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Thanks for following our coverage of markets this morning. You can stay up to date with the very latest here.
Pound and bonds rally after local election results
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The pound and UK government bonds climbed after Sir Keir Starmer said he would not resign despite bruising losses in local elections.
Reform has so far been the main winner in the vote, gaining more than 350 council seats in England.
Investors have been concerned that should the Prime Minister be forced out of office, a new, Left-leaning Labour leader could boost public borrowing.
However, the pound was last up 0.5pc at $1.362, and rose 0.1pc against the euro to €1.157.
Meanwhile, Britain’s benchmark 10-year gilt yield , a proxy for government borrowing costs, was outperforming global markets and had fallen 0.05 percentage points. Yields move inversely to prices.
Lloyd Harris, head of fixed income at Premier Miton Investors, said: “I think it’s an initial relief rally.
“But ultimately I think the fireworks are still to come.”
Jason Borbora-Sheen, a fund manager at Ninety One, said: “Firstly it’s early in the day so a lot can change, but secondly, and probably more meaningfully, gilts have meaningfully underperformed already into this result.”
Toyota braces for £3.2bn blow from Iran war
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Toyota expects the fallout from the Iran war to cost it around 670 billion yen (£3.2bn) this financial year.
The world’s largest carmaker reported an almost 50pc drop in quarterly profits and said it expects full-year earnings to decline by a fifth.
It said rising costs and supply issues from the war would outweigh surging demand for hybrid vehicles.
The carmaker expects sales of hybrids to exceed five million vehicles for the first time ever this year.
Iran’s latest bid to control Hormuz: a quango
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Iran is seeking to formalise its control of the Strait of Hormuz by transferring responsibility for the vital shipping lane to a newly formed quango.
Tehran said the agency, called the Persian Gulf Strait Authority (PGSA), will vet all vessels seeking to pass through the strait while issuing permits and collecting tolls.
The authority provided an email address for shipping firms wishing to apply for transit, alongside a form requiring them to answer more than 40 questions on everything from the vessel’s name and owner to the number of crew and their nationalities.
Oil down 7pc this week
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Oil prices have fallen by nearly 7pc over the last week despite the latest up-tick.
Brent crude has dropped form $108 a barrel a week ago to around $100 today, although it fell as low as $96 on Thursday.
Prices have been pushed lower by hopes the US and Iran are closing in on a deal to end the war and restore shipping traffic through the Strait of Hormuz.
Analysts at Saxo Bank said: “Oil prices continue to be the key macro driver, with Brent crude holding above $100 as markets monitor developments around the Strait of Hormuz and the risk of supply disruptions.”
Bond traders face ‘tricky calculation’
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Kallum Pickering, chief economist at stockbroker Peel Hunt, seems stumped on why there has been little reaction in the gilts market to Labour’s election losses.
Many analysts had expected a spike in the cost of government borrowing if the local elections went badly for Sir Keir Starmer and put pressure on him to resign.
Risk of Starmer being ousted and a pivot left by Labour combined with a clear structural shift towards right-leaning parties (i.e. Reform) in favour of deregulation and a smaller state. That's ticky calculation for gilt investors - 5-10yr yields up but longer-end lower? #starmer…
— Kallum Pickering (@KallumPickering) May 8, 2026
Borrowing costs steady after Labour election losses
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The cost of government borrowing has remained steady in early trading despite calls for Sir Keir Starmer to resign over the local election defeats.
UK bond yields, the return the Treasury offers to buyers of its debt, were flat and outperforming their European counterparts, where borrowing costs edged higher after the latest turmoil in the Middle East.
The benchmark yield on 10-year gilts, as UK bonds are known, was little changed at 4.94pc.
The 30-year yield, which hit its highest level since 1998 this week, edged down from 5.63pc to 5.62pc.
FTSE 100 falls after US-Iran strikes
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The FTSE 100 fell at the start of trading after missile and drone strikes between the US and Iran overnight.
The UK’s flagship stock index dropped by 0.6pc at the open to 10,212.01.
The domestically focused FTSE 250 declined by 0.8pc to 22,699.14 as traders also keep an eye on the local election results, which have so far seen Labour suffer heavy losses.
Pound rises after local election results
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Away from the Iran war, the value of the pound rose as the first results from local elections showed Labour has suffered heavy defeats.
Sterling was up 0.3pc to $1.359, even as bad results amplify calls for Sir Keir Starmer to resign or face a leadership challenge.
