Nvidia has the best product, but its real edge is having the best customers

Economic

Summary:

Nvidia’s real advantage isn’t just superior AI chips—it’s its unmatched customer base. Tech giants like Amazon, Meta, and Microsoft are pouring billions into Nvidia hardware, making its $5 trillion market cap goal increasingly plausible.

Why stop at $4 trillion? Nvidia (NVDA) bulls are looking to the next milestone: a market cap of $5 trillion.

It's not particularly farfetched to imagine Nvidia becoming the first publicly traded company to grab both of those records. It was just over two years ago that Nvidia joined the $1 trillion club, riding the excitement over the breakout success of ChatGPT and reaping the rewards of building out an AI-focused data center business before AI became an earnings call buzzword.

The stock is up 21% this year, the best performer in the Magnificent Seven behind only Meta (META), which has been busy building an ultra-niche Avengers team of highly-paid AI experts.

"There is one company in the world that is the foundation for the AI Revolution and that is Nvidia with the Godfather of AI Jensen having the best perch and vantage point to discuss overall enterprise AI demand and the appetite for Nvidia's AI chips looking forward," wrote Wedbush analyst Dan Ives in a note on Wednesday.

Nvidia's chips are at the forefront of the generative AI boom. The company has shed earlier concerns of being less well suited for use in AI models after they are trained and has benefited from countries vying to keep their AI data centers within their borders. Nvidia has also managed to shake off regulatory concerns at home.

It pays to have a superior product. But Nvidia's empire was also built by having the best customers.

As my colleague Dan Howley has reported, the biggest players in tech, each in command of vast fortunes and attempting to execute on grand ambitions, are spending hundreds of billions of dollars on the company's hardware.

Tech behemoths, including Amazon (AMZN), Google (GOOG), Meta, Microsoft (MSFT), and Tesla (TSLA), rely on Nvidia's products to build out their data centers. The cloud-based AI offerings and internal AI models at the heart of the latest tech transformation have generated an industrywide line item paid out to Nvidia.

The symbiotic relationship also favors Nvidia because the major tech platforms sit downstream of its chip supply. It's true that every player in the AI ecosystem is taking on huge risks. DeepSeek unleashing a brief investor panic was a painful reminder of that.

But where the tech platforms have to eventually deliver on new, AI-centered services, fulfill promises and hype around building novel consumer habits, and usher in a new age of automated agents, all Nvidia has to do is keep selling chips.

That's an oversimplification. And the fates of chipmakers and AI service providers are and will be intertwined.

But the point stands: The onus of justifying enormous AI investments will fall more on the companies that have yet to profit from them. The tech giants still have to convince the rest of us to use and keep using their newfangled AI tools. All the while, Nvidia will be cashing checks from further up the hype chain.

Source: finance.yahoo

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Glendon

Political

Middle East Situation

An Israeli strike hit Palestinians near a medical centre in Gaza on Thursday, killing 16 including children and wounding more people, local health authorities said, as ceasefire talks dragged on with no result expected soon.

The strike in Deir al-Balah in the central Gaza Strip came as Israeli and Hamas negotiators hold talks with mediators in Qatar over a proposed 60-day ceasefire and hostage release deal aimed at building agreement on a lasting truce.

However, a senior Israeli official said on Wednesday that an agreement was not likely to be secured for another one or two weeks.

Khalil al-Deqran, spokesperson for the health ministry in Gaza's Hamas-run government, said Israel had targeted a medical centre and that six of the dead were children. Many of those injured had suffered severe wounds to the head and chest, he said.

Israel's military said it had struck a militant who took part in the Hamas-led October 7, 2023, attack that triggered the war. It said it was aware of reports regarding a number of injured individuals and that the incident was under review.

Videos on Thursday verified by Reuters showed a scene of carnage, with the bodies of dead and injured, mainly women and children, lying in blood amid a cloud of dust as people screamed all around, and of motionless children lying in blood on a donkey cart.

At Deir al-Balah's al-Aqsa Martyrs Hospital, where the dead and wounded were taken, Samah al-Nouri said her daughter had been killed in the morning's strike after attending the clinic to seek treatment for a throat ailment.

"They hit her with a shell. Her brother went to check and he said they all died. What did they do? What's their fault? She was only getting treatment in a medical facility. Why did they kill them?" she said.

Israeli attacks on Palestinian hospitals and health facilities, detentions of medics, and restrictions on the entry of medical supplies have drawn condemnation, opens new tab from the United Nations.

