A shaky start to the week on political and geopolitical risks

Good morning

I hope you had a terrific weekend.  I had a good one, rounded off brilliantly yesterday when my youngest won his first senior boxing match.  Nothing quite like seeing your son getting hit in the face but somehow he seems to enjoy it.  Anyway, many congratulations, a very proud father who probably took longer to recover from the bout than my son did!

In other sport, Aaaron Rai became the first Englishman to win the US PGA Championship for over a century, finishing three shots clear at nine under par.  In football, Man City beat Chelsea in the FA cup final, another match blighted with VAR decisions that could have gone either way.  Newcastle did Spurs a huge favour with a win over West Ham, which means Spurs need just one point from their last two matches to pretty much ensure survival.

And in Scotland, Hearts were broken in more ways than one as Celtic pulled off a late win to secure the title that Hearts had worked so hard for.  But perhaps the sadder news was the passing away of rugby legend Scott Hastings at the age of just 61.

Financial markets are reeling, driven by geopolitical risks, political risks and worryingly high bond yields.  UK 30 year yields which were already at their highest levels since 1998 made fresh highs this morning while the 10 year edged closer to the June 2008 highs. It isn’t just the UK.  US, EU and Japan yields are also pushing higher.  Oil prices are up as Trump warns Iran once again that a peace deal needs to be made, with reports suggesting US and Israeli attacks on iran could restart as early as this week.  Equities seem to have remembered that the world isn’t in a great place, US and Asian markets closing lower and European markets in negative territory this morning.

Here in the UK we’ve already seen GBP fall as a result of this possible leadership challenge with Andy Burnham and Wes Streeting lining themselves up as potential candidates for the job.  Should the two run against each other there is a greater chance we will see an even more divided Labour party.  They have not learnt the lessons from the Tories over the past few years.  GBPUSD has been as lows as almost 1.3300 this morning but has recovered to the 1.3350 area, while GBPEUR remains below 1.1500.   

USDJPY worked its way steadily up to 159.00 this morning, the upward trend has been apparent since hitting its lows around 155.00 back on 6^th May and what look like several smaller intervention attempts over the past week or two, yen weakness has returned, not helped at all by talk that Japan will issue new bonds to raise money for a rescue package to cushion the economic fallout of the Middle East war.  There has been some suggestion though that with Japan bond yields at record highs there could be a switch out of US treasuries to Japan bonds which one would expect to impact USDJPY levels.

In other cheery news, WHO have declared a global health emergency over an outbreak of Ebola in the Democratic Republic of Congo, alongside the concerns over the Hantavirus outbreak.  OK, so a global pandemic is highly unlikely but the WHO warning does reflect how very serious they are taking the threat.

Today doesn’t have much in the economic calendar, most of the action is overnight, but this week brings some decent data including UK employment, inflation and retail sales, as well as PMIs from EU, UK and US.  Canada inflation numbers, RBA minutes and Aussie employment numbers are also out.  All this while we still have this threat of renewed hostilities in the Middle East and the political upheaval that is likely to continue. 

Have a great day…

-  09.30 BoEs Mann speaks

-  23.45 NZ PPI

-  00.50 Japan GDP

-  02.30 RBA minutes

-  07.00 UK employment