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London Quick Take - Thursday - Gilt markets edgy as Rayner enters the fray, Wall Street hits new highs as Trump meets Xi
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Can we avoid the Thucydides Trap? No, not the inevitable clash of China and the US, but the rising power of Angela Rayner coming up against the established power of Keir Starmer...? Guess we find out later. Bond markets are nervous. This is no modern-day Athens. (I wonder if Wes Streeting spend 16 minutes posing that question to Starmer yesterday and didn't like his answer?)
Angela Rayner has been cleared by HMRC, opening the door for a run at the leadership. The MP, one of the leading candidates to replace Starmer, said she had been cleared of any “wrongdoing” over a case involving underpaid tax on a flat. Handy timing...everything seems to be aligning for a leadership contest that will unease bond investors. Meanwhile Health Secretary Wes Streeting has a big decision today to pull the trigger. It’s been a volatile week for gilt markets and I expect this to continue and likely see yields print fresh multi-decade highs should a leadership contest occur.
Better news for the government on the economic front this morning with quarterly growth at +0.6%, notably with growth of +0.3% in March despite the onset of the Iran war...however there may some pull-forward in demand that month as consumers expected prices to rise. It’s backwards looking data – as good as it gets this year I reckon. Of grave concern is the outlook and the record pace at which oil stockpiles are falling, with the IEA forecasting a 1.8mn bpd shortfall this year.
Everyone is hopeful that Trump and Xi find a way to discuss Iran at their summit and find a path to reopen the Strait of Hormuz, with the drop in oil supplies and jump in energy prices starting to send inflation higher. Apparently, Xi asked Trump if the US and China could avoid the Thucydides Trap as the summit kicked off – way to go to underline just how important this meeting is in term of the global geopolitical and economic order.
The US PPI inflation print came in at +1.4% month-on-month vs +0.5% expected, well above the upwardly revised +0.7% rise in March, with the April increase the largest advance since rising 1.7 percent in March 2022. Core PPI rose to +1% vs +0.4% expected, with final demand year-over-year at +6.0% vs +4.9% expected.
It comes after US CPI inflation came in at a higher-than-expected 3.8%, the highest rate since May 2023, while core inflation, climbed +2.8%, its highest since January 2025. However, unlike in 2022 the conditions for a wage price spiral do not exist this time - the labour market is balanced, and the supply shock is not coinciding with a post-pandemic goods and services demand surge. Note for instance the productivity gains evidenced by unit labour cost inflation falling to 1.2% y/y during Q1. Nevertheless, the market has been short inflation risks and remains behind the curve: Cleveland Fed nowcasting +4% CPI inflation in May and Q2 quarterly annualised now running at +6.8%...
The release of the PPI saw a reaction in equity futures, sending them lower initially as markets moved to price in a higher chance of the Fed hiking rates next rather than cutting. The case for cuts is diminishing by the day as the labour market remains in good shape and the US economy enjoys a productivity miracle. Tough moment for the new Fed chair Kevin Warsh (now confirmed) who wants to cut rates – markets like to test their mettle.
But tech stocks led the broad market higher as the S&P 500 struck a fresh record high on Wednesday despite most stocks falling. Two-thirds of stocks were down. Tech led the gains as the Nasdaq climbed 1.2%, with Nvidia +2%, Alphabet +4%. Cisco shares jumped 17% after-hours on strong guidance.
ITV said total external revenues rose +1% as Studios and Digital growth more than offset the decline in linear advertising. Studios external revs +8% thanks to selling content Netflix and Disney etc, while internal revs -7% as declining appetite for soaps and daytime programmes. The broadcaster has a perfect summer ahead with the World Cup and expects total ad revenues to rise 10% in Q2. ITVX did well and digital ad revenues rose 14%. Still in talks with Sky over the sale of its M&E business. Shares ticked higher at the open.
Burberry - revenues down 2% but a return to comparable sales growth in Q2 with profits surging on last year's levels but shares off 5% in early trade.
Watches of Switzerland shares leapt 11% after the firm upgraded profit guidance and guided for record annual revenues thanks to a strong performance in the US, where revenues grew +24%.
