UK

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

The consensus soft-landing narrative is wrong. The US will fall into a recession in late 2024 or early 2025. We were tactically bullish on stocks most of last year, turned neutral earlier this year, and are going underweight today. We conservatively expect the S&P 500 to drop to 3750 during the coming recession.

Is the BoE making a mistake moving toward rate cuts before the end of the summer? What would such a move mean for UK asset prices?

We look at the implications a various European central bank meetings this week, for currency strategy.