On Burger King, Roche, Yellen and Draghi
Monday, August 25, 2014 Stocks are likely to continue the recent positive momentum in today’s session despite the lack of favorable news out of Jackson Hole on Friday. But light volumes in this last week of the summer season could exaggerate even modest market moves. Janet Yellen’s Jackson Hole speech didn’t tell us anything that we didn’t know already. She gave us the classic two-handed economist’s analysis: on the one hand, the economy was starting to show signs of growth momentum, which could be interpreted to mean that the Fed may start tightening sooner rather than later. But on the other hand, ample slack in the economy should keep pricing pressures in check, which has the opposite implication for the Fed watchers. The newsworthiness of the Yellen speech was more than evident from the stock market’s reaction – it didn’t react either way on the lowest volume day of the year thus far. While Yellen’s speech lacked in actionable ideas, Mario Draghi of the European Central Bank was very forthright in his comments. He sees the risks of doing too much being outweighed by the risks of doing too little. He wants the currency bloc’s political leadership to move beyond the tight fiscal policies of the last few years that has dragged down the region’s growth and made fighting the deflationary pressures all the more difficult. This morning’s weaker-than-expected LFO business confidence survey out of Germany reconfirms that Europe’s largest economy made a halting start to the third quarter after sliding into negative territory in the June quarter. Draghi’s Jackson Hole comments provide further boost to expectations that the ECB will aggressively pursue a more expansionary policy than has been the case thus far. This means that Germany’s sub-1% yield on the 10-year bond may still have room to go. In corporate news, Switzerland’s Roche (RHHBY) is buying the biotech firm InterMune (ITMN), a 38% premium to the stock’s Friday closing price and 63% higher from August 12th when rumors of the deal first emerged. In another deal, Burger King (BKW) is buying Canada’s Tim Horton (THI) that not only gives it greater geographic footprint but also has a ‘tax inversion’ component. Sheraz Mian
Director of Research
Read the analyst report on RHHBY
Read the analyst report on ITMN
Read the analyst report on BKW
Read the analyst report on THI
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