Spire Healthcare shares jumped 38% after revealing it had received an offer from Toscafund for 250p a shares...yet another FTSE name under the chopping block...shares up sharply but trade around 207p so market not convinced right now.
Angela Rayner has been cleared by HMRC, opening the door for a run at the leadership. The MP, one of the leading candidates to replace Starmer, said she had been cleared of any “wrongdoing” over a case involving underpaid tax on a flat. Handy timing...everything seems to be aligning for a leadership contest that will unease bond investors. Meanwhile Health Secretary Wes Streeting has a big decision today to pull the trigger. It’s been a volatile week for gilt markets and I expect this to continue and likely see yields print fresh multi-decade highs should a leadership contest occur.
Better news for the government on the economic front this morning with quarterly growth at +0.6%, notably with growth of +0.3% in March despite the onset of the Iran war...however there may some pull-forward in demand that month as consumers expected prices to rise. It’s backwards looking data – as good as it gets this year I reckon. Of grave concern is the outlook and the record pace at which oil stockpiles are falling, with the IEA forecasting a 1.8mn bpd shortfall this year.
Everyone is hopeful that Trump and Xi find a way to discuss Iran at their summit and find a path to reopen the Strait of Hormuz, with the drop in oil supplies and jump in energy prices starting to send inflation higher. Apparently, Xi asked Trump if the US and China could avoid the Thucydides Trap as the summit kicked off – way to go to underline just how important this meeting is in term of the global geopolitical and economic order.
The US PPI inflation print came in at +1.4% month-on-month vs +0.5% expected, well above the upwardly revised +0.7% rise in March, with the April increase the largest advance since rising 1.7 percent in March 2022. Core PPI rose to +1% vs +0.4% expected, with final demand year-over-year at +6.0% vs +4.9% expected.
It comes after US CPI inflation came in at a higher-than-expected 3.8%, the highest rate since May 2023, while core inflation, climbed +2.8%, its highest since January 2025. However, unlike in 2022 the conditions for a wage price spiral do not exist this time - the labour market is balanced, and the supply shock is not coinciding with a post-pandemic goods and services demand surge. Note for instance the productivity gains evidenced by unit labour cost inflation falling to 1.2% y/y during Q1. Nevertheless, the market has been short inflation risks and remains behind the curve: Cleveland Fed nowcasting +4% CPI inflation in May and Q2 quarterly annualised now running at +6.8%...
The release of the PPI saw a reaction in equity futures, sending them lower initially as markets moved to price in a higher chance of the Fed hiking rates next rather than cutting. The case for cuts is diminishing by the day as the labour market remains in good shape and the US economy enjoys a productivity miracle. Tough moment for the new Fed chair Kevin Warsh (now confirmed) who wants to cut rates – markets like to test their mettle.
But tech stocks led the broad market higher as the S&P 500 struck a fresh record high on Wednesday despite most stocks falling. Two-thirds of stocks were down. Tech led the gains as the Nasdaq climbed 1.2%, with Nvidia +2%, Alphabet +4%. Cisco shares jumped 17% after-hours on strong guidance.
ITV said total external revenues rose +1% as Studios and Digital growth more than offset the decline in linear advertising. Studios external revs +8% thanks to selling content Netflix and Disney etc, while internal revs -7% as declining appetite for soaps and daytime programmes. The broadcaster has a perfect summer ahead with the World Cup and expects total ad revenues to rise 10% in Q2. ITVX did well and digital ad revenues rose 14%. Still in talks with Sky over the sale of its M&E business. Shares ticked higher at the open.
Burberry - revenues down 2% but a return to comparable sales growth in Q2 with profits surging on last year's levels but shares off 5% in early trade.
Watches of Switzerland shares leapt 11% after the firm upgraded profit guidance and guided for record annual revenues thanks to a strong performance in the US, where revenues grew +24%.
Spire Healthcare shares jumped 38% after revealing it had received an offer from Toscafund for 250p a shares...yet another FTSE name under the chopping block...shares up sharply but trade around 207p so market not convinced right now.
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