There is a sense of caution in the air as the population and bond markets watch to see if the Prime Minister is challenged, amid news this morning that former deputy prime minister Angela Rayner has been cleared of any wrongdoing in her tax affairs and is therefore clear to take a run at Keir Starmer. Wes Streeting continues to wait in the wings, and expectations are a challenge, likely from the latter, is coming.
However, bond, stock and currency markets seem quite sanguine about any moves coming today, although it’s worth bearing in mind that yields already jumped higher earlier in the week. Two and ten-year gilt yields actually dipped this morning alongside other European government debt, although gilt yields did shoot up in intra-day trading yesterday. This morning’s levels are still lower than Tuesday’s closing price.
Sterling is steady against the euro and dollar, while the FTSE 100 started in the green but has moved back to being flat, with company updates fighting for prominence. FTSE 100 mega-investment trust 3i is down nearly 20 per cent alongside Burberry, while income stalwart Legal & General is fighting the good fight, rising 5 per cent. More on these companies and others here
However, it’s worth remembering that it’s been a volatile week for gilt markets, and I expect this to continue; we could see yields print fresh multi-decade highs should a leadership contest occur.
There has been better news for the government on the economic front this morning with quarterly growth at 0.6 per cent, notably with a 0.3 per cent growth rate in March despite the US and Israel’s war with Iran. However, there may be some pull-forward in demand that month as consumers expect prices to rise. It’s backwards-looking data – and I think this is as good as it gets this year. Of grave concern is the outlook and the record pace at which oil stockpiles are falling, with the International Energy Agency (IEA) forecasting a 1.8mn barrel per day shortfall this year.
Everyone is hopeful that US President Donald Trump and Chinese counterpart Xi Jinping find a way to discuss Iran at their summit and come up with a plan to reopen the Strait of Hormuz. Apparently, Xi asked Trump if the US and China could avoid a Thucydides Trap, a hastened move to war. One way to underline just how important this meeting is for the global geopolitical and economic order.
The US PPI inflation print came in at 1.4 per cent month-on-month versus 0.5 per cent expected, well above the upwardly revised 0.7 per cent rise in March, with the April increase the largest advance since March 2022. Core PPI rose to 1 per cent versus 0.4 per cent expected, with final demand year-over-year at 6 per cent, instead of the 4.9 per cent prediction. This comes after US CPI inflation came in at a higher-than-expected 3.8 per cent, the highest rate since May 2023 and the core print its highest since January 2025. This data release sent stock market futures lower initially as traders priced in a higher chance of the Federal Reserve 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 chair Kevin Warsh, who wants to cut rates, as per Trump’s request. Markets like to test their mettle.
Nonetheless, tech stocks led the broad market higher with the S&P 500 striking 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 per cent, with Nvidia up 2 per cent and Alphabet 4 per cent. Cisco shares jumped 17 per cent after-hours on strong guidance.
By Neil Wilson, investor strategist at Saxo UK