Such a move is expected to lead to a jump in government borrowing costs on bond markets, known as gilts in the UK, as investors fear a shift to the Left in the Labour party would push up spending and unbalance the public finances.
Jim Reid, an analyst at Deutsche Bank, said: “Today, it’ll be important to watch what Labour MPs and cabinet ministers are saying, as gilt markets are focused on whether Keir Starmer will remain in post following the results.
“That’s because of expectations that a new Labour leader might ease the fiscal rules and raise gilt issuance, so when Starmer’s position has come into question, that’s coincided with sell-offs for gilts.”
Gas prices rise after US-Iran clashes
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The price of wholesale gas jumped after the exchange of missile fire between the US and Iran put the fragile ceasefire in the Middle East to the test.
Europe’s benchmark contract jumped by as much as 4.2pc following the clashes.
Donald Trump wrote on his Truth Social platform: “We’ll knock them out a lot harder, and a lot more violently, in the future, if they don’t get their Deal signed, FAST!”
When asked in Washington if the truce was still on, the US president said: “Yeah it is. They trifled with us today. We blew them away.”
Dutch TTF, as European wholesale gas is known, was trading around €44 per megawatt hour, up from around €30 before the start of the war.
BA owner expects £1.7bn higher fuel bill from Iran war
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The owner of British Airways warned its profits will be hit as the Iran war pushes up its fuel costs.
International Airlines Group (IAG) said it would spend about €2bn (£1.7bn) more than planned on fuel because of price hikes caused by the conflict, with costs totalling around €9bn.
Chief executive Luis Gallego said: “We currently see no issues with fuel availability in our main markets, particularly as we benefit from our investment in fuel self-supply at our hubs.
“Whilst the impact of the higher fuel price will inevitably lead to lower profit this year than we originally anticipated, we are confident in our business model and strategy, which has made us one of the best-performing airline groups in the world, and which gives us the opportunity to prove our resilience.”
Good morning
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Thanks for joining me. Oil prices have jumped again after the US and Iran exchanged fire overnight.
We will also have the latest on the market reaction to the local elections, which has so far seen Labour lose control of its first nine councils in what is expected to be the worst set of local election results in the party’s history. Here is what you need to know.
5 things to start your day
1) Leon boss warns food prices ‘have to go up’ as costs soar | Founder claims suppliers are applying a ‘Donald Trump surcharge’ amid the Iran war
2) City firms still allowing trans staff use women’s toilets | Investigation finds companies failed to update policies despite Supreme Court ruling last year
3) Zuckerberg’s Meta sues Ofcom over Online Safety Act | Tech giant claims media regulator’s methodology for calculating fines is ‘disproportionate’
4) Polymarket lets traders bet on rat virus pandemic | Traders wager up to $693,000 as US prediction giant promotes outbreak market on X account
5) Paddy Power-owner threatens to quit London Stock Exchange for good | Gambling group’s potential delisting comes as Rachel Reeves seeks to boost Britain’s markets
What happened overnight
Oil prices rose and Asian stocks fell as the fragile ceasefire between the US and Iran was strained by missile and drone attacks.
Tokyo’s Nikkei 225 fell 1.1pc to 62,174.12 after Brent crude rose to nearly $103 a barrel. SoftBank, one of Japan’s largest stocks, lost more than 5pc.
Elsewhere in Asia, South Korea’s Kospi fell 1.1pc to 7,409.63. Hong Kong’s Hang Seng dropped 1.3pc to 26,289.50. The Shanghai Composite index shed 0.3pc to 4,167.56. Australia’s S&P/ASX 200 lost 1.7pc to 8,729.40.
Taiwan’s Taiex was 0.5pc lower. India’s Sensex declined 0.6pc.
The US Central Command said on Thursday that it intercepted “unprovoked” Iranian attacks on Navy ships in the Strait of Hormuz, although no vessels were struck. Later, Donald Trump told reporters the ceasefire with Iran was still intact.
The United Arab Emirates said early on Friday that its air defences were “actively engaging” with a missile and drone attack.
On Thursday, stocks pulled back from yesterday’s records as oil prices settled around $100 a barrel and traders awaited more signs that the war in Iran was coming to a close. The S&P 500 and Nasdaq were broadly flat, falling by 0.4pc to 7,337.11 and 0.1pc to 25,806.20 respectively. The Dow index also dropped slightly, ending down by 0.6pc to 49,596.97.