Drill, baby, drill!

Oil cartel OPEC+ bowed to pressure from the US and Europe on Thursday and agreed to increase production quotas in a bid to lower soaring energy prices. Output will rise to nearly 650,000 barrels a day in July and August, up from a planned 400,000 b/d. Crude prices fell sharply on the news before recovering to end modestly higher. Traders may be signalling the increase is insufficient to cool prices. OPEC has also struggled to hit its existing quotas for months. The decision comes as Europe partially banned imports of Russian oil. OPEC declined to exclude Russia from contributing to the increase in supply.

Cannonball Brookes delivers fatal blow to AGL’s demerger

AGL is down a chief executive, a chairman and one demerger plan. AGL withdrew its controversial proposal to split off its coal assets early on Monday, acknowledging it lacked sufficient support ahead of the 15 June shareholder vote following a relentless campaign by Mike Cannon-Brookes that had swayed institutional shareholders including Martin Currie and superannuation fund Hesta. Four of eight board members are out the door too. Shares are down slightly since the news, with trading range bound as investors wait for the next stage of the saga.

Goldman deflates lithium boom

Lithium stocks listed on the ASX took a beating on Wednesday after bearish forecasts from Goldman Sachs. Analysts at the investment bank forecast a “sharp correction” for lithium prices over the next two years after companies massively extended supply following cash injections from investors. Goldman expect prices to hit a low of US$16,000 in 2023. Pilbara Minerals, Liontown Resources and Allkem all tumbled, and are down 16%, 4% and 15% respectively this week.

Iron ore investors score a W

Iron ore staged a recovery this week as Chinese officials signalled more stimulus and an end date to the lockdowns keeping tens of millions shuttered at home. Manufacturing hub Shanghai will reopen from 1 June, according to city officials. The central government also announced $167 billion in new infrastructure spending to jump start a sagging economy. Iron ore ended the week up 7%. BHP, Fortescue Metals Group and Rio Tinto rose 7%, 10% and 2% respectively this week.

Valuations matter

Time to go back to basics, says Andrew Clifford, chief executive at Platinum Asset Management. Clifford said rising inflation and interest rates make high quality balance sheets crucial, and investors need to find companies who can fund themselves and buy back shares. Also speaking at the Morningstar Investment Conference on Thursday, Jody Jonsson, equity portfolio manager at the US$2.6 trillion Capital Group said "in the last 10 to 15 years, you could pretty much ignore valuations as long as the fundamentals were coming together."
"If you can't raise money so easily, if your stock isn't so expensive, if you can't get equity deals done, you need to be self-funded," she added.

Work from home no more

Elon Musk wants Tesla employees back at the office. The tech founder famous for sleeping under his desk warned employees in a series of emails this week they must complete “a minimum of 40 hours in the office per week.” For those unsure if this is simply the latest whim to be ignored: "If you don't show up, we will assume you have resigned." Atlassian co-founder replied on Twitter burnishing the technology company’s “team anywhere” policy and offering Tesla employees a new home. Musk replied in characteristic fashion.

ASX gains three weeks in a row: Market recap with AAP

The local share market has posted gains as China's economic hub of Shanghai reopens following two months of COVID-19 lockdowns.

The benchmark S&P/ASX200 index closed Friday up 62.9 points to 7,238.8, a gain of 0.88 per cent. For the week the ASX200 was up 0.78 per cent, the third week of gains.

Every sector rose on Friday except for telecommunications, which was flat, and consumer discretionary shares, which dipped slightly.

Materials was the biggest gainer, up 2.6%, with BHP rising 2.5% to $46.76, Rio Tinto up 2.7% to $116.03, and Fortescue gaining 4.1% to $21.46.

"If you have a step back and look at the best performers this week, they are in mining and energy," Saxo Australian market strategist Jessica Amir told AAP.

"And that's purely because Shanghai, the most populated, dense city, has kicked off manufacturing. So really good for all those companies that are in iron ore, copper, aluminium and coal."

In the energy sector, Beach Energy and Whitehaven Coal both hit 52-week highs, up 2.5% and 3.2%, respectively. Geelong refinery owner Viva Energy rose 2.8% to hit a fresh all-time high.

Lithium miners Pilbara and Alkeem rebounded, rising 7.5% and 3.8%, but both are down around 15% for the week on fears the battery metals boom is over.

Blue chip movers for the week

  • Magellan Financial Group ↑ 0.3%.
  • Telstra ↑ 0.3%.
  • AGL ↓ 1%.
  • Supermarkets: Woolworths ↑ 1.4% / Coles ↑ 1.3%.
  • Resources: Rio Tinto ↑ 2.3% / BHP ↑ 7.1% / Fortescue metals ↑ 9.6%.
  • Big Banks: NAB ↓ 1.3% / Westpac ↓ 0.4% / CBA ↓ 1.3% / ANZ ↓ 2.6%.

What we're watching next week

  • Tuesday: Reserve Bank interest rate decision. Watch for another meaty rate hike.
  • Wednesday: NAB business confidence survey. Watch for signs capital is getting worried.

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