GBP lower on domestic political uncertainty

Good morning

Wes Streeting resigned yesterday, not yet triggered a full leadership challenge but instead has suggested it Is time to find the strongest candidate to replace Starmer, who Streeting says, will not be leading Labour come the next election.  Perhaps a clever move on Streeting’s part, he can’t be accused of forcing a change too quickly, something that could be reasonably chaotic for the country,  but is opening up the potential for people to come forward and stake their claim to the top job.  It also gives him time to build support. 

Other names being touted are Angela Rayner who has been cleared of any HMRC wrongdoing, a very timely announcement that surely cannot be coincidence.  Andy Burnham will look to get back into Parliament to challenge Starmer.  Burnham would need to win the Makerfield by-election which won’t take place until around mid-June, plenty of time for this political risk to escalate.

All this is having an impact on GBP.  GBPUSD is currently 1.3355 having seen a low so far of 1.3340.  EURUSD is also lower, now 1.1645, dragged down by USD strength after a hefty PPI release yesterday, but a glance at GBPEUR, now 1.1475, shows clearly that the bulk of this move is GBP weakness.  UK gilt yields are higher again as this political uncertainty looms.  Don’t these parties learn anything?  We had the same thing when the Tories were in power, infighting led to leader changes which ultimately led to the decline of the party, Labour are now following suit.

USDJPY has ticked higher, hitting a high so far around 158.65 despite a brief sell-off yesterday afternoon.  This is the highest level we’ve seen since the end of April when intervention took USDJPY from 160.65 to 155.55, we are now pretty much back to the middle of that move.  Since that large intervention we have had numerous small spikes in Yen which is possibly smaller scale selling by Japan to serve as a reminder they are watching and stem rapid Yen depreciation, but seems to provide dips in UDSJPY for players to buy into.  No sign of any official action this morning although action is rarely pre-announced.  BoJ talk is that a June rate rise could be on the cards but that’s having little impact on Yen right now.

Trump is in China and of course we’ve had a few soundbites.  China may buy US oil to offset the impact of the closure of the Strait of Hormuz.  That will no doubt please Trump who seemed to suggest he didn’t want China help in reopening the waterway.  According to Trump, Xi has said China will not send military equipment to Iran.  Trump said China would buy 200 Boeing aircraft, great news on the face of it but Boeing stock fell sharply as there had been talk of a deal for up to 500 planes.  Meanwhile Xi warned Trump about getting too involved in Taiwan. 

All in all it is good the two leaders talk but despite it seeming reasonably friendly, neither side will come away with anything incredible, hence any positive news doesn’t seem to have an impact on general sentiment.  Indeed, most focus is still on Iran and whether there will be some sort of peace deal or whether, as I fear, we are more likely to see renewed hostilities.

Tech and AI stocks continue to go bananas.  Latest is Cerebras, regarded as a competitor to Nvidia, which had an IPO yesterday priced at $185 which valued the company at around $56bn.  The stock climbed as high as $385 before closing around $311.    I know the initial price has to be attractive but surely a stock that doubles in a day is priced wrong initially.  I’d be a bit unhappy with my advisers if I were the client.

In football, Liverpool visit Aston Villa this evening with both sides level in the table on 59 points, currently in the Champions League slots but with an in-form Bournemouth breathing down their necks.  A win for either team would ensure Champions League football next season.  Saturday brings the FA cup final between Chelsea and Man City.  City are favourites and Chelsea have been out of form recently but as we know, anything can happen in the cup.  Plenty of Premier League action Sunday including Newcastle v West Ham, anything other than a Newcastle win will be extremely worrying for Spurs who face Chelsea next Tuesday.

In golf, Scottie Scheffler is one of seven players are the top of the PGA leaderboard on 3 under par.  Rory McIlroy had a difficult start with a finish of four over par, perhaps that toe issue is hampering him.  Plenty of golf still to be played.

Not much on the calendar today but we certainly have enough going on to keep us busy and I doubt this UK political scene won’t be calming down any time soon. 

Have a great day, and a great weekend as and when it comes…

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