UK

What do the mixed signals sent by the UK economy mean for the Bank of England, and what are the implications for Gilts and the British pound?

Investors hope that the ECB rate cuts priced into the curve will be sufficient to achieve a soft landing in Europe. History argues against this view, but will this time be different?

We review some of the key data releases this week that we find have an impact on our currency strategy. Long yen positions make sense today. Long sterling and the euro bets are more of a judgment call, and we will fade any strength in these currencies. This report delves into these nuances, and suggests a few trade ideas.

The real threat to European equities is growth, not political risk. How low will Eurozone earnings fall during the coming recession and how much will equities decline in response?

Investors in European sovereign bonds should find solace that continental voters are not turning away from support for EU integration. As such, populist parties are not really that “far” left or right. And as long as they want to maintain popular support, they will have to abide by the fiscal rules imposed by Brussels. No such supranational constraint exists in the U.S., the real risk for global bond operators.

The new Labour government will have flexibility to respond to macro shocks, which is positive for the UK in general, namely GBP-EUR, and also gilts in absolute terms. But over the long run, tax hikes will likely surprise to the upside, which poses a risk to corporate earnings.

The Labour Party’s comeback in the UK is widely expected and will lead to fiscal stimulus consisting of increased public spending with minimal tax hikes. But a sweeping single-party majority will reduce social unrest only at the cost of higher taxes over the medium term. The paradigm has shifted away from the Thatcherite low-tax regime of the now-discredited Tories. v