"The SACKO trade - Starmer always chickens out... I was inspired by a story in Bloomberg noting the PM's own TACO problem...there have been climbdowns aplenty and lots of bad news, but there's actually been some good news today (!) as the British economy grew more than expected in November - though ironically it could be that people were just spending a lot on accounting and tax advice ahead of the Budget - monthly GDP data should always be taken with a pinch of salt."
"Even better news is that gilt yields - borrowing costs for the government - keep falling as markets bet on weaker inflation and more cuts by the Bank of England, albeit they have ticked up a tad today on the GDP print. I don't think this print will change the narrative much as it's about much more than just a few bps of growth here and there."
"Has the uncertainty lifted? I think to an extent it has - bond markets seem to think so, while the UK equity market is strong, too, as evidenced with a fresh record high for the FTSE 100 this morning. The question is always the unpriced political risk - can the deeply unpopular Starmer survive past a drubbing in the May elections? So, I guess, we could say that the SACKO trade is a bet on heightened political risk and roiling of bond markets."
British GDP grew more than expected in November, possibly driven by spending on accounting and tax advice ahead of the Budget, so monthly GDP data should be treated cautiously. Gilt yields have fallen as markets price weaker inflation and further Bank of England cuts, though yields ticked up slightly on the GDP print. Lower yields increase fiscal headroom and could create scope for future tax cuts. Construction output is in its worst slump for over two years, with firms citing Budget-related uncertainty and weak sales. Markets show reduced uncertainty, but unpriced political risk tied to the SACKO trade remains significant.
Read at London Business News | Londonlovesbusiness.com
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