Government bond yields head higher, FTSE slightly higher
Government bond yields are heading higher, with the UK’s 10-year gilt yield getting closer to 5%.
It rose 4 basis points to 4.91%, effectively raising the cost of borrowing for the UK government – a week before Andy Burnham is expected to become the new prime minister.
He is considering an expanded budget this autumn that would combine the annual fiscal statement with a departmental spending review and set out his political strategy and priorities until the next general election, the Financial Times reported.
The biggest item in his in-tray will be his spending priorities until the next election and how to fund them.
This bumper budget might come in October. Nick Bubb, an independent analyst said
Good luck with that timing, given all the wrangling over spending cuts and tax rises that lies ahead, and with things kicking off again in the Middle East...
In stock markets, the FTSE 100 index has pared its early gains and is trading less than 8 points higher at 10,505, up 0.08%. The Italian borsa is also slightly up while the rest of Europe is a sea of red, with the German and French indices slipping 0.1%.
The FTSE’s home builders sub-index rose 2.5%, after reports that Burnham could revive the help to buy scheme for homebuyers. Persimmon is leading gains on the FTSE 100 index, up 3.3%, while Barratt Redrow gained 2.5% and Vistry Group on the FTSE 250 was nearly 4% higher.
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Introduction: Oil price jumps over 4% and gold slides as the US and Iran trade attacks
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s a gloomy start to the week as attacks between the US and Iran in the Gulf continue. Tehran said it had closed the strait of Hormuz, while Donald Trump insisted the key shipping passage remained open and US officials said 20 ships were escorted through the waterway in the past 24 hours.
As the US military launched a new wave of attacks against Iran amid the escalating standoff over the strait, and Iran launched missile and drone attack on US bases in neighboring countries, Tehran said the latest strikes had “rendered futile” all the diplomatic efforts of the past few months. Trump stated last Wednesday that the ceasefire was over. Qatari and Pakistani mediators are trying to salvage the deal and bring the two parties back to the negotiating table.
Brent and US crude oil prices have jumped, while gold slid, Asian shares tumbled and share futures point to a lower open in Europe and on Wall Street later.
Brent crude rose 4.2% to $79.18 a barrel in early London trading. Spot gold fell 1.5% to $4,060 an ounce.
Jefferies analyst Mohit Kumar said:
For now, we remain hopeful that both parties would return to the negotiating table and traffic would start to flow through the strait. We are not looking for oil prices to go back to the March highs.
Japan’s Nikkei lost 2.1% while Hong Kong’s Hang Seng slipped 0.1%. China’s CSI 300 slid 1.78% and South Korea’s Kospi plummeted nearly 10%. A month and a half ago, it was hitting record highs thanks to the AI boom.
Shares in the South Korean chipmaker SK Hynix plunged more than 15% in Seoul, apparently because of profit taking after its successful debut on Nasdaq last week. However, investors have become more sceptical about the AI boom in recent weeks.
The earnings season is upon us, with banks reporting their quarterly results from Tuesday, and Netflix on Thursday.
Expectations of an interest rate hike from the US Federal Reserve have increased slightly, a day before chair Kevin Warsh faces Congress for the first time in his new role.
Kumar added:
This week would be an important week to determine which direction geopolitics takes. Focus would also be on US CPI [consumer prices index], particularly with oil prices threatening further inflationary pressure in the pipeline. It’s also likely to an important week for central bank speech with Warsh testimony in front of the House (Tuesday) and Senate (Wednesday). Market is still not sure whether Warsh sits on the hawkish or the dovish camp. Our view is that he sits in the credibility camp and hence would respond to the incoming data.
The pound slipped 0.2% to $1.3377 against the dollar in a crucial week in UK politics, as Andy Burnham, the former Greater Manchester mayor and now Makerfield MP, is expected to become elected as Labour leader on Friday, and named prime minister next Monday.
The Agenda
5.45pm BST: European Central Bank executive board member Isabel Schnabel speech
7pm BST: Bank of England chief economist Huw Pill speech
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