Closing post
Time to recap.
It’s been a volatile day in the UK bond market as pressure has built on Sir Keir Starmer.
UK borrowing costs rose in early trading as traders reacted to Sunday’s resignation of the prime minister’s chief of staff, Morgan McSweeney, over the decision to appoint Peter Mandelson as ambassador to Washington.
Bond yields rose further after the Downing Street communications director Tim Allan resigned on Monday morning….
… and long-term borrowing costs touched their highest level since November, after it was reported that Anas Sarwar, the Scottish Labour leader, was calling on Starmer to stand down as prime minister and Labour leader.
But! Yields then dropped back, after a flurry of supportive messages from government ministers, indicating that Starmer has not lost the cabinet’s support.
The pound fell against the euro, but was stronger against the US dollar.
Japan’s stock market has hit a record high after Sanae Takaichi’s Liberal Democratic party (LDP) secured a comprehensive victory in Sunday’s election.
Japan’s Nikkei share average rose to a record high on Monday, after the election result, surpassing the 56,000 level for the first time at the start of trading. It quickly pushed through the 57,000-point mark, before closing up 3.9% at 56,363 points.
In other Asian markets, South Korea’s Kospi rose 4.4%, Hong Kong’s Hang Seng gained 1.8%, and Australia’s S&P/ASX 200 was 1.9% higher.
On the currency markets, the yen initially fell 0.3% against the dollar – its weakest level in two weeks – before strengthening as much as 0.7%. It was last trading 0.5% firmer at 156.43 yen against the dolla
Sterling extended losses against the euro this afternoon, nearing a year-to-date low as news emerged that Scottish Labour leader Anas Sarwar called on prime minister Keir Starmer to resign, reports Neil Wilson, investor strategist at Saxo UK:
It should be noted that Sarwar is not an MP and therefore has no direct mechanical influence on the Parliamentary Labour Party in Westminster. And Downing Street is standing firm, reiterating Starmer’s five-year mandate from the general election. Yet it underscores the precarious situation the prime minister is facing.
Starmer is due to speak to Parliamentary Labour Party at 6pm, which could be a pivotal moment if he is to survive this week. It follows the resignation of the PM’s chief of staff over the weekend and director of communications today.
The market is worried about a) political uncertainty with a vacuum at the top against a backdrop of acure economic and geopolitical challenges, and b) that any replacement of the Starmer-Reeves regime would be from the left, implying more spending and potentially unwinding all the fiscal repairs carried out at the last Budget. Incidentally, it’s this fear of an attack by bond vigilantes that just might save the PM, though it’s looking increasingly less likely he will survive as Labour leader by the May elections.
