S&P struggles from distorted durables, big deal for Canada
European and US indices are trading slightly higher this morning, but their momentum has slowed considerably. The S&P continues to encounter a lot of resistance at the 2,000 round number barrier while the Russell 2000 sits on its 1,165 test level, the Nasdaq continues to creep higher and the Dow remains short of 17,150 resistance.
It has been a relatively quiet day for economic news. US durable goods were spectacularly distorted by a huge month for orders at Boeing. Excluding transport, durables actually fell. Best Buy beat the street on earnings, but the biggest news of the day has been in Canada.
The Tim Hortons/Burger King merger rumoured yesterday was announced this morning and is valued about $11-12 billion. It’s a combination of cash and shares with the combined company to be headquartered in Canada to take advantage of the lower tax rate. Although it’s a friendly deal, there is the possibility it could attract rival suitors. It also could attract political or consumer opposition in the US over tax avoidance. If this deal does go through, it could potentially open to door to similar deals in sectors that don’t have ownership restrictions.
Although overshadowed by the Tims news, there are a number of Canadian banks reporting today with results coming in line or ahead of expectations. Recall that last Friday, Royal Bank beat the street and raised dividends only to see its stock sell off on profit-taking against the news. Today’s trading in Bank of Nova Scotia and Bank of Montreal may indicate is that was a one-off event or the start of a trend.
Gold is on the rebound today, gaining $10.00/oz in a relief rally. USD has stabilized today likely waiting for US GDP later in the week. NZD is a bit soft off an even worse than expected trade report, but other resource dollars (AUD and CAD) are outperforming.
Tim Hortons has agreed to be acquired by Burger King in a friendly deal through a combination of cash and stock valued at approximately $94.05 per THI share. The two companies will continue to operate separately but will be headquartered in Canada to take advantage of lower corporate taxes. Burger King has sourced $12.5 billion in financing for the deal, $9.5 billion from a group of banks led by JPMorgan and Wells Fargo and $3.0 billion from Warren Buffett’s Berkshire Hathaway.
Bank of Montreal $1.73 vs street $1.66
Bank of Nova Scotia $1.41 in line
Best Buy $0.44 vs street $0.31 wow!
Economic reports released overnight and this morning include:
US durable goods 22.6% vs street 8.0%
US durables ex transport (0.8%) vs street 0.5%
Sweden producer prices 1.4% vs previous 2.3%
UK house purchase loans 42.7K vs street 44K
Hungary interest rate decision 2.10% no change as expected
NZ trade balance ($692M) vs street ($475M) and previous $247M
China leading index 1.3% same as previous
Economic reports due later today include:
9:00 am EDT US house price index street 0.3%
9:00 am EDT US S&P/Case/Schiller house prices street 0.0%
10:00 am EDT US consumer confidence street 89.0
10:00 am EST US Richmond Fed street 6