The United Nations humanitarian agency OCHA said in May that the U.N. had documented at least 686 attacks impacting healthcare in Gaza since the war began.

Dwindling fuel supplies risk further disruption in the remaining, semi-functioning hospitals, including to incubators at the neonatal unit of al-Shifa hospital in Gaza City, doctors there said.

"We are forced to place four, five or sometimes three premature babies in one incubator," said Dr Mohammed Abu Selmia, the hospital director, adding that premature babies were now in a critical condition.

TALKS

U.S. President Donald Trump met Israeli Prime Minister Benjamin Netanyahu this week to discuss Gaza amid reports Israel and the Palestinian militant group Hamas were nearing agreement on a U.S.-brokered ceasefire proposal after 21 months of war.

The Israeli official who was in Washington with Netanyahu said that if the two sides agree to the ceasefire proposal, Israel would use that time to offer a permanent truce requiring Hamas to disarm.

If Hamas refuses, "we'll proceed" with military operations in Gaza, the official said on condition of anonymity.

A Palestinian official said the talks in Qatar were in crisis and that issues under dispute, including whether Israel would continue to occupy parts of Gaza after a ceasefire, had yet to be resolved.

The two sides previously agreed a ceasefire in January but it did not lead to a deal on a permanent truce and Israel resumed its military assault in March, stopping all aid supplies into Gaza and telling civilians to leave the north of the tiny territory.

Israel's military campaign in Gaza has now killed more than 57,000 people, according to Palestinian health authorities. It has destroyed swathes of the territory and driven most Gazans from their homes.

The Hamas attack on Israeli border communities that triggered the war killed around 1,200 people and the militant group seized around 250 hostages according to Israeli tallies.

Source: Reuters

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Adam

Economic

Major U.S. banks are expected to report stronger profits next week, driven by buoyant trading and a modest rebound in investment banking.

When JPMorgan Chase, Citigroup and Wells Fargo kick off second-quarter earnings on Tuesday, investors will focus on their outlooks at a time when economic uncertainty over U.S. tariff policies remains high.

"Things are looking good and we expect that most banks will beat expectations," said Stephen Biggar, a banking analyst at Argus Research. "It is one of those quarters where no big surprises are expected and we are likely to see a continuation of trends."

Investment banking activity has picked up in the second half of this quarter and dealmakers are more optimistic about the rest of the year. That marks a turnaround from April, when an escalating trade war and geopolitical tensions derailed confidence and drove mergers and acquisitions to a 20-year low that month.

"We expect second-quarter investment banking revenues to be better than expected and management teams to point to pipelines building," Betsy Graseck, a banking analyst at Morgan Stanley, wrote in a report published last week.

Amid the market turmoil, Bank of America and Citigroup executives said last month they expected market revenue to climb by mid-to-high single digit percentages in the second quarter.

"We continue to expect the trading revenue to remain buoyant in the near future given the uncertain macroeconomic and geopolitical backdrop," analysts at Goldman Sachs said.

Most of the major banks are expected to report a low-to-mid single digit percentage gain in net interest income (NII), or the difference between what they earn on loans and pay out for deposits.

Lenders are also expected to set aside smaller amounts for potential souring loans, as the financial health of consumers and businesses remains resilient.

Credit quality among consumer and commercial borrowers is still robust, and even though loan demand is muted, it is starting to improve, analysts say.

"One of the biggest questions is: how sustainable is this loan growth," said Mike Mayo, an analyst at Wells Fargo. He sees industry loan growth rising to around 5%, higher than earlier estimates of 3%.

Banks are also expected to benefit from the deregulatory regime under U.S. President Donald Trump. Lenders recently aced the Federal Reserve's stress test and showed enough capital to withstand possible adverse scenarios.

Investors will likely scrutinize banks' plans to deploy excess capital after the lenders hiked dividends and some announced share buyback plans.

Here is what is likely to come from the six biggest U.S. lenders:

JPMorgan Chase

The largest U.S. lender is predicted to report a 5% increase in earnings per share, according to estimates compiled by LSEG. Investors will take note of the bank's outlook on NII, loan growth and investment banking. Analysts are also watching for any developments in its work on stablecoins.

Bank of America

Bofa's EPS is likely to inch up nearly 4% when it reports earnings on July 16, LSEG estimates showed. NII is estimated to be higher by nearly 7%. However, its investment banking fees are forecast to slide to about $1.2 billion, according to management commentary.

Citigroup

Analysts see Citigroup's EPS improving by 5%, fueled by capital markets. Expenses and provisions may also exceed earlier estimates, Mayo said. Citi is his top pick.

