Introduction: Pound ‘weighed down by political uncertainty’ over Starmer’s future
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Another UK political crisis is looming over the City of London today, as prime minister Sir Keir Starmer faces more calls to set out a timetable for his departure.
The bond market is fimly in the spotlight, after government borrowing costs jumped yesterday as Starmer’s ‘make-or-break’ speech failed to reassure investors, and prompted some Labour MPs to fall for his departure.
The Guardian reported last night that two senior cabinet ministers – Yvette Cooper, the foreign secretary, and Shabana Mahmood, the home secretary – were understood to have told the prime minister he should oversee an orderly transition of power, after last week’s local elections.
The pound has dropped against the dollar this morning, down half a cent to $1.3560.
Sterling is being “weighed down by political uncertainty as PM Keir Starmer faces pressure to step down”, reports IG analyst Tony Sycamore.
City investors will be watching Westminster, where Starmer is due to hold a cabinet meeting today.
Bond yields (which rise when price fall) could push higher if traders anticipate that a change of leadership would lead to higher spending, and more borrowing, and a break from the government’s fiscal rules.
Jim Reid, strategist at Deutsche Bank, explains:
double quotation markWith a Cabinet meeting expected this morning, today could be a big day in determining Starmer’s future.
In response to the uncertainty, 10-year UK gilt yields rose +8.6bps to 5.00% yesterday, whilst the 30-year yield rose +9.3bps to 5.67%, given expectations that a new Labour leader may face pressure to ease the fiscal rules and raise gilt issuance.
The agenda
10am BST: ZEW economic sentiment index for the eurozone
11am BST: NFIB US business optimism index
1.30pm BST: US CPI inflation report for April
Key events
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Investors ramp up bets on Bank of England rate hikes
The City financial markets have lifted their forecasts for UK interest rate rises this year.
The money markets are now pricing in 68 basis points (0.68 of a percentage point) of interest rate increases from the Bank of England by December.
That’s up from 56bps yesterday.
This indicates traders are more confident the BoE will raise interest rates twice this year (which would increase Bank rate by 50bps), and see a third hike as more possible.
That follows a rise in the oil price today (Brent crude is up 1.25% to $105.50 a barrel), which is inflationary.
It may also reflect the political uncertainty (if a new prime minister loosened fiscal policy through higher spending and borrowing, the BoE might respond with tighter monetary policy to dampen the inflation risks).
Investment bank Jefferies’ ‘base case scenario’ is that there is ‘a managed exit’ for Keir Starmer.
Jefferies economist Mohit Kumar told clients this morning that any replacement would likely be left leaning and be negative for the pound, and longer-dated government bonds.
ShareIntroduction: Pound ‘weighed down by political uncertainty’ over Starmer’s future
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Another UK political crisis is looming over the City of London today, as prime minister Sir Keir Starmer faces more calls to set out a timetable for his departure.
The bond market is fimly in the spotlight, after government borrowing costs jumped yesterday as Starmer’s ‘make-or-break’ speech failed to reassure investors, and prompted some Labour MPs to fall for his departure.
The Guardian reported last night that two senior cabinet ministers – Yvette Cooper, the foreign secretary, and Shabana Mahmood, the home secretary – were understood to have told the prime minister he should oversee an orderly transition of power, after last week’s local elections.
The pound has dropped against the dollar this morning, down half a cent to $1.3560.
Sterling is being “weighed down by political uncertainty as PM Keir Starmer faces pressure to step down”, reports IG analyst Tony Sycamore.
City investors will be watching Westminster, where Starmer is due to hold a cabinet meeting today.
Bond yields (which rise when price fall) could push higher if traders anticipate that a change of leadership would lead to higher spending, and more borrowing, and a break from the government’s fiscal rules.
Jim Reid, strategist at Deutsche Bank, explains:
double quotation markWith a Cabinet meeting expected this morning, today could be a big day in determining Starmer’s future.
In response to the uncertainty, 10-year UK gilt yields rose +8.6bps to 5.00% yesterday, whilst the 30-year yield rose +9.3bps to 5.67%, given expectations that a new Labour leader may face pressure to ease the fiscal rules and raise gilt issuance.
The agenda
10am BST: ZEW economic sentiment index for the eurozone
11am BST: NFIB US business optimism index
1.30pm BST: US CPI inflation report for April