Inflation continues to tick higher, bonds lower

British politics feels like the Clash hit from many years ago. For Mr Starmer, should I stay or should I go now, if I stay there will be trouble; if I go, it will be double. Journalists’ headlines suggested that the UK’s capital markets were falling apart, or in meltdown, as one paper put it,  in the wake of the possibility of the UK having its 6th prime minister in 7 years. In reality, the bond market’s reaction, and that of sterling, could be argued to be quite muted and partly reflected in falls in government bond prices across Europe and the US. The UK ten-year yield rose by  6 basis points, and sterling was down less than 50bp versus the USD, and remains largely unchanged from a week ago. That I do find surprising

I would suggest an amber warning for the UK government. One gets the sense that the market is betting he will tough it out; he seems to be giving it a good go. Ms Reeves now faces the problem that yields have already risen far above the levels assumed in her budget forecasts. As a result, debt interest costs in 2026/27 will be higher, and the headroom under the fiscal rules will be reduced.

One thing that may help Mr Starmer stay in his post is that neither leading candidate appears to have the support of the other wing of the party, so maybe that is why neither is willing to mount a direct challenge. He still remains the compromise candidate. Who could be an alternative? A friend suggested Gordon Brown as interim. Could you rule it out?

Global bond prices fell yesterday, after the US Bureau of Labour Statistics reported a hotter-than-expected jump in monthly and annual inflation. CPI rose to 3.8% in April, up from March’s 3.3% gain. Germany’s economy reported annualised inflation running at almost 3%. While this rise in prices is largely at the doorstep of higher energy prices, a selection of other statistical measures of core price increases are also turning upward in the US. It was reverse all engines for stocks yesterday, as market breadth widened, the past few weeks’ losers became yesterday’s winners, and the tech sector underperformed.

Markets in Europe start the day in a positive mood despite Mr Trump’s comments that the ceasefire is on “life support” as he heads to Beijing.  Anyone looking for a distraction from current events and wondering about any new TV shows, Steal on Amazon Prime is entertaining