Hi there! This article is an excerpt from our weekend newsletter – which talks all things markets plus some interesting data insights and memes

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1. Nickel No More

Source: BHP

BHP’s suspension of its loss-making nickel operations was probably one of the bigger stories this week. At a glance, the mining giant announced:

• Nickel West and West Musgrave suspension by October 2024

• Shift to care and maintenance to cut ~3,000 jobs but approximately half will be redeployed to other projects

• BHP will reinvest approximately US$300 million per annum to support a potential re-start

• BHP expects to recognise a further non-cash impairment charge of US$0.3 billion in FY24 (In addition to previously announced impairments of US$3.bn)

But this news has far-reaching implications for several other ASX-listed companies, including:

• Lynas has a contract with Nickel West for the supply of sulphuric acid. BHP says it will make reasonable efforts to continue supply but this may affect the LYC’s Kalgoorlie rare earth facility

• Alliance Aviation Services says Nickel West accounted for ~3% of total company flight hours

• GR Engineering Services anticipates FY25 revenue to be $80 million lower than expected due to loss of West Musgrave contracts

• Lunnon Metals requires a processing facility for future ore from its Baker and Foster deposits. It is now considering purchasing or leasing BHP’s concentrator or developing its own

2. Here Come The Cuts

Source: CME Fedwatch Tool

The June US CPI report delivered exactly what the market wanted – softer-than-expected core and headline readings, led by key constituents including energy, rent and used car prices.

Post CPI, the market is now expecting just over two cuts by year end. Here’s a look at the probabilities from both a condition and aggregated perspective.

If you like to follow the below data – I’d suggest bookmarking or taking note of CME’s Fedwatch Tool.

Source: CME Fedwatch Tool

3. Street Whispers

The AFR’s Street Talk dropped an article titled “Insignia calls in Citi as PE circles” at 12:45 pm on Tuesday.

The article said “Street Talk understands Brookfield’s private equity dealmakers … have a file open on the $1.47 billion Insignia. Sources said Brookfield’s interest is “very early stage” and no decision had been made to table a bid or formally approach the board.”

Insignia shares surged immediately, up 13.4% between 12:45 pm and market close. 

But shortly after the closing bell, Insignia hosed down takeover talks with an announcement citing “Citi has not been engaged to field any offers and the company is not aware of any offer.”

The stock finished 7.2% lower the next day.

A similar instance happened with Cleanaway on 23 April – Shares up 15.7% after Bloomberg said Seven was looking to field an offer, M&A denied by the company after hours and shares down 10% the next day.

It’s almost as if you could use these speculative articles as a catalyst to short overnight.

4. Newmont – Not even in the ASX 20

Newmont's Ahafo Project (Source: Newmont)

Newmont stands as the world’s largest gold producer by a wide margin. In 2023, the company produced 5.5 million ounces of gold, far exceeding the output of its nearest rival, Barrick Gold, which produced 4.05 million ounces.

Newmont’s CDIs were listed on the ASX after its acquisition of Newcrest in November 2023. While these CDIs trade on a 1:1 basis with Newmont’s NYSE-listed shares, the company’s market cap in Australia is determined by the securities held in Australia.

The US-listed Newmont has a market cap of US$54.4 billion (A$80.4bn) but locally, its market cap is just $9.7 billion.

Newmont shares fell around 12% in the March quarter and subsequently booted from the S&P/ASX 20 – replaced by QBE Insurance.

It's interesting how the world’s largest gold miner doesn’t even make it into the ASX 20 due to the way its CDIs are rebalanced. 

Earlier this week, Newmont was upgraded by US broker CIBC to Outperform (from Neutral) with a US$61 target price (up from US$46). The analysts said Newmont is the only gold producer in the S&P 500 and investors will naturally gravitate towards the company as the largest producer in the space. 

5. Thinking About Biotechs

iShares Biotechnology ETF (Source: TradingView)

The Biotech sector is quietly breaking out, with a barometer like the iShares Biotechnology ETF (US-listed) up almost 7% in the last five sessions. It’s breaking out after seven months of sideways action to trade at levels not seen since January 2022.

Biotech was one of those sectors that was heavily punished amid the global rate hiking cycle. As rate cuts begin to enter the picture – valuations have started to recover and companies experiencing clinical trial success are being rewarded.

While this is a sector that might be known for rallying 100% one day and then halving the next – There’s a long list of runners that have just kept on running this year.

A few that come to mind are BOT, CU6, DXB, LTP and PYC.

6. Poll Of The Week

I’m a big believer that price leads news – The share price often moves before a positive business update, contract win, analyst upgrade etc.

Price can lead news for many reasons, including:

• Market anticipation: Traders often speculate on future events, pricing in expectations before they occur

• Technical analysis: Traders are using chart patterns and set ups to make decisions, independent of fundamental news

• Herd behaviour: Price action can trigger further buying (or selling) as traders follow trends

• Publicly available information: Investors can make assumptions about companies based on publicly available information (e.g. electricity prices, traffic data, freight data, retail traffic flow etc.) 

• Insider trading: Trading may occur based on non-public information before it becomes widely known

Have you had any stocks that have started to take shape or break out – And then release good news?

Fill in your responses here and I’ll share some of the best responses next week.

7. Reporting Season Preview

I’m working on a couple of items ahead of August reporting season. This includes:

• Reporting Season Calendar (PDF with >$500m market cap companies, includes consensus EPS and DPS)

• Reporting Season Spreadsheet with forecasted numbers from different brokers (Excel, this is going to turn into a monster admin task) 

• A few education pieces about managing gap downs, gap ups etc

In the meantime, here’s some very helpful data from Bell Potter’s Coppo Report – for both traders and long-term investors.

In the last 16 reporting seasons, stocks have on average:

• Beats are up an average 5.2% on the day they report and over the next four months, up 6.7% 

• Misses are down an average 6.3% and over the next four months, still down by 8.4%

8. Meme of the Week

Oh Bitcoin ...