Wells Fargo

Operating expenses will decrease slightly because of shrinking personnel costs, analysts at Raymond James said. Loan loss provisions are expected to remain flat versus the first quarter, while loan balances are expected to increase slightly, analysts said.

The bank was recently released from a seven-year-long asset cap, and market participants are focused on its growth plans.

Goldman Sachs

The Wall Street giant is likely to see a nearly 11% increase in EPS, propelled by gains in investment banking and trading, analysts said.

Morgan Stanley

Morgan Stanley's EPS is estimated to increase over 7%, with all eyes on management commentary on the burgeoning rebound for investment banking.

"After a relatively seamless CEO transition and a recalibration of strategic targets last January, CEO Ted Pick appears well-placed to flex franchise muscle and gain market share," Ebrahim Poonawala, an analyst at Bofa wrote in a report.

Source: Reuters

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Warren Takunda

Economic

What once seemed improbable became possible when the Spanish economy produced higher GDP per capita, a metric closely linked to living standards, than the G7 member Japan, according to IMF data.

This, in itself, doesn’t mean that the Southern European economy is bigger than Japan’s when comparing its overall value of goods and services.

But when Spain’s GDP is divided by the number of people living in the country and turned into US dollars, the GDP per capita in current prices turns out to be higher than that of Japan’s. In 2025, the GDP per capita denominated in US dollars was $33,960 in Japan, whereas in Spain it came to $36,190. Spain Overtakes Japan in GDP per Capita – What Is Behind the Numbers?_1

Spain Overtakes Japan in GDP per Capita – What Is Behind the Numbers?_1

This same figure was already slightly higher in the Southern European economy than in the Asian tech-oriented economy in 2024.

“There is a real story behind this, but also a big caveat,” pointed out Ángel Talavera, Head of Europe Economics at Oxford Economics.

While the Spanish economy has been one of the fastest-growing, “this figure is also driven by a statistical artifact,” he told Euronews Business.

“The Japanese yen has depreciated 40% since 2021, which means that even if Japanese GDP per capita in local currency remains unchanged, it is 40% lower when measured in US dollars,” he said.

This means that a large amount of Japanese economic data has deteriorated significantly in recent years when measured in US dollars needed for international comparisons.

What drove Spanish growth over the past few years?

Spain, which emerged from the financial crisis a little over ten years ago, expanded its economy by 3.2% in 2024, outperforming France, Germany and Italy, the three biggest economies in the eurozone. The German economy, Europe’s biggest, contracted by 0.2%.

Spain’s GDP was driven up by strong domestic demand, robust tourism, and other services.

The service sector provides a little over two-thirds of the country’s economic output, and improvement on this front is one of the key reasons behind Spain’s success.

“Global tourism has benefited this economy more strongly than it has benefited Japan,” said Mathieu Savary, Chief European Strategist at BCA Research.

In Spain, growth was also strengthened by strong government support and lower energy prices than in other European countries. Significant population growth also contributed to improved output.

Savary added that Spain’s strong economic performance in the last decade has been supported by “brutal reforms and a major adjustment in labour costs in the wake of the European Sovereign Debt Crisis last decade, that have boosted its competitiveness”.

During the financial crisis, unemployment in Spain was around 25%, one of the highest in the EU. There was a tendency for struggling businesses to favour temporary staff contracts, and in response, Spain approved reforms to soften employee protection in permanent contracts. Reducing firing costs and workers rights, among other reforms, improved labour mobility, helping to match positions with skilled workers, leading to improved productivity.

What is constricting Japan's economy?

Meanwhile, Japan's "ossified labour market means that its labour productivity remains poor,” Savary added.

Japan, the fourth-largest economy in the world, has been struggling to maintain its leading role in the global economy, losing its spot as the third biggest economy to Germany last year. IMF data suggests that in 2025, Japan is expected to be overtaken by India as well, falling to fifth position in terms of GDP.

The technology-driven Japanese economy has barely grown in the last three decades, and it was hit hard by the COVID-19 pandemic. Its GDP collapsed by 4.2% in 2020.

Japanese research firm Nikko Research Center said in a recent report that the country has been struggling due to the lack of innovation.

The report also noted that in the year 2000, Japan’s GDP per capita was ranked globally the second highest after Luxembourg. It is now the 38th.

Japan’s current economic performance doesn’t point to a quick turnaround. The economy shrank in the first quarter, driven by weak exports. This is coupled with a sluggish domestic demand, rising inflation and slow production. US tariffs and tariff threats are damaging exports and industrial production, fuelling fears that Japan’s economy could go into recession in the second quarter.

