ASX futures flat + Why Macquarie believes there is "uncharted” potential for gold stocks

ASX Futures are flat, as of 8:45am AEST.

While the S&P 500 had a muted session overnight, all eyes were on the oil market. Four days of declines and a 13% year-to-date fall is not boding well for bullish calls. Speaking of commodities, Macquarie is (very) bullish on gold stocks. On the reporting season front, all eyes are on James Hardie’s earnings while on the macro front, everyone’s talking about NAB’s higher-for-longer terminal rate call.

Let’s go.

OVERNIGHT SUMMARY

US SECTORS

S&P 500 SESSION CHART

MARKETS

• S&P 500 remained in a narrow range much of the day before strengthening a bit ahead of the close, erasing last week's index decline.
• Treasuries were weaker with the curve steepening. The US Dollar was down on the euro and sterling crosses, but fared better against the Japanese Yen.
• WTI crude finished up 1.8% after finishing down for a fourth-straight week last week.

STOCKS

• Shake Shack (NYSE: SHAK) jumped 7.8% after the Wall Street Journal reported that activist investor Engaged Capital is planning a proxy fight for three board seats at the company.
• Western Digital (NASDAQ: WDC) soared 11% after a Reuters report, citing two sources familiar with the matter, said the firm is ramping up merger talks with Kioxia Holdings, Japan’s computer memory maker.
• Newmont (NYSE: NEM) shares added about 2.5% after finalising the deal to acquire Newcrest Mining.
• Albemarle (NYSE: ALB) shares climbed following a sell-side analyst upgrade. The analyst said that Albemarle is “a leader in catalyst products” and has potential for greater market share. 

ECONOMY

• Biden, McCarthy and other congressional leaders plan to meet Tuesday to discuss budget negotiations to avert default (Bloomberg)
• Fed's Jefferson says progress on inflation this year has been mixed but policy on track (Bloomberg)
• European Commission raises inflation forecasts on economic resilience (Bloomberg)
• Turkey's Erdogan fails to secure outright victory in Sunday's elections (FT)

US INDUSTRY ETFs

DEEPER DIVE

EARNINGS PREVIEW: JAMES HARDIE

• Global net sales -4% to US$860.8 million
• Net income -16% to US$129.2 million
• Global EBIT margin of 19.2%
• FY23 net income guidance range lowered from US$650-710 million to between US$600-620 million, due to softer than expected volume in North America and Asia Pacific.

According to the Market Index Broker Consensus board, the stock is rated a BUY by 13 out of 17 analysts. They include Citi’s Samuel Seow who wrote this recently about how the earnings of US counterparts Builders FirstSource (NYSE: BLDR) could influence the JHX result.

“BLDR, the largest wholesale building material supplier (and a JHX customer) provided an insight into the macro environment during the quarter as SF housing starts are down 34% but Multis (multi-property sales) +12% and R&R (renovations) +3%. R&R, in particular, is performing better than implied market growth for JHX.”

UBS’ Lee Power also has a BUY on the stock. In a recent research note, he reiterated his bullish case for James Hardie.

“We still see FY24 as the low point for JHX earnings and conservatively forecast new housing volumes to decline 22.5%, and renovations to fall -12.5%.”

Power notes that the company’s FY23 earnings guidance is another reason to look through to 2024. UBS’ price target for JHX is $44.50 (or $11 higher than where it closed yesterday. Now that’s bullish.)

NAB’S NEW CALL

Here in macro land, all eyes are on one thing only. NAB’s economics team, led by Alan Oster, have gone back to the future. Literally.

“After a sequence of surprises from the RBA in recent months, we are reverting to our baseline expectation from February that the cash rate will rise to a peak of at least 4.1% – which we pencil in for July, though we see some risk the RBA could wait till August.”

When they explained the main reason for why they made a change in call, it echoed what AMP’s Diana Mousina recently said on Signal or Noise.

“The key uncertainty for our rate expectations has been the reaction function of the RBA.”

In other words, the RBA is saying one thing then doing another. As for what they will actually do next, we’ll get more clues in the labour force data prints which are coming this week (wages tomorrow and the employment report the day after).

Macro

Signal or Noise: Was the RBA's May rate hike the right decision?

View

GOLD, GOLD, GOLD

The ultimate risk-off play is currently receiving some pretty risk-on treatment. Spot gold prices are well over the US$2,000/oz mark. And Macquarie’s analysts are not holding back in telling us how they feel about that milestone being breached:

“We still expect it to test the 2020 nominal high of $2,075 and likely break above it, entering uncharted territory.”

So how do they feel about their long gold call?

“Although positioning is long, until it becomes truly stretched or the macro-fundamental dynamics change, we expect gold to keep pushing higher. The current backdrop remains near enough perfect for gold, with the Fed having likely delivered their final hike for this cycle, compared to expected further tightening from the ECB.”

With Newcrest accepting the takeover offer from Newmont, their new favourite picks are Northern Star Resources ASX: NST and Regis Resources (ASX: RRL). In the junior end of the market, look at Bellevue Gold (ASX: BGL) and De Grey Mining (ASX: DEG).

Key Events

ASX corporate actions occurring today:

• Trading ex-div: Challenger Limited (CGF), Autosports Group (ASG), Dicker Data (DDR)
• Dividends paid: None
• Listing: None

Economic calendar (AEST):

• 11:30am: RBA Meeting Minutes
• 4pm: UK Labour Force data (Claimant count and average earnings)
• 10:30pm: Canadian CPI + US retail sales

The Morning Wrap was written by Hans Lee.