EMISSIONS: BNEF Warns EU Risks Undermining Investor Confidence

Gilt futures have closed the opening gap higher, with the pullback from early session highs extending further.

• Futures just off fresh session lows, last ~92.60, yields little changed to 15bp higher, curve meaningfully steeper on the day.
• Initial support at the March 20 high (93.01) is breached. Further extension lower would target the 20-day EMA (92.13)
• As noted previously, the APF offering from the BoE wasn’t well-received, but gilts were already moving lower before that.
• A move off lows in equity indices has factored into the pullback from highs, but there hasn’t been much in the way of a clear explainer offered for the weakness in global long ends.
• Comments from UK PM Starmer & Chancellor Reeves to automakers add further weight to the idea of at least some fiscal support being offered to counter the impact of U.S. tariffs, however, the UK’s fiscal position remains delicate.
• GBP STIRs off dovish session extremes, in line with the move in the long end.
• SONIA futures now +4.5 to -12.0 after most contracts touched the highest levels seen since April. Strip twist steepens.
• BoE-dated OIS back to pricing 79bp of cuts through year-end vs. ~93bp at one stage this morning. A cut is still fully discounted come the end of the May MPC.
• Comments from BoE’s Lombardelli and 30-Year gilt supply are due tomorrow.

Asked by Sky News whether he will commit to retaining the fiscal rules exactly as they are, PM Sir Keir Starmer demurs. Prime Minister says that the fiscal rules are very important and will not be set aside, but does not give a definitive answer to the question of whether they will be kept as-is. 

• Speaking ahead of the PM, Chancellor of the Exchequer Rachel Reeves said that the gov't would stick to the rules, adding "When Britain talks about economic stability, we really mean it." However, as with Starmer she did not wholly commit to sticking to the current fiscal rules, rather than potentially altered rules in the future.
• Starmer reiterates commitment to not raising income tax, VAT or national insurance on employees. 

Prime Minister Sir Keir Starmer is delivering a speech at a Jaguar Land Rover plant in the West Midlands, his first major address since US President Donald Trump announced the imposition of 'reciprocal' tariffs last week. Livestream here. Starmer: "To carmakers, we are going to back you to the hilt". Says "this is a moment for urgency," and that "Tariffs are a huge challenge for our future, [the] global economic consequences could be profound." 

• Starmer: "We are in an age of instability... This is not a passing phase."
• Starmer says the UK "Will seek the best deal with the US", Adds the UK "will work with key partners to reduce barriers to trade across the globe."
• PM says it is not just car industry that needs support, but other sectors including life sciences. Says gov't will cut timeline for clinical trials to start from 250 to 150 days, and a GBP600mln investment into health data research.
• He does not announce any specifics on retaliation to the US tariffs. The UK is not expected to launch significant retaliatory tariffs against the US, with the Starmer gov't maintaining its stance of trying to act as a bridge between the US and EU both in terms of economic talks, and on defence of Ukraine.