The Japanese economy is sustained by a lot of fiscal stimulus, focusing on energy subsidies, wage support, and digital infrastructure.

The continuing lethargy in the Japanese economy is also fuelled by its ageing population, resulting in acute labour shortages and mounting social security costs.

Is this a short-lived success for the Spanish economy?

Service-driven economies such as Spain are projected to outperform in the future, too, as consumer trends are shifting across the globe.

Overall, the contribution of services to economies worldwide has increased significantly. The service sector’s share of global GDP increased from 53% to 67% between 1970 and 2021, according to the World Trade Organisation (WTO).

According to the IMF, Spain's GDP per capita is expected to remain ahead of Japan's until the end of its current forecast, in 2030. Spain's GDP per capita is expected to exceed $42,300 while Japan's will remain around $41,700, based on current trends.

Source: Euronews

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Michelle

Economic

Forex

After years of mounting concern over deflation and the bruising price wars that have plagued much of China’s economy, President Xi Jinping’s government is showing signs of finally taking action.

Beijing’s messaging has noticeably shifted in recent weeks, with Xi and other top officials offering their bluntest assessment yet of the cutthroat competition that’s been dragging down prices and profits across industries, from steel and solar panels to electric vehicles. This pivot comes after nearly three years of factory-gate deflation and growing pressure from US tariffs and trade tensions.

Finding a solution would be welcome news for much of the world. A successful effort to rein in industrial overcapacity, long a source of friction with trading partners, stands to ease trade tensions and restore confidence in the globe’s second-biggest economy.

But the path forward is far from clear. Xi’s government must curb excess supply without stalling growth or putting jobs at risk, especially as external demand slows and a lasting trade deal with the US remains elusive.

“If executed right, it could be helpful to global trade, in terms of easing tensions coming from China’s overcapacity, output spilling into the global markets,” Wendy Liu, chief Asia and China equity strategist at JPMorgan Chase & Co., told Bloomberg Television on Wednesday. “But short term, it’s not GDP-friendly or employment-friendly, so it’s a balancing act.”

China reported this week that factory deflation persisted into a 33rd month in June, with the producer price index falling 3.6% from a year earlier. The decline was the most since July 2023 and sharper than any economists had forecast, underscoring the urgency of the problem.

While no formal plan has been announced, optimism is building that a more coordinated policy response is on the way. A meeting this month of the top Communist Party body in charge of economic policy acknowledged the underlying causes of the problem, ranging from local governments’ drive to promote investment to a tax system that favors output over efficiency.

Though it doesn’t directly reference deflation, until recently a taboo topic in Beijing, the assessment “represents the strongest signal yet that Chinese policymakers are intending to tackle disorderly competition and the price wars in sectors like autos,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

It omitted a mention of industry associations — whose efforts at self-regulation have largely failed at limiting production — in what Pantheon said could indicate a new approach “with greater top-down determination.”

Industry groups and official media have echoed the shift in tone, calling for efforts to end the price wars. Some companies in sectors ranging from steel to glassmaking are reportedly planning to cut output. The cost of reinforcing bars, a key steel product used in construction, has fallen to the lowest since 2017, while glass prices are hovering near a nine-year low.

The People’s Bank of China expressed similar concerns, naming “prices running at a low level continuously” as a key challenge of the economy for the first time in recent years. In May, the central bank offered another detailed analysis of downward pressure on prices, which highlighted the limits of relying on monetary easing to reflate the economy under a growth model that’s tilted toward investment and supply.

China’s Ministry of Industry and Information Technology, or MIIT, met with solar companies, while a group of almost three dozen construction firms signed on to an “anti-involution” initiative, a term used in China to describe intense competition sparked by excess capacity. The government also launched a platform to handle supplier complaints over late payments, part of a broader push to clean up unfair business practices.

For now, the lack of concrete policy measures is tempering expectations. If officials follow through, as they did after a similar meeting early 2024 that led to a consumer goods trade-in program — many economists expect them to reprise a playbook used between 2015 and 2017.

That supply-side reform largely consisted of aggressive cuts of heavy industry capacity including steel and coal, as well as a shantytown redevelopment program that encouraged residents to buy new homes. The effort helped revive commodity prices and home sales. Eventually, it contributed to a recovery in industrial profits and stabilized economic growth.

But the challenge now is more complex. Domestic demand remains weak, export prospects are deteriorating, and many of the sectors engaged in the most intense price wars — like EVs — are