Global Bond Rout Deepens, China Economy Slows, 250% UK Deals Frenzy
Bloomberg Daybreak Europe covers a deepening global bond sell-off driven by the US-Iran war and rising oil prices, China's sharply slowing domestic economy, and a 250% surge in UK M&A activity. Bond yields are hitting multi-year highs globally, with Japan's 30-year yield surging and US 30-year Treasuries at their highest in nearly three years. UK political instability continues as leadership rivals debate rejoining the EU.
Summary
The episode opens with a report on an intensifying global bond rout, with 30-year US Treasury yields reaching their highest levels in nearly three years and Japan's 30-year yields surging 20 basis points to levels last seen in 1996. Markets Live strategist Mark Cranfield explains that central banks have limited control over the long end of bond markets, particularly amid soaring global fiscal deficits and the inflationary pressure caused by the ongoing US-Iran conflict. Bloomberg Economics analysis warns that triple-digit oil prices could push global inflation to 4.2% by Q4 2025, with a war escalation scenario potentially driving it to 5.5%. Brent crude rose above $111 per barrel, up over 50% since the US and Israel attacked Iran in late February, with the Strait of Hormuz blockage creating broader supply chain disruptions beyond just energy.
Markets Live executive editor Mark Cudmore elaborates that the inflation shock stems from both demand-side pressures (AI capex spending) and a massive supply-side shock from the Middle East conflict. He argues the Fed cannot cut rates and that a hike is more likely than a cut, though not imminent. He warns that the AI capex-driven US economy provides short-term insulation but that sustained high yields will cause deeper underlying pain, and when the AI capex bubble eventually bursts, the combined effect could be severe.
China's economic data came in worse than expected across all metrics in April, with retail sales rising just 0.2% — below every economist's forecast — industrial production at a three-year low, and investment unexpectedly shrinking. HSBC's Greater China Chief Economist Jing Liu noted China is more resilient than some peers but not immune to the Middle East conflict's fallout. Analysts described China as a 'two-speed economy' with booming exports masking a deeply struggling domestic sector.
In UK politics, the Labour government is facing a leadership crisis, with former Health Secretary Wes Streeting — who resigned from cabinet citing loss of confidence in Keir Starmer — calling Brexit a 'catastrophic mistake' and advocating for EU rejoining. Greater Manchester Mayor Andy Burnham also supports eventual EU membership but urges a domestic-first focus, particularly as he campaigns in a constituency that heavily voted Leave in 2016.
On M&A, Bloomberg's Ruth David reports that UK takeover activity has surged 250% to approximately $150 billion in value this year, driven by the FTSE 100 trading at just 13x estimated earnings versus 22.4x for the S&P 500. Major deals include Unilever's $45 billion food business sale to McCormick and Schroders being acquired by Nuveen. David warns that while M&A is booming, London Stock Exchange IPOs have raised only $600 million this year, raising concerns about the long-term viability of the UK's public equity markets as companies are taken private faster than new ones list.
The episode also briefly noted Aaron Rye's win at the US PGA Championship, making him the first English player to win the tournament in over 100 years.
Key Insights
- Mark Cudmore argues that the Strait of Hormuz blockage is creating a broader petrochemical supply chain shock beyond just energy prices, and that long-end oil futures hitting crisis highs suggests the inflation impact has not yet been fully priced into markets.
- Mark Cudmore contends that the Fed is more likely to hike than cut rates, and that the AI capex-driven US economy currently provides short-term insulation from rising yields — but that when the AI capex bubble bursts, sustained high yields will compound into a 'really, really big problem.'
- Bloomberg's Ruth David highlights a stark divergence in UK capital markets: while M&A targeting UK companies has reached $150 billion this year, London Stock Exchange IPOs have raised only $600 million, meaning companies are being taken out of public markets far faster than new ones are entering.
- Ruth David reports that the UK's post-Brexit regulatory environment — where deals no longer require EU approval — is being cited by M&A advisors as a tangible factor attracting overseas acquirers, alongside cheap valuations and the absence of nationalist political rhetoric against foreign takeovers.
- Bloomberg Economics' analysis, as reported by Ewan Potts, warns that in a war escalation scenario where crude surges to $170 per barrel, global inflation could hit nearly 5.5% later in 2025, with advanced economies potentially seeing inflation peak around 3.4% even in the base case scenario.
Topics
Full transcript available for MurmurCast members
Sign Up to Access