UK: Telegraph-Chancellor Reeves Blocking Defence Spending Boost
The Telegraph reports that Chancellor of the Exchequer Rachel Reeves is pushing back against senior military figures to increase the UK's defence spending. The article claims Reeves rejected requests from the Ministry of Defence (MoD) to increase its spending allocation, given concerns of a GBP28bln funding 'black hole'.
- There has been some confusion this week over UK defence spending commitments. Formally, the UK is committed to spending 2.5% of GDP on defence by April 2027. There is then an "ambition" for this to rise to 3% during the next parliament.
- The BBC reported early on 16 Feb that PM Sir Keir Starmer is considering proposals to reach 3% by 2029, amid warnings from military leaders that Russia's focus has "shifted decisively westward", and "hard choices" are needed on spending.
- Starmer said at a press conference that the UK "need to step up." The Guardian notes "He then emphasised “that means, on defence spending, we need to go faster,” which was initially interpreted as a clear indication he sympathised with the 3% spending proposal, though the figure did not appear to have been signed off by the Treasury."
- The Telegraph reports that, according to gov't sources, there are concerns about wasteful spending and procurement within the MoD.
- As noted by MNI (UK: PM Talks Of Accelerating Increased Defence Spend, But Faces Major Obstacles), any efforts to increase defence spendingare likely to run into the obstacles of Reeves' fiscal rules, bond market scepticism over higher spending, and Labour backbenchers inclined to spend more on the NHS and welfare than national defence.
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NATO: UK PM To Speak On US Tariff Threat Over Greenland
British PM Sir Keir Starmer will deliver a speech from 10 Downing St. at around 09:15GMT (04:15ET, 10:15CET) regarding the threats from US President Donald Trump to impose increased tariffs on eight European nations if Denmark does not sell Greenland to the US. Earlier this morning, Trump posted on Truth Social, "NATO has been telling Denmark, for 20 years, that “you have to get the Russian threat away from Greenland.” Unfortunately, Denmark has been unable to do anything about it. Now it is time, and it will be done!!!"
- Starmer is expected to reiterate his previous stance that "applying tariffs on allies for pursuing the collective security of Nato allies is wrong", something he told Trump in a phone call on 18 Jan.
- Earlier, French Finance Minister Roland Lescure said that "blackmailing countries is unacceptable, European countries must remain united." Lescure says he will arrange a meeting of G7 finance ministers in the coming days. Says "We need to look at all options in response to Trump's recent comments...We regret there is an escalation, but Europe needs to be able to act autonomously."
- Norwegian PM Jonas Gahr Store added to the slew of European leaders calling Trump's tariffs announcement unacceptable. Earlier, Nick Schifrin at PBS posted what he claims to be the text of a letter from Trump to Store saying that after the Nobel committee in Norway failed to give him the peace prize "I no longer feel an obligation to think purely of Peace, although it will always be predominant, but can now think about what is good and proper for the United States of America."
FOREX: CHF The Safe Haven Of Choice With Politics Still A JPY Concern
CHF has been the safe-haven of choice this morning, with CHFJPY up 0.5% to 197.8. CHF outperformance versus the G10 basket reflects the European-centric nature of US President Trump’s latest tariff threats, while domestic political uncertainty is simultaneously limiting the attractiveness of the yen as a haven option.
- Today’s rise in CHJPY sees around half of last week's Tuesday to Friday pullback unwound. Sights remain on the Jan 13 high of 199.452, which closely guards the psychological 200.0 level. Technically, moving average studies remain in a bull-mode set-up, highlighting a dominant uptrend. Key support remains at the 50-day EMA of 195.431 – pullbacks short of this level will be considered corrective.
- Overnight, Kyodo reported that both PM Takaichi’s ruling bloc and the opposition Centrist Reform Alliance are advocating for consumption tax cuts. This comes with the PM likely to outline snap election plans at a press conference at 1800JST (in 10 mins).
- Consumption tax cuts will keep fiscal sustainability concerns at the forefront in Japan, keeping the yield curve biased bear steeper (5s30s rose 8bps today) and the yen under pressure. Note that CFTC data for the week to Jan 13 saw a large increase in Leveraged fund Yen shorts (see here for more)
- A reminder that the BOJ is expected to keep its policy rate at 0.75% at the January 22–23 meeting following the December hike.
Figure 1: CHFJPY Since 2024 (Source: Bloomberg Finance L.P)
