UK PM Starmer out, Burnham the frontrunner to replace

EU mid-market update: UK PM Starmer out, Burnham the frontrunner to replace; Iran-US talks in Switzerland saw fragile progress.

- Confirming the weekend reporting, Starmer has now formally resigned, though he stays in post as caretaker PM until the leadership contest concludes. Labour nominations open 9th July, with a new leader expected in place by September, both Starmer and Burnham favour a three-month transition to let the incoming leader prepare a policy platform. Makerfield by-election winner Andy Burnham is the clear favourite, reportedly with 200+ MPs behind him, which points to a largely uncontested path; some senior Labour figures worry that lack of a contest could raise legitimacy questions. Other names in the frame include Streeting, Rayner, Miliband, Mahmood and Reeves. This would be the UK's seventh PM in ten years. Market reaction has been notably contained. ING flags no political risk premium priced in via their fair-value model - markets are relaxed - but that also means greater sterling downside if fiscal concerns resurface. Muted move partly reflects Burnham's more market-friendly budget tone; the next real test is his choice for Treasury chief. On the fiscal backdrop, May public sector net borrowing came in above the OBR forecast, and Capital Economics warns there's little room to lift spending without a bond-market backlash. Expect continued UK asset volatility as the leadership picture and fiscal stance clarify.

- High-level US–Iran talks resumed in Switzerland, mediated by Pakistan and Qatar, covering the nuclear file, keeping the Strait of Hormuz open, release of frozen assets, and enforcing the Lebanon ceasefire. The session began chaotically: Iran's FM Aragchi and Speaker Ghalibaf walked into the room where VP Vance and the US team were waiting, acknowledged only the Pakistani mediators, then walked straight back out. Markets then rebounded sharply after Qatar and Iran confirmed the teams met separately via the mediators, laying groundwork for a final agreement with "good progress" reported - and crucially Aragchi stated the Hormuz blockade had been lifted. Backdrop remains delicate. Over the weekend Iran's military said it would re-close Hormuz, citing US failure to halt fighting in Lebanon under the MOU; No timetable was given, and the US/Trump rejected the claim, saying dozens of vessels were still transiting - though tracking data showed Sunday traffic slowing to ~5 ships versus dozens previously. Trump threatened to relaunch strikes and "take over" Iran if Hormuz wasn't reopened, and to hit Iran "harder" if it didn't rein in its Lebanon proxies. A mechanism to ensure termination of military operations in Lebanon was reportedly agreed.

- Bank of America sharply revised its Fed outlook to three 25bp rate hikes in 2026 (September, October, December) with no cuts in 2027 — a major hawkish pivot from its prior call of steady rates through 2026 followed by two cuts in mid-2027. The shift reflects fresh signals from the June SEP and new Fed Chair Warsh’s comments suggesting the Fed’s reaction function has hardened more than markets appreciated, with a July hike could still be on the table pending summer labor data, alongside scenarios of post-midterm tightening, quarterly moves, or even larger total hikes.

- Yann LeCun, a foundational figure in AI, publicly dismissed Elon Musk’s xAI as a “failure” unlikely to compete with leaders like OpenAI and Anthropic, while warning that many AI labs risk a “big bubble explosion” unless they aggressively cut costs and raise prices. Same time, Google DeepMind is facing its own talent exodus and internal crisis, losing Nobel laureate John Jumper (Gemini co-lead) to Anthropic as its third senior departure in recent months, amid reports of deep frustration and a perceived slide to 3rd–5th place in the AI race. Together, these developments underscore a brutally competitive landscape where even well-resourced incumbents like DeepMind are struggling for breakthroughs and retention, while newer challengers like xAI face sharp skepticism from AI elders — signaling that the gap between hype and sustained technical leadership is widening.

- Ukrainian strikes keep surgically targeting Russia’s refined fuel infrastructure — especially modern, concentrated units like Moscow’s Kapotnya CDU-6 and Euro+ complexes — disrupting not just volume but the high-tech upgrading, logistics, and distribution layers that turn crude into usable civilian gasoline, diesel, and jet fuel, exposing sanctions-induced vulnerabilities in catalysts, controls, and specialized repairs. This has triggered localized rationing (20–40 litre caps for private motorists in multiple regions), sharp price spikes, priority systems favoring state and corporate users, and visible shortages that official “no systemic deficit” statements cannot fully mask, with Crimea hit hardest as tourism collapses. The timing amplifies the political risk: as Russia heads into 2026 Duma election season with softening approval and trust metrics, fuel queues represent tangible, everyday humiliations that erode the implicit social contract of petrostate stability far more effectively than abstract macroeconomic pain.

-Asia closed mixed with Nikkei225 outperforming +1.9%. EU indices -0.1% to -0.7%. US futures -0.1%. Gold +1.0%, DXY 0.0%; Commodity: Brent -1.8%, WTI -0.9%; Crypto: BTC +0.1%, ETH +1.0%.

