UK borrowing costs fall as fears over finance minister’s future recede

U.K. government bond prices and the British pound strengthened after speculation over the U.K. Finance Minister Rachel Reeves’ future triggered a decline in those markets on Wednesday.

British Prime Minister Keir Starmer’s reassurance that his finance chief is “going nowhere” appeared to have calmed the markets Thursday, as the nearly 10 basis point decline in gilt yields indicates. Bond prices move inversely to yields.

Fixed income investors were concerned that the potential removal of Reeves meant Britain’s fiscal credibility could be called into question. Meaning, the U.K. would be spending more than previously expected.

The consequence of the parliamentary maneuvers means analysts are now cautioning that the U.K. will most likely have to raise taxes to avoid breaking its fiscal rules.

“Changes to the welfare reform plans imply £5 billion worth of a fiscal headroom hit. Combined with the possible OBR growth downgrades, recent policy decisions mean that in the absence of tax hikes or alternative spending cuts, fiscal rules would be broken in the autumn,” said Bruna Skarica, U.K. economist at Morgan Stanley. “We think tax hikes look most likely.”

We’re 15 minutes into Thursday’s trading session, and European shares are broadly higher.

The pan-European Stoxx 600 index was last seen up by 0.3%, with all sectors and major bourses in positive territory.

London’s FTSE 100 is leading regional gains with a jump of 0.4%.

— Chloe Taylor

If you’re just joining us, you may not yet have seen the news that the Trump administration has lifted restrictions on chip design software sales in China.

That comes as part of the trade truce between the two countries, and was announced by semiconductor software companies Synopsys and Cadence early on Thursday. Under the new requirements, leading chip designers will no longer need to seek government licenses to do business in China.

Read more here.

— Domi Suskova, Dylan Butts

The yield on the U.K.’s benchmark 10-year government bonds — known as gilts — has edged slightly lower this morning, cooling from a spike seen in yesterday’s session.

The 10-year yield was last seen trading 1 basis point lower, at 7:18 a.m. in London. Longer and shorter-duration gilts all saw their yields move 2 basis points lower.

Bond prices and yields move in opposite directions.

Yields on gilts across the board surged on Wednesday, after questions were raised about the future of U.K. Finance Minister Rachel Reeves’ position in the current government.

— Chloe Taylor

Welcome to CNBC’s live blog covering all the action and business news in European financial markets on Thursday.

Futures data from IG suggests European markets will open higher, with London’s FTSE 100 looking set to open 0.3% higher at 8,799, Germany’s DAX 0.2% higher at 23,836, France’s CAC 40 also up 0.2% at 7,757 and Italy’s FTSE MIB up 0.15% at 39,926.

The positive start in Europe comes after a more mixed day on Wednesday, particularly for the U.K. where bond prices, as well as the FTSE, tumbled sharply.

Those moves came after U.K. Finance Minister Rachel Reeves appeared visibly upset in Parliament on Wednesday as pressure mounted on the government over welfare reforms. The government said Reeves was dealing with a “personal matter” and Prime Minister Keir Starmer later said she has his full support.

U.S. stock futures were little changed on Wednesday night as traders braced for June’s nonfarm payrolls data. Economists polled by Dow Jones expect that the economy added 110,000 jobs last month. That compares with May’s gain of 139,000. Economists also see the unemployment rate inching higher.

In the Asia-Pacific region overnight, Vietnamese stocks climbed to their highest in over three years as investors awaited further details on the U.S.-Vietnam trade agreement that President Donald Trump announced Wednesday.

The U.S. is imposing a 20% tariff on goods imported from the Southeast Asian nation, while the latter will impose “ZERO Tariff,” Trump said on Truth Social. 

— Holly Ellyatt

It’s a reasonably quiet day for data and earnings in Europe on Thursday, although Spain and Italy’s latest purchasing managers’ index data on business activity will be released.

More global market attention will be on the U.S. as June nonfarm payrolls data is released later in the U.S. trading session.

Economists polled by Dow Jones expect that the economy added 110,000 jobs last month. That compares with May’s gain of 139,000. Economists also see the unemployment rate inching higher to 4.3%, up from 4.2% in May.

A report from payrolls processing firm ADP released Wednesday morning showed that private sector hiring fell by 33,000 last month.

— Holly Ellyatt. Lisa Kailai Han