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CITI GOES OVERWEIGHT GILTS, BUT GOOD AND BAD FOR BURNHAM

Citi asset allocators' latest shift to recommend investors go overweight British gilts relative to Treasuries and Japanese government bonds comes with both good and bad news for Britain's likely incoming Prime Minister, Andy Burnham.

On the positive side, they say, "the fiscal risks associated with an Andy Burnham premiership are now more contained. His conscious awareness of bond market jitters and strategic appointments ... signal a commitment to fiscal prudence."

They said that these had previously been "a key concern". Burnham has signalled he plans to continue to follow Britain's current fiscal rules.

But Citi's other reason for backing gilts is less good news for Burnham's premiership. They say recent business activity data "highlights a deepening economic malaise," and that doesn't sound like a good economy to be inheriting.

That view that the British economy is slowing contributes to Citi's expectation that the Bank of England's next move will be a cut, albeit not until 2027.

Expectations for British interest rates have also been very sensitive to moves in oil, which is now down at $73 a barrel. LCOc1

Citi's more negative view on Treasuries comes from the fact they think new Federal Reserve Chair Kevin Warsh is less willing and/or able to prevent a U.S. rate hike than markets had previously seen. They also think the AI capex boom could show up in wage pressures if the hit to jobs from AI is benign or delayed.

(Alun John)

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EARLIER ON LIVE MARKETS:

ASIA'S FUNDING THE AI BOOM AS WELL AS BUILDING THE HARDWARE CLICK HERE

UNWINDING DOLLAR DEBASEMENT BETS SEES GOLD LOSE ITS SHINE CLICK HERE

SOFT END TO THE WEEK CLICK HERE

EUROPE BEFORE THE BELL: SHAKY SENTIMENT CLICK HERE

CHIPFLATION CLICK HERE