Asia

- South Korea Jun Exports 1-20 Days Y/Y: 60.4% v 64.8% prior; Imports Y/Y: 23.2% v 29.3% prior.

- China PBOC Monthly Loan Prime Rate (LPR) Setting: left both 1-year and 5-year LPR unchanged at 3.00% and 3.50% respectively (as expected).

- Japan Fin Min Katayama woukd not comment on specific FX levels; Ready to respond appropriately to currency moves at any time as needed.

Global conflict/tensions

- US and Iran said to make progress’ in talks, aim to Keep Strait of Hormuz Open.

- Qatar And Pakistan noted that the first round of high-level US-Iran talks under the Islamabad MOU concluded in Switzerland; talks conducted in a positive and constructive atmosphere; encouraging progress made, including the creation of a mechanism for further technical talks.

- President Trump threatened renewed military action against Iran and Hezbollah amid tensions over alleged ceasefire violations. Iran delegation left venue of talks in protest at Pres Trump’s comments.

- Iran Foreign Min Aragchi noted that Pakistani and Qatari mediation had delivered major progress towards ending the Lebanon war; oil and petrochemical exports waived, blockade lifted, some frozen assets released; major reconstruction and development plan launched for Iran (**Note Iran State media noted that if war did not end in Lebanon, talks about other subjects won’t take place.

- Reports did initially surface over the weakened that Strait of Hormuz would not reopen as long as ceasefire in Lebanon was not respected and oil waivers for Iran were not issued.

Europe

- UK PM Starmer said to be planning to resign on Monday and set a timetable for an orderly departure, following challenger Andy Burnham's win in Makerfield by election (Reports that Burnham sought coronation to become PM by September to allow an orderly handover.

- Some UK Cabinet ministers said to have warned that appointing Ed Miliband as chancellor could unsettle markets. (reflecting investor sensitivity to UK fiscal credibility after the 2022 gilt-market turmoil under Liz Truss. Current Chancellor Reeves’ had continued emphasis on fiscal rules, debt reduction, and). Shabana Mahmood and Yvette Cooper were also mentioned as contenders.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.13% at 634.80, FTSE -0.06% at 10,357.51, DAX -0.27% at 24,958.85, CAC-40 -0.43% at 8,384.70, IBEX-35 +0.22% at 19,389.94, FTSE MIB -0.71% at 52,474.50, SMI -0.33% at 13,728.80, S&P 500 Futures -0.17%].

Market focal points/key themes: European indices open generally higher and remained upbeat through the early part of the session; outperforming sectors include technology and energy; among lagging sectors are financials and industrials; markets cautiously optimistic following developments in Iran negotiations over the weekend; EasyJet rejects multiple offers from Castlelake; Pierre & Vacancies receives takeover offer from Mubadala; Danone to acquire MADE and enters JV with Saputo; reportedly Brookfield in advanced talks to acquire XpFibre; focus on Eurozone consumer confidence coming out later in the day; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Easyjet [EZJ.UK] +3.0% (rejected 3 offers; UK PM said to step down), Ocado [OCDO.UK] -4.5% (confirms the CEO and Board continually engage in long-term succession planning and regularly engage with potential candidates).

- Financials: Pierre & Vacances [VAC.FR] +5.0% (offer to be acquired).

- Healthcare: BioArctic [B9A.DE] +1.0% (collaboration with Lilly), Sanofi [SAN.FR] -1.5% (new R&D Head).

- Industrials: BMW [BMW.DE] +0.5% (analyst upgrade), Babcock International [BAB.UK] -3.5% (final earnings).

Speakers

- UK PM Starmer formally announced his resignation. New leader would be in place before parliament returned from summer recess. To ask Labour to set out timetable. Labour leader nominations to open July 9th.

- China's Commerce Ministry (MOFCOM) unveiled action plan aimed at strengthening foreign investment; to let qualified foreign PE firms join some listed firms' share issues.

- Iran delegation said to travel to Tehran following Switzerland talks.

- Iran 'experts' to stay in Switzerland for MOU implementation and begin technical talks with us on MoU.

Currencies/fixed income

- USD maintained its firm tone as various Fed analysts ramp up rate hike expectations.

- GBP/USD at 1.3200 as focus remained on the UK PM Starmer’s ability to hold onto his position. As expected the PM did announce his plan to step down by Sept setting out an orderly departure. Nomination for the next Labour leader to begin on July 9th. Focus to turn on the next PM’s appointment of the Chancellor. Some UK Cabinet ministers said to have warned that appointing Ed Miliband as chancellor could unsettle markets. (Reflecting investor sensitivity to UK fiscal credibility after the 2022 gilt-market turmoil under Liz Truss).

- EUR/USD at 1.1445 as the pair appeared to be entering a new quarterly trading range.

