40K and in play…
The jostling for position amongst the Labour Party MPs hopeful for the top spot continues. Yesterday morning news emerged that Wes Streeting, a vocal candidate for the removal of Starmer, would step down from his post as health secretary. This gave Sterling a tailwind with initial reports claiming the news as a victory for Starmer. That is not to say that the market prefers Starmer to Streeting as UK Prime Minister. Instead, it reflects the fact that without a viable competing leadership bid, the uncertainty premium within GBP would somewhat erode if the incumbent’s position became more secure.
Streeting is likely Labour’s most market-friendly candidate to replace Starmer. He is somewhat of an unknown but versus the remainder of candidates his appointment would certainly be more conducive to the performance of UK gilts and thus Sterling than the likes of Rayner or the unseated Burnham. On such a topic, and the title of today’s brief, Angela has claimed to have been cleared by HMRC for her erroneous Stamp Duty affairs. With no penalty applied it’s a £40k loan from the coffers for Rayner as she prepares her leadership contention. Perhaps her party members and electorate will be less quick to forgive and forget than HMRC.
The market remains short Sterling within the options space. Earlier this month we highlighted just how significant that short position was, with approximately 2/3 of open interest favouring downside exposure to the Pound. Supportive of that trend today, most of those expiries were for well beyond the local election date that passed last week. Whilst there may be limited scope for more positioning to the downside it wouldn’t be time therefore to call for short covering except upon the event of a significant shirt in fundamentals for the Pound. This morning, GDP growth data was published showing strong performance in March, raising first-quarter growth above expectations. Such elements would be supportive to a stronger pound but alone likely insufficient to offset the political risk premium building in GBP.
Discussion and Analysis by Charles Porter
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