Moyes, Noise And Signals From The Capital Markets

The dismissal of Manchester United’s manager David Moyes is getting more attention today than the global capital markets where trillions of dollars are exchanging hands every day. It is a testimony to the sociological representation in the capital markets, as well as to the absence of fresh incentives. In some ways, it is the perfect transition from the holiday mode that began for some last Thursday to what is likely to be a more eventful next few days.

The week’s events still lie ahead. These include the euro area flash PMI and the HSBC flash manufacturing PMI for China, Australia’s Q1 CPI, the Reserve Bank of New Zealand’s policy meeting, Canada’s retail sales and US durable goods orders.

Today’s news stream is light. China formally confirmed the 2% required reserve reduction for some rural banks. This has been largely signaled last week. The USD/CNY has been gently trending higher, most recently since April 10 and today it rose to its best level in 14-months. The spot yuan rate was 1.2% below the fixing, as the PBOC allows part of the new 2% band to be explored. The flash PMI will be reported tomorrow. The Shanghai Composite rose today (0.3%); the first advance in four sessions, led by financials and telecoms. Technology was weighed down by concerns that the rash of new public offerings approved last week (46 companies) included many in this space.

The Australian government was somewhat critical of the neutral stance of the central bank given the appreciation of the AUD. The market shrugged off the comments. The Australian dollar is the strongest major currency today, gaining 0.3% against the dollar. Australia’s Q1 CPI will be reported tomorrow, and it is expected to rise above 3% on the headline rates and 2.9% on the trimmed and weighted mean basis from 2.7% and 2.6% respectively. Such an increase may bolster speculation of an RBA rate hike before the end of the year. This is turn could see the Australian dollar try again to establish a foothold above $0.9400.

European shares have continued their advance that began prior to the holiday. Led by pharmaceuticals, European shares are up for a third consecutive session. The Dow Jones STOXX 600 is up almost 1% through the European morning. There has been a flurry of activity, as Novartis (NYSE:NVS) reportedly will sell its vaccine division to Glaxosmithkline (NYSE:GSK), (~$7.1 bln), and its animal-health unit to Eli Lilly (NYSE:LLY), (~$5.4 bln) and buy Glaxo’s cancer drugs ($16 bln). There is also speculation that Pfizer (NYSE:PFE) may purchase AstraZeneca (AZN).

The Canadian dollar is the only major currency that has slipped against the dollar so far today. There is some concern that the delay in the Keystone pipeline has dampened sentiment. The USD/CAD had slipped to about CAD1.0860 on April 9 and has now closed the North American session above CAD1.10 for four sessions coming into today. Our bias remains on the upside though initial resistance is pegged in the CAD1.1070 area. The wholesale trade report is unlikely to elicit much of a market reaction. Tomorrow’s retail sales report is more important. Canadian officials are hoping for a transition from household consumption toward exports and investment. After a 1.3% rise in January retail sales, a 0.5% gain is expected in February’s report.

The dollar has finished the North American session higher against the yen for seven consecutive sessions coming into today. The USD/JPY made a marginal new high, but seems stuck at the 50% retracement level of the drop since April 4th’s push above JPY104. Its advancing streak will be challenged today. Initial support is seen near JPY102.20.

Today’s US data includes the Richmond Fed survey (April) and existing home sales (March). Neither are market movers. Bernanke speaks before the Economic Club of Canada near midday (ET) and his topic ”Eight Years of Crisis Management at the Federal Reserve and the Way Forward” may draw interest, even if not fresh trading incentives.