UK: Political Uncertainty Shakes Markets
Drama erupted last Wednesday as fears mounted over Chancellor Reeves potentially resigning and taking the fiscal package with her. Markets panicked after she was seen crying while filmed on television. Everything started last week with the government’s U-turn on a welfare package that exhausted the remaining fiscal headroom. Long-end UK bonds sold off, with 30-year yields rising up to 20 basis points on the day. Underlying concerns about Prime Minister Starmer’s stability lingered, though fears have been temporarily calmed.
US: Strong Data Pushes Back Rate Cut Expectations
US economic data surprised to the upside. Non-Farm Payrolls came in at 147k, and unemployment ticked down to 4.1%. Markets had priced a 20% chance of a rate cut in July, but that was quickly removed. Probabilities for future cuts also scaled back. Yields rose by around 10 basis points across the curve, and the dollar strengthened. The economy remains resilient, allowing Powell to maintain a steady stance.
Trump: OBBB Clears Congress
On Monday, Trump’s “One Big Beautiful Bill” narrowly passed the Senate with a 51–50 vote, thanks to Vice President JD Vance’s tie-breaking vote. The House approved the bill on Thursday. The President now has his promised legislation. While the US debt trajectory is not exploding as previously feared, it will continue to trend aggressively upward.
Tariffs: Vietnam Deal Done, Japan Talks in Trouble
The US secured a trade deal with Vietnam just days before the July 9 tariff deadline, capping tariffs at 20%. However, negotiations with Japan are faltering and risk collapsing, which could trigger tariffs in the 30–35% range and a full trade breakdown. Trade tensions remain elevated heading into next week.
Algebris Investments’ Global Credit Team
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