Good morning! Here’s what you need to know:
It’s A Global Market Rally. Stocks are up everywhere. In Europe, Britain’s FTSE is up 0.6%, France’s CAC 40 is up 1.1%, and Germany’s DAX is up 1.4%. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng closed just a hair above breakeven. U.S. futures are up with Dow futures up 78 points and S&P 500 futures up 9 points.
Dollar Store Out Bids Dollar Store For Dollar Store. “Discount retailer Dollar General Corp offered to buy Family Dollar Stores Inc for $US78.50 per share in cash, trumping an offer by Dollar Tree Inc,” reported Reuters’ Sruthi Ramakrishnan. “The deal, at an enterprise value of $US9.7 billion, was proposed in a letter to Family Dollar’s board. Last month, Dollar Tree offered to pay $US74.50 per share in cash and stock for Family Dollar, at an enterprise value of about $US9.2 billion.”
Chinese Home Prices Fall. “China’s new-home prices fell in July in almost all cities that the government tracks as tight mortgage lending deterred buyers even as local governments eased property curbs,” reported Bloomberg News. “Prices fell in 64 of the 70 cities last month from June, the National Bureau of Statistics said today, the most since January 2011 when the government changed the way it compiles the data. Beijing prices fell 1 per cent from June, posting the first monthly decline since April 2012.”
UK Home Prices Plunge. According to new data from Rightmove, London home prices fell by 5.9% in August from a month ago. “[T]his is the largest decrease ever recorded by Rightmove at this time of year, and a lead indicator of a slower market in the second half of 2014,” wrote Rightmove analysts.
Bank Of England’s Mark Carney On The Sunday Times. “Bank of England Governor Mark Carney said officials may raise the key interest rate before workers’ pay increases, according to a Sunday Times interview,” wrote Bloomberg’s Jennifer Ryan. “‘We have to have the confidence that prospective real wages are going to be growing sustainably'” before raising borrowing costs, he said. “‘We don’t have to wait for the fact of that turn to raise them.'” The BoE is expected to be the first of the world’s big central banks to hike interest rates following the financial crisis.
Nobel-Prize Winner Warns Of Mood Swings. “The United States stock market looks very expensive right now,” said Robert Shiller in The New York Times. “The CAPE ratio, a stock-price measure I helped develop — is hovering at a worrisome level…nothing I’ve come up with is a slam-dunk explanation for the continuing high level of valuations. I suspect that the real answers lie largely in the realm of sociology and social psychology — in phenomena like irrational exuberance, which, eventually, has always faded before. If the mood changes again, stock market investments may disappoint us.”
$50 Billion Man Is Bullish. In a new interview with Barron’s, Federated Investors’ Stephen Auth says the S&P 500 could hit 2,500 in the next 18 months to two years. “Market valuations depend on growth, bond rates and perceptions of risk, and all three of those are going in the direction that actually expands the price/earnings multiple,” Auth said. “At the same time, earnings are expanding, and that’s a recipe for another leg up in the market.”
US Housing Market Check. The NAHB’s Housing Market Index will be published at 10:00 a.m. ET. Economists estimate this index of homebuilder confidence was unchanged at 53 in August. “While momentum has been positive, we only expect a modest increase due to a yet-to-be seen rebound in new home sales,” said Bank of America Merrill Lynch economists who are expecting a print of 54.
Swiss Bank Had A Hand In Portugese Bank Downfall. “Credit Suisse Group AG helped sell billions of dollars of securities that ultimately played a role in toppling Portugal’s second-largest bank,” reported the WSJ’s Patricia Kowsmann, Margot Patrick and David Enrich. “The Swiss bank was responsible for putting together securities that were issued by offshore investment vehicles and then sold to retail customers of Portugal’s Banco Espírito Santo SA. Many customers didn’t realise that these vehicles were loaded with debt issued by various Espírito Santo companies and apparently served as a mechanism to finance the family-controlled empire, according to corporate filings and people familiar with Portugal’s investigation into the Espírito Santo affair. It is unclear what, if any, direct role Credit Suisse had in selling the securities to bank customers. “
Inversion Are Just Hype. “Establishing a tax domicile abroad to avoid U.S. taxes is a hot strategy in corporate America, but many companies that have done such “inversion” deals have failed to produce above-average returns for investors, a Reuters analysis has found,” writes Reuters’ Kevin Drawbaugh. “Looking back three decades at 52 completed transactions, the review showed 19 of the companies have subsequently outperformed the Standard & Poor’s 500 index, while 19 have underperformed. Another 10 have been bought by rivals, three have gone out of business and one has reincorporated back in the United States.”
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