- USD/JPY at 161.75 despite fresh warnings from Japanese officials were ready to respond appropriately to currency moves at any time as needed.

- 10-year German Bund yield last at 2.97%, France 10-year Oat at 3.73% and 10-year Gilt yield at 4.85% 10-year Treasury yield: 4.49%; 10-year JGB: 2.66%.

Economic data

- (NL) Netherlands May House Price Index M/M: 0.6% v 0.0% prior; Y/Y: 4.4% v 4.3% prior.

- (NL) Netherlands Jun Consumer Confidence: -39 v -46 prior.

- (NO) Norway May Credit Indicator Growth Y/Y: 4.5% v 4.4% prior.

- (DK) Denmark Jun Consumer Confidence: -14.0 v -19.8 prior.

- (CH) Swiss May M3 Money Supply Y/Y: 4.5 v 4.4% prior.

- (ES) Spain Apr Total Mortgage Lending Y/Y: 22.7% v 19.6% prior; House Mortgage Approvals Y/Y: 2.3% v 9.0% prior.

- (TR) Turkey Jun Consumer Confidence : 87.9 v 85.8 prior.

- (PL) Poland May Real Retail Sales M/M: -1.7% v -0.9%e; Y/Y: 3.0% v 4.4%e; Retail Sales (current prices) Y/Y: 4.4% v 6.7%e.

- (PL) Poland May Construction Output Y/Y: 3.9% v 5.4%e.

- (PL) Poland May Employment M/M: -0.1% v -0.2%e; Y/Y: -0.9% v -0.9%e.

- (PL) Poland May Avg Gross Wages M/M: -3.8% v -3.6%e; Y/Y: 5.8% v 6.2%e.

- (PL) Poland May PPI M/M: 0.0% v 0.3%e; Y/Y: 2.4% v 2.4%e.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 471.9B v 468.5B prior; Domestic Sight Deposits: 437.5B v 434.0B prior.

- (TR) Turkey May Foreign Tourist Arrivals Y/Y: -3.6% v -9.4% prior.

- (HK) Hong Kong Q1 Current Account Balance: $36.4B v $93.9B prior; Overall Balance of Payments (BOP): $35.2B v $46.5B prior.

- (BE) Belgium Jun Consumer Confidence: # v -10 prior.

Fixed income issuance

- None seen in session.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 05:30 (EU) European Union to sell combined €7.0B in 2028, 2036 and 243 NGEU bonds.

- 06:00 (IE) Ireland May PPI M/M: Noe est v 0.2% prior; Y/Y: No est v 1.4% prior.

- 06:00 (EU) ECB chief Lagarde.

- 06:00 (NO) Norway announcement on upcoming bond issuance (held on Wed).

- 07:00 (IL) Israel to sell bonds.

- 07:25 (BR) Brazil Central Bank Weekly Economist Survey.

- 07:30 (IN) India May Eight (Key) Infrastructure Industries: No est v 1.7% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (CA) Canada May CPI M/M: 0.8%e v 0.4% prior; Y/Y: 3.0%e v 2.8% prior; CPI (ex-food/energy) Y/Y: 1.5%e v 1.5% prior; CPI Core-Median Y/Y: 2.1%e v 2.1% prior; CPI Core-Trim Y/Y: 2.0%e v 2.0% prior; Consumer Price Index: 169.2e v 168.0 prior.

- 08:30 (IN) India announces details of upcoming bond sale (held on Fridays).

- 09:00 (US) Fed’s Waller.

- 09:00 (EU) ECB chief Lagarde in EU Parliament.

- 09:00 (FR) France Debt Agency (AFT) to sell €6.1-7.7B in 3-month, 6-month and 12-month bills.

- 10:00 (EU) Euro Zone Jun Advance Consumer Confidence: -17.8e v -19.0 prior.

- 11:00 (CO) Colombia Apr Trade Balance: -$1.7Be v -$0.5B prior; Total Imports: $6.6Be v $6.2B prior.

- 11:15 (EU) ECB chief Lagarde on panel.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 12:00 (CA) Canada to sell 10-year bonds.

- 15:00 (AR) Argentina Q1 Unemployment Rate: No est v 7.5% prior.

- (MX) Mexico CitiBanamex Survey of Economists.

- 16:00 (US) Weekly Crop Progress Report.

- 17:00 (KR) South Korea Jun Consumer Confidence: No est v 106.1 prior.

- 19:00 (AU) Australia Jun Preliminary PMI Manufacturing: No est v 50.7 prior; PMI Services: No est v 48.7 prior; PMI Composite: No est v 48.7 prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 70.7 prior.

- 20:30 (JP) Japan Jun Preliminary PMI Manufacturing: No est v 54.5 prior; PMI Services: No est v 50.0 prior; PMI Composite: No est v 51.1 prior.

- 23:35 (JP) Japan to sell 5-year JGB Bonds.