Election results look very bad for labor, very good for Reform. We’ll see just how much pressure it brings to bear on the prime minister.
Gilt markets are steady at the moment but the bulk of counting has a long way to go – but so far it suggests labor might lose about 1,500 council seats, a little way off the 2,000 scenario that had been talked about. Starmer says he won’t quit and this needs to be seen in context as markets were primed for a bad outcome for the government. The question is how much pressure is now brought and whether there is a leadership challenge. The 10yr gilt yield is holding below 4.9% and the 30yr is also off a few ticks below 5.6%. There’s a chance the political scene goes a bit woo-woo and bond markets are very attuned to this. Yields are not doing much this morning but remember we hit 28-year highs on the 30yr earlier this week and the bond vigilantes are lurking. Political risks associated with a Starmer/Reeves defenestration are bound up with already rising fiscal and inflationary risks for the UK economy – I had a look at this here.
Love tap: Stock markets took a tumble as a military flare-up in the Strait of Hormuz raised fears the fragile truce between the US and Iran would crack after the two sides exchanged fire. The escalation threatened to derail steps being taken towards a peace deal that had energised risk sentiment over the last two days. President Trump says the ceasefire is still in effect but markets are lower due to doubts about whether indeed it can hold. He also described strikes against Iranian targets as just a “love tap.”
Crude oil broke north of $100 a barrel as the mounting tensions weighed on the emerging hope that a deal could be reached ahead of the weekend and, importantly, ahead of the Trump-Xi meeting next week. Brent recovered the 50-day SMA which is acting as strong support.
The re-escalation headlines drove is like a lead weight to the buoyancy of risk sentiment and we’re pared gains from the last couple of sessions. The FTSE 100 dipped about two-thirds of a percent, with losses driven by all those with greatest war-inflation exposure. IAG warned of the “substantial impact” of the Iran war which it said would add €2bn in jet fuel costs this year despite being about 70% hedged. Results otherwise were strong with profits +77%. Shares fell -3% but the stock has already derated quite a bit since the war started. Intertek led the fallers however as it rejected an improved 5,800p offer. Meanwhile, the DAX and CAC each shed around 0.9%. Asian stocks were lower with tech leaders Samsung and SK Hynix giving back some of their recent monster gains.
On Thursday Wall Street retreated from record highs as the S&P 500 and Nasdaq both slipped a touch. Despite the blip yesterday chips stocks are getting chased higher and it feels as though some of the froth needs to come off this market to allow a pause and broadening of participation (maybe we saw that yesterday), which has got increasingly narrow as the momentum trade in tech picked up from a broader dispersion pattern earlier in the year when materials, energy, health, utilities and consumer defensives were leading the market higher. The rotation back into tech has lent itself to narrower participation with Mag7 accounting for about 35% of the S&P 500. The narrow participation rate means we could see further gains for the index as laggards catch up and start to join in – indeed it seems that broader participation will be required to sustain the rally. Per Citadel, only 28 of the stocks S&P 500 account for more than 50% of recent returns, while just 22% of stocks in the index have outperformed the index in the last 30 days. Earnings season is starting to ease off but we have the major mile marker in Nvidia earnings on 20 May. So far we’re about three-quarters of the way through the S&P 500 reporting season and so far about 85% of companies have beaten EPS and 80% beaten on revenues. Now we approach the reopening of the buyback window which could add further incentive to bulls and a broader tape.
Last night AI name CoreWeave dipped 6% after-hours following earnings. It beat on the bottom line this quarter but top-line guidance for the next quarter came in light. Revenues in the last quarter more than doubled but so did losses. Supplier Nvidia bought another $2 billion in CoreWeave shares during the quarter. Arm Holdings shares fell as they don’t have enough supply to meet surging demand – I call that a high class problem to have and it probably came in quite hot after a blistering run so not surprising to see some giveback.
Lastly it’s jobs day – US nonfarm payrolls seen at about +55k and unemployment steady at 4.3% as the impact of immigration policies and AI continues to see slower job creation required to keep employment levels the same.
Brent crude holding its 50-day line
Source: Saxo
The post Gilts steady but bond vigilantes lurking, stocks off color as Iran risks rise again appeared first on USNewsRank.
Discover more from USNewsRank
Subscribe to get the latest posts sent to your email.