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London Quick Take - Monday - Gilt yields rise with Starmer pressure building, Trump rejects Iran's response ahead of Xi meeting
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
'Totally unacceptable': Not some Labour MPs’ views of Keir Starmer’s leadership (though more on that below), but the verdict of President Trump on Iran’s response to the US peace proposal. The comments nudge in the direction of re-escalation – potentially more shooting – but I’d think there is going to be a fresh olive branch. Another hopeful Friday turns into a more worrying Monday with Iran headlines driving things and crude prices rose about 4% to reflect risks.
It comes as we enter a key week for the political sphere and the optics of the Trump-Xi meeting. The conflict in the Middle East, Taiwan, Ukraine, tariffs and AI are among the likely topics in what could be a key moment in the relationship between the two countries.
Political pressures are being keenly felt in the UK this week as Labour leader Keir Starmer fights for his premiership. Leading light of the Left Angela Rayner has delivered him an ultimatum: bring back Andy ‘we shouldn’t be in hock to the bond market’ Burnham or else. Starmer will do a ‘reset’ speech later today – it all seems a little too late. One MP, Catherine West, has already broken cover to say she’ll challenge Starmer’s leadership should no cabinet minister come forward. As of last night some 42 Labour MPs had called on the PM to resign – 81 are needed to trigger a contest so it looks likely that something is about to happen this week. Amid the ongoing fallout for the government from the 7 May elections the King is due to mark the State Opening of Parliament on Wednesday. Could be tricky.
After sliding for much of the latter part of last week gilt yields have jumped this morning on the political risk premia associated with a potential defenestration of Starmer and Reeves, but also due to the situation with Iran and oil price spike. I’ve talked before at length on why a more left-leaning ticket could be punished by markets –no need to delve into that again, but fiscal loosening is not what the market wants to see at a time of existing pressures on finances, a fragile fiscal position, and higher borrowing costs due to the war. No fireworks yet but we could see some outsize moves should a leadership contest be triggered. Bond vigilantes are watching, waiting. Sterling also ticked down but rallied back to 1.36 as it continues to be held in check by this level. Meanwhile, the FTSE 100 has ticked up with oil price rises driving gains for oil majors Shell and BP, while Compass Group rallied over 3% as it raised its full-year outlook.
Clearly inflation risks are at top of mind as the Strait of Hormuz remains closed. This week is chock-full of inflation data. Data this morning shows China's factory prices grew at the fastest pace since the pandemic as the Iran war raises costs, with producer prices rising 2.8% in April from a year earlier, the highest since July 2022. Consumer inflation unexpectedly climbed to 1.2% from a year earlier. April CPI is expected to rise 0.7% month-on-month, easing from 0.9%, while the annual rate is seen heading towards 4% after jumping from 2.4% to 3.3% in March. A 21% jump in gasoline during March was the main culprit and the rise in inflation is making life all the more difficult for the incoming Fed chair. There’s a changing of the guard at the Fed as Jay Powell’s term ends just as the Senate returns from recess to vote on Kevin Warsh’s appointment.
Earnings trump Iran risks as far as Wall Street is concerned. The S&P 500 and Nasdaq Composite each notched record intra-day and closing highs on Friday. Earnings expectations for the full year for the broad market now stand at +24%. Tech leads the way with the Nasdaq up +4.5% last week and the S&P 500 rising 2.3%, each delivering a sixth straight weekly win – the best run in a couple of years. Jobs numbers were positive with the nonfarm payrolls coming in at +115,000 vs the +55k expected, while the unemployment rate was steady at 4.3%. Earnings season is almost over in the US – although Nvidia is the key piece of the puzzle reporting on 20 May – but this week there is plenty of interest in the UK with results from the likes of Vodafone, Burberry and Greggs among others. Read the full week ahead.
It comes as we enter a key week for the political sphere and the optics of the Trump-Xi meeting. The conflict in the Middle East, Taiwan, Ukraine, tariffs and AI are among the likely topics in what could be a key moment in the relationship between the two countries.
Political pressures are being keenly felt in the UK this week as Labour leader Keir Starmer fights for his premiership. Leading light of the Left Angela Rayner has delivered him an ultimatum: bring back Andy ‘we shouldn’t be in hock to the bond market’ Burnham or else. Starmer will do a ‘reset’ speech later today – it all seems a little too late. One MP, Catherine West, has already broken cover to say she’ll challenge Starmer’s leadership should no cabinet minister come forward. As of last night some 42 Labour MPs had called on the PM to resign – 81 are needed to trigger a contest so it looks likely that something is about to happen this week. Amid the ongoing fallout for the government from the 7 May elections the King is due to mark the State Opening of Parliament on Wednesday. Could be tricky.
After sliding for much of the latter part of last week gilt yields have jumped this morning on the political risk premia associated with a potential defenestration of Starmer and Reeves, but also due to the situation with Iran and oil price spike. I’ve talked before at length on why a more left-leaning ticket could be punished by markets –no need to delve into that again, but fiscal loosening is not what the market wants to see at a time of existing pressures on finances, a fragile fiscal position, and higher borrowing costs due to the war. No fireworks yet but we could see some outsize moves should a leadership contest be triggered. Bond vigilantes are watching, waiting. Sterling also ticked down but rallied back to 1.36 as it continues to be held in check by this level. Meanwhile, the FTSE 100 has ticked up with oil price rises driving gains for oil majors Shell and BP, while Compass Group rallied over 3% as it raised its full-year outlook.
Clearly inflation risks are at top of mind as the Strait of Hormuz remains closed. This week is chock-full of inflation data. Data this morning shows China's factory prices grew at the fastest pace since the pandemic as the Iran war raises costs, with producer prices rising 2.8% in April from a year earlier, the highest since July 2022. Consumer inflation unexpectedly climbed to 1.2% from a year earlier. April CPI is expected to rise 0.7% month-on-month, easing from 0.9%, while the annual rate is seen heading towards 4% after jumping from 2.4% to 3.3% in March. A 21% jump in gasoline during March was the main culprit and the rise in inflation is making life all the more difficult for the incoming Fed chair. There’s a changing of the guard at the Fed as Jay Powell’s term ends just as the Senate returns from recess to vote on Kevin Warsh’s appointment.
Earnings trump Iran risks as far as Wall Street is concerned. The S&P 500 and Nasdaq Composite each notched record intra-day and closing highs on Friday. Earnings expectations for the full year for the broad market now stand at +24%. Tech leads the way with the Nasdaq up +4.5% last week and the S&P 500 rising 2.3%, each delivering a sixth straight weekly win – the best run in a couple of years. Jobs numbers were positive with the nonfarm payrolls coming in at +115,000 vs the +55k expected, while the unemployment rate was steady at 4.3%. Earnings season is almost over in the US – although Nvidia is the key piece of the puzzle reporting on 20 May – but this week there is plenty of interest in the UK with results from the likes of Vodafone, Burberry and Greggs among others. Read the full week ahead.
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