Soft economic data, in the form of weaker than expected August flash services PMI and July new home sales, had little impact. Conflicts in Ukraine and Iraq/Syria have not improved, but also had little impact. European equities staged a rally following dovish Draghi comments. All sectors were higher led by financials +0.83%. The dollar was stronger, while gold and crude were weaker. The week ahead is expected to be quiet with low volumes and light attendance heading into the Labor Day weekend. Corporate calendar is light, but does include a few notable earnings reports. There will be a number of economic reports, including durable goods, Chicago PMI, first Q2 GDP revision, consumer confidence and personal income. Monetary policy remains in focus following Jackson Hole symposium: Fed Chair Janet Yellen’s comments have been widely described as balanced and slightly less dovish than expected. The speech, however, reinforced recent thoughts that although the first rate hike could come sooner than expected, the normalization process will be very gradual. Reuters reported that there was pressure building within the Fed to more clearly acknowledge improvement in the economy and lay the groundwork for tightening. Changes to FOMC statement language could come as early as the September or October meetings. M&A provides tailwind for equities: Burger King and Tim Hortons confirmed that the two companies are discussing a potential merger. Sell side commentary was generally positive. The company would be headquartered in Canada, although the tax inversion strategy is not a major driver of the deal. Roche to acquire Intermune for $74/sh in cash. The takeover price represents a 38% premium to prior close. ANN Inc holder Engine Capital urges the board to explore strategic alternatives. Engine believes that the company could be valued between $50-55/sh to an acquirer. European equities rally following Draghi comments: ECB President Mario Draghi’s comments from Friday increased expectations that the ECB was leaning towards further policy easing. His comments had broad impact; not only pushing equities higher, but also weakening the euro and triggering a move lower in bond yields across Europe. Geopolitical issues remain in the headlines, but with limited impact: Ukraine accuses Russia of sending troops and tanks into southeastern Ukraine. The move towards Mariupol, a port city on the Sea of Azov, would open a new front in the conflict as most of the recent fighting has taken place well to the north near the cities of Luhansk and Donetsk. Following meetings in Kiev this weekend, German Chancellor Merkel said she does not expect a big breakthrough from talks tomorrow between Ukrainian Prime Minister Poroshenko and Russian President Putin. In an expected move, Poroshenko dissolved parliament. The move follows the collapse of the ruling coalition on 24-Jul. Early elections will now be held on 26-Oct. Islamic State (IS) forces seized Taqba airbase in northeastern Syria. The base was the last major stronghold for the Syrian government in that part of the country. US airstrikes continue against IS forces in Iraq and there is discussion in the White House about extending airstrikes into Syria, which would allow for disruption of IS supply lines. Sunni parties withdrew from talks on forming a new government in Iraq. The withdrawal was in reaction to an attack on a Sunni mosque during prayers, which was blamed on Shiite militiamen. New government for France: Following dissent from key ministers, French President Francois Hollande asked Prime Minister Manuel Valls to form a new government. Economy Minister Arnaud Montebourg made comments critical of his own government and ally Germany. The new government is due to be announced on Tuesday. If Montebourg is not included, there is a chance he could take votes from the left-wing of the Socialist party with him. August US flash PMI services was below expectations. The reading came in at 58.5 vs StreetAccount consensus of 62.0 and July’s final reading of 60.8. This was the slowest rate of expansion since May. July new home sales disappoints. New home sales in July came in below expectations at a SAAR of 412K vs SA consensus 425K. However, the two preceding months were revised higher; June to 422K from 406K and May to 454K from 442K. Months of supply increased to 6.0 months from prior month 5.6 months. CFNAI shows that economic growth increased in July. July Chicago Fed National Activity Index rose to +0.39 from prior month +0.21. CFNAI-3, the index’s 3-month moving average, also rose to +0.25 from prior month +0.16. This was the CFNAI-3’s fifth consecutive positive reading. The reading suggests that national economic growth was above historical trend and that inflationary pressure from economic activity over the next year should be limited.
