Some mild respite for UK bonds
The euro and sterling fell to lows of just under $1.17 and circa $1.3485 against the dollar respectively as Brent crude oil prices rose to highs for the day of over $108 p/b, before recovering some ground as oil prices eased again (to under $106 p/b). They are trading at around $1.1720 and $1.3520 respectively this morning, while EURGBP is little changed from yesterday morning’s levels at about £0.8660. There was some respite for UK government bonds as yields edged down a few basis points, having risen quite sharply over the first couple of days of this week. Politics will remain to the fore for UK markets today with reports suggesting PM Starmer will face a formal leadership challenge from Wes Streeting, the Health Secretary.
UK government bond yields edged down, with 2-year yields falling by around 6bps and 10-and 30-year yields around 3-4bps lower, reversing some of the increase in yields that occurred on Monday-Tuesday, while German and US yields were largely unchanged. In equity markets, European stocks closed higher for the first time since Wednesday of last week, gaining almost 1%, while the Nasadaq led the way higher for US stocks, rising by more than 1% on the day.
The UK economy grew by 0.6% q-o-q (+1.1% y-o-y) in the first quarter of this year according to GDP released earlier this morning, in line with the consensus forecast, accelerating from 0.2% in Q4 2025, with increases in consumer spending and business investment helping to offset a drag on growth from net exports. The economy also ended the quarter on a relatively strong note, expanding by 0.3% in March (from February) according to the monthly GDP data. This pace of growth is unlikely to be sustained though in the face of rising inflation, which will dampen incomes and spending.
ECB member Kocher says the central bank is “discussing holding or hiking” interest rates in response to the fall-out from the conflict in the Middle East. He notes that “if we see a peace agreement, if hostilities in the Middle East end, if there is more certainty about the economic outlook, then we want to avoid an unnecessary hike, but at the same time, you do not want to postpone necessary hikes…that is the starting point of any discussion, and then there will be judgment about what is necessary.”
Looking to the day ahead, economic data due include retail sales (April), import prices (April) and the regular weekly jobless claims report in the US. A number of Fed members are scheduled to speak over the course of the day.