and/or energy. Half of businesses are not planning to raise prices in the next three months, with most citing a desire to keep customers or fixed-price contracts. In good news for retail therapy, a third of retail traders expected to hike prices this survey, down from nearly 60% in March.

Shares rise for a second week: ASX Market recap with AAP

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The Australian share market has closed at a three-week high after enjoying its best performance all week.

The benchmark S&P/ASX 200 index finished up 1.08%, to 7,182.7. For the week the ASX200 was up 0.52% to its highest level since May 5.

"The market's closed up for the week, which is quite refreshing, but we don't think it's going to continue," said Saxo Capital Markets Australian market analyst Jessica Amir.

"The fundamentals are the same - (interest) rates are rising, QT (quantitative tightening) is starting, we know the biggest companies in the world are guiding for higher costs. That means higher inflation, wages, higher fuel costs ... the long term position remains the same. It's still very bearish," Ms Amir told AAP.

"We think we'll probably see a worse capitulation than the dot-com crash. It could potentially be like the crashes that occurred in the '70s."

Every sector was up except for consumer staples, which was flat. The energy sector was the top performer, rising 2.3% as Brent crude prices lingered near a two-month high. Woodside climbed 3.6%, Beach gained 3.8% and Geelong refinery owner Viva Energy Group climbed 2.5% to a fresh all-time high of $2.92.

Consumer discretionary shares rose 2%, bouncing back from four days of losses, with sentiment boosted by strong retail trade figures for April. Wesfarmers was up 1.6%, JB HiFi climbed 2.5% and battered betting company Pointsbet soared 16.4%

The tech sector rose 1.2% but Appen gave back most of Thursday's gains after Canadian tech conglomerate Telus International revoked its tentative $1.2 billion takeover offer without stating a reason.

Appen closed down 20.9% to $6.54, down 41% since the start of the year.

The heavyweight mining sector was up 1.5% as Rio Tinto predicted the iron ore prices would rebound with China determined to meet its growth targets. BHP advanced 2.5% to $43.67, Rio Tinto was up 2.4% to $113.39 but Fortescue fell 1.7% to $19.59.

Blue chip movers

  • Magellan Financial Group ↓ 0.5%.
  • Telstra ↓ 1.0%.
  • AGL ↑ 2.9%.
  • Supermarkets: Woolworths ↓ 3.5% / Coles ↓ 1.6%.
  • Resources: Rio Tinto ↑ 3.9% / BHP ↑ 2.7% / Fortescue metals ↓ 4.0%.
  • Big Banks: NAB ↑ 2.0% / Westpac ↑ 2.2% / CBA ↑ 1.3% / ANZ ↑ 0.2%.

What we're watching next week

  • Tuesday: Manufacturing activity data in China – watch for flowthrough to iron ore prices
  • Wednesday: Growth Domestic Product figures for the March quarter – watch for lingering impacts of Covid
  • Friday: Growth in home loans for April – watch for signs of a slowdown in real estate lending.

One good read

The Fed must act now to ward off the threat of stagflation.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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