UK: PM Starmer In Vulnerable Position, But Likely Safe In Short Term
Prime Minister Sir Keir Starmer remains in a vulnerable position after two weeks of political upheaval that has seen a senior minister, senior aide, and ambassador forced from their positions at the same time as the largest right-wing march in decades, and amid preparations for US President Donald Trump's high-profile state visit on 17-18 Sep. Nevertheless, as Bloomberg noted earlier today, Starmer's position is likely safe for now, given the lack of viable potential replacements as leader of the centre-left Labour Party in the short term.
- With former DPM Angela Rayner politically wounded, Health Secretary Wes Streeting (seen as a centrist compared to Rayner on the soft left) now becomes an early favourite. However, Labour's majority in his Ilford North constituency is very narrow, and he is not as popular with party members as Rayner.
- Political betting markets continue to show bettors inclined to think that Starmer will be forced from office/resign in 2026. Data from Smarkets shows bettors assigning a 35.2% chance Starmer leaves Downing St. in 2026, up from 18.8% on 27 Aug. The implied probability that Starmer lasts until the (likely) next general election in 2029 or beyond has fallen from 33.6% on 1 Sep to 16.1% presently.
- The policy implications of the situation are mixed. On the one hand, Starmer remaining in office could be seen to lessen the risk of a major shift to the left under a new party leader and PM. On the other hand, with poor opinion polling and increasingly vocal opposition from within his party, Starmer could launch more aggressive shifts in policy (notably with the budget approaching) to try and wrest back the initiative.
Chart 1. Betting Market Implied Probability of Year Sir Keir Starmer Leaves Office as PM, %
Source: Smarkets
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AUSSIE 10-YEAR TECHS: (U5) Follows Fade in Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 15:17 BST Aug 15
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed both the recent poor NFP print as well as Tuesday’s inflation number. While this impact faded into the close of the week, 10-year futures remain toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
FOREX: USD Index Pinned to 50-dma as Putin Shakes Hands with Trump
- USD slipped against all others Friday, with a poor set of retail sales and Uni of Michigan sentiment numbers meeting a higher-than-expected import price index to further stimulate concerns over a stagflarionary phase in the US economy. The USD Index trades either side of the 50-dma which, notably, has begun to flatten out after maintaining a solid downtrend throughout 2025.
- JPY is the strongest currency in G10, extending the breakout and bearish conclusion of the consolidation phase in USD/JPY. Recent weakness puts the price through support drawn off the early August lows as well as 146.71, a key retracement. Price action this week marks a full reversal of the previously overbought condition, keeping the downside argument in focus.
- Anticipation ahead of the Putin-Trump meeting has reached fever pitch. Footage showing the Presidents shaking hands in Alaska has helped ease concerns over a hostile meeting, but it's the outcomes that will matter to markets - particularly as equities hold at alltime highs. Any signs of progress toward a ceasefire would be warmly received by risk sentiment - although both Trump and Putin cautioned against a optimistic outcome in comments to press.
- We noted earlier in the week the pressure building on USD/HKD, with price action not matching the pattern of HKMA intervention. That move extended overnight, and is still building at typing, putting spot down to new pullback lows of 7.8119 shortly after the European open. Overnight swap rates have surged further still Friday (hitting 1.7% at typing), well ahead of the 0.3% prevailing rate mid-week and should continue to support a recovery in HIBOR fixes ahead. Today's 1m HIBOR fixed higher by 41bps, hitting 1.45% for the highest fix since mid-May. It's these factors that should work against the HKD carry trade (selling HKD, buying USD), evident in the further tightening of the HKD forward discount today: down 975 points from as high as 1270 this month.
- Focus in the coming week shifts to Jackson Hole and Powell's comments on Friday. With the September meeting still in flux - any conviction toward tipping the board toward a rate cut at the next FOMC will be carefully watched, but it's a hawkish outturn that could be more consequential for markets, as OIS prices a near 90% chance of easing on September 17th.
MNI: US TSY TICS NET FLOWS IN JUN +$77.8B
- MNI: US TSY TICS NET FLOWS IN JUN +$77.8B
- US TSY TICS NET L-T FLOWS IN JUN +$150.8B
