UK Gilts Sink as the UK Economy Faces Another Storm of Uncertainty.

Market Digest: Gilts Are Shivering, GBP Is on the Decline, and Jobs Numbers are Coming Up

UK Assets in Turmoil

Yesterday’s markets turned into a roller‑coaster for UK bonds.
At the open, gilts took a nosedive, with both the 10‑year and 30‑year yields jumping 10 basis points each. They shot up to multi‑year highs, though the surge slowed as the day progressed.

Why the Fury?

The headline is clear: investors think the Chancellor’s fiscal cushion is being eaten up by the ongoing sell‑off.
Meanwhile, the GBP has slipped below 1.23, a classic sign that markets are losing confidence in the country’s fiscal footing and may be pulling capital out.
Rachel Reeves is MIA, heading to China, and her deputy Darren Jones had a brief Q&A in the Commons. Unfortunately, it didn’t bring much fresh insight, so nobody had any reason to stop the selling.

Future Plans and the Bottom Line

Market watchers are hoping for a firm commitment to sharper spending cuts or revenue‑boosting moves. Still, tightening measures could hurt an already sluggish economy, especially as inflation remains stubbornly high.

What this means for the Bank of England is a more hawkish stance—yet at the wrong time—potentially tightening the economy further. With historical precedents that Labour governments often miss the mark on cutting spend, the outlook isn’t great.

Shorting the UK? The Verdict

Given the situation, many advise staying short on UK assets—whether that’s in FX, rates, or equities. The mood is that things might get worse before they improve.

Nifty but Quiet Get‑away from the UK

While the UK was moving the money dance, the U.S. was taking a break. Treasury yields climbed, especially the long end, as the market gears up for the December job report. Investors largely stayed flat, holding short Treasuries and long USD.

Today: Jobs Day in the US

Headline nonfarm payrolls are expected to rise by +165k this month, a modest drop from the +227k seen in November but still in line with the 3‑month average. Average earnings are expected to climb 0.3% MoM, keeping the annual rate steady at 4.0% YoY, with unemployment hovering at 4.2%.

Even so, the U.S. policy outlook is likely to stay unchanged. The Fed is expected to hold rates steady, with an odds‑of‑being 95% low for any change. The focus remains on inflation and the early actions of the incoming administration.

What Else is Coming?

Canada’s job releases will be released next, though they’ll likely be eclipsed by the U.S. data. Turning to Canada, the Bank of Canada is expected to cut rates by 25bp later this month. The U.S. and Canadian data will feed into next week’s UMich consumer sentiment report.