Note – Bloomberg: 5 things to start your day

And finally, here’s what Adam’s interested in this morning

Make no mistake about it, 2019 is turning into a great year for equity markets. MSCI’s global gauge has returned 13% and for the S&P 500, that figure is 15%. Even the Asia-Pacific region, which has struggled relatively speaking, has handed investors a healthy 6% for their troubles. For active money managers, those returns have accompanied a greater than average outperformance from mutual funds relative to their benchmarks. Sure, just 42% of funds beat the index, Goldman Sachs data shows. But that is still higher than the average 34% figure seen over the last 10 years.

The overweight tilt that funds have to health-care, this year’s worst-performing sector, goes some way to explain the lag. Exposure among hedge funds is now the highest since 2010, RBC Capital Markets data shows. More on that here.

With seven months of the year left, a lot could still change, but so far there’s grist to the mill to chalk one on the board in the enduring active versus passive debate. Outflows are easing and those who are paid to actively manage equities will take some comfort that in a year filled with risks — from the escalating trade war to the global economic slowdown — they are still delivering something well worth paying for.

And finally, here’s what Joe’s interested in this morning

The debate over monetary policy has become tedious and stale. Fortunately, a new proposal on how the Federal Reserve should rethink its framework has offered a much-needed jolt. Skanda Amarnath is a former hedge fund economist and the co-founder of a new think tank called Employ America pushing for policies that will keep the labor market hot. In Amarnath’s new piece, he explains why the Fed’s focus on consumer price inflation is misguided and leads to bad outcomes. Some of the problems include the fact that inflation measures are lagging (they tend to turn south only after the economy loses momentum) and that many of prices that go into the basket have nothing to do with the economic cycle (e.g. health care). Also, as he points out, the methodology for calculating inflation is always changing, which makes it a bad gauge for real-time policy. Instead, Amarnath proposes the Fed should target growth in Gross Labor Income instead, which is basically the combined paycheck of every worker. It’s not only easier to measure and be more responsive to changes in the economy, it also directly targets the variable that actually matters to people. As he puts it, “Americans want a bigger paycheck, not a higher cost of living. The Fed can help.” You should absolutely read the entire thing, because it’s a magnificent overview of the flaws of the existing Fed approach, and how they can be rectified. And you should catch Amarnath on Bloomberg TV with me at 4:30 p.m. Eastern Time, where he’ll talk about his new ideas.

China is struggling to grasp Trump’s trade end game and Asia equities are following U.S. stocks lower as tensions simmer. Meanwhile, Theresa May’s leadership hangs by a thread. Here are some of the things people in markets are talking about today.

New Cold War Looms

As U.S. President Donald Trump continues to raise the stakes with threats to kneecap Huawei Technologies Co. and Chinese surveillance-equipment firms, officials in Beijing are weighing their options to respond. They are stoking up anti-U.S. sentiment and drawing up contingency plans to bail out Huawei, while also still calling for dialogue to resolve the dispute. But there’s uncertainty over whether the U.S. is fundamentally looking to curb China’s rise as a global superpower, or just ramping up the rhetoric. Trump is still likely to meet Chinese President Xi Jinping in late June, Steven Mnuchin says.

India’s Votes Counted

India begins counting votes today for the largest democratic exercise in the world, with Prime Minister Narendra Modi widely expected to win following a grueling contest that focused squarely on his leadership after a military clash with rival Pakistan. The Election Commission of India will start counting at 8:00 am local time, with clear trends expected to emerge mid-morning. More than 600 million people cast ballots over the six-week process, but thanks to electronic voting machines the counting should only take a few hours.

Stocks Sink, Asia Follows

Asian stocks looked set for modest declines after U.S. equities slipped amid ongoing trade-war tension. Treasuries rose, with 10-year yields remaining down after the release of the Fed minutes. The dollar was mixed, gaining most against the pound and losing ground against the yen. Gold was little changed.

At the Mercy of Foreigners

While overseas traders are quickly souring on yuan assets, they’ve also never wielded this much influence over China’s onshore stock market. Index inclusions and expanded quotas mean they drive a record 10% of daily turnover, according to data compiled by Bloomberg. That proportion is even greater for favorites like Kweichow Moutai Co., at 34% on a monthly basis. They own 3.1% of the $6.5 trillion stock market, almost as much as the country’s mutual funds. That means the record pace of foreign selling matters now more than ever.

May Still Standing

U.K. Prime Minister Theresa May’s premiership is hanging by a threadafter a high-profile Cabinet minister quit and a growing revolt over Brexit looked set to force the British leader from power, although rank-and-file Conservatives decided not to change leadership rules that would make it easier to oust her. In her letter of resignation, Andrea Leadsom said she no longer believed the government’s approach will honor the result of the 2016 referendum.

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