Five Things You Need to Know to Start Your Day
Good morning. Hawkish Fed members resign, rate hike an option for BOE, Brent tops $80 a barrel and U.K. opposition gears up for elections. Here’s what’s moving markets.
Hawks Resign
Two regional Federal Reserve presidents are retiring following embarrassing revelations of stock trading last year, removing a couple of the central bank’s more hawkish officials as it calibrates withdrawing pandemic policy aid. Boston Fed chief Eric Rosengren and Dallas’s Robert Kaplan on Monday separately announced plans to step down. That means an unexpected number of top monetary-policy jobs are coming up for grabs – and there’ll likely be an unusually intense spotlight on who fills them.
Still an Option
Bank of England Governor Andrew Bailey moved to reinforce the option that interest rates could rise as early as this year while cautioning about the limits of monetary policy to balance diverging forces in the U.K. economy. The central bank’s key rate would become the tool of tightening policy to tame inflation, even before the current bond-buying program expires if necessary, he said. But he added that moving too soon could disrupt the U.K.’s still nascent economic recovery.
Energy Crunch
Brent oil topped $80 a barrel on signs that demand is running ahead of supply, depleting inventories amid a global energy crunch. The U.K. officially put the military on standby to help deliver supplies to gasoline stations in an effort to stem a widening crisis that’s engulfed Prime Minister Boris Johnson’s government. Meanwhile, some drivers at the U.K. company that handles fuel deliveries for BP will vote this week on strike action as fuel shortages threaten to spread more pain to the economy.
Opposition Gears Up
The U.K.’s main opposition party is gearing up for a potential general election as early as next year with strategists increasingly thinking Prime Minister Boris Johnson might go to the polls before voters feel the impact of higher taxes. It comes after Johnson announced a tax increase to help pay for the ailing National Health Service and ahead of the growing scrutiny he faces next year when a public inquiry into the government’s handling of the coronavirus pandemic gets underway.
Coming Up…
European stocks are set to defy a drop in Asia as Treasury yields climbed. The U.S. two-year yield hit an 18-month high and Brent oil topped $80 a barrel. Big names are speaking across the globe today including BOE’s Andrew Bailey and ECB President Christine Lagarde. U.S. Treasury Secretary Janet Yellen speaks at an event and also testifies alongside Fed Chair Jerome Powell at the Senate Banking Committee. Separately, Fed presidents from Atlanta and St. Louis are making appearances. In earnings, Ferguson, Smiths Group and Hella report in Europe, while chipmaker Micron and IHS Markit give results in the U.S.
And finally, here's what Cormac is interested in this morning
The selloff in Chinese assets has reached levels that is tempting some of the biggest names in finance out of the shadows. Blackrock, the world's largest asset manager, shifted its view to a ``modest'' overweight on expectations of near-term policy support, according to a note from strategists on Monday. And JPMorgan's equity team suggested China plays looked oversold given that the country's growth outlook is unlikely to significantly worsen, in a report the same day. The MSCI China Index has now fallen over 30% from its February high and has underperformed the MSCI World Index by about 33% so far this year. That has left it trading at a 6 point forward P/E discount to its global peers, well below the historic average of the last 10 years. That should ease the nerves of those dipping their toes in at current valuations. And while the Evergrande property saga has yet to be properly resolved, China's central bank gave bulls some additional comfort Monday, vowing to ensure a ``healthy property market'' in a statement following its quarterly meeting Friday.
