Bloomberg) For equities it’s a bullish start to what looks set to be a busy week. The agenda for central-bank watchers is jam-packed, with speeches due from Janet Yellen, Mario Draghi, Mark Carney, Haruhiko Kuroda and more. Economic data may also drive momentum in financial markets, with key reports due on inflation, employment, manufacturing and housing from China to the U.S. There is “very little risk we see any central bank surprises,” Robert Rennie, Sydney-based head of global market strategy at Westpac Banking Corp., told Bloomberg TV. “It looks like it’s a positive summer for risk sentiment. That certainly favors higher equity and higher yielding currencies at least in the very short term.”
(Reuters) Republicans and Democrats are close to a bipartisan deal that could see the debt ceiling increased within the next few weeks.
(WSJ) Qatar dispute shows few signs of easing after Doha rejected the demands issued to it from its Arab neighbors
(NYT) Europe and Japan are close to agreeing to one of the largest free trade deals.
(JPM) Oil/SWF asset sales – a protracted shift of oil prices to $40 or below during the second half of the year would be needed for SWFs and Reserve Managers of oil exporting countries to become significant sellers of equities and bonds.
(Barron’s) Article laments the flattening TSY curve and the implications this has for the growth outlook. “Either the stock market is wrong in its bullishness, or the bond market is erring in seeing minimal chances of higher inflation” (the article leans towards equities being incorrect). “The spread between 30- and 10-year Treasury yields is down to levels that suggest year-over-year GDP growth could peak in the next few quarters and fall below 2% in 2018, absent fiscal stimulus, tax reform, or fresh Fed support”. The economy may not be at risk of recession until ’20.
(WSJ) • Fed officials “increasingly divided on the timing of the next rate hike” – a number of Fed officials are casting doubt on the current tightening timeline, warning that inflation needs to firm before hiking rates further.
(JPM) The 20% slump in the price of oil since early March raises the specter of the 2014- 2016 episode when the global expansion hit a speed bump. However, although the latest oil price drop poses a touch of further downside risk to our headline inflation forecasts (our forecast still assumes a rebound in oil in the coming months), the current episode feels different from 2014-2016. Specifically, given the signs of steady, solid growth, the recent dip in inflation does not appear to be linked to weaker demand. The Fed will require signs that core inflation is on an upward trajectory to deliver on its guidance for an additional rate hikes. At the same time, we believe that a decision to begin unwinding the balance sheet will be made in September even if inflation remains low (it would likely require increasing concerns on growth to forestall a balance sheet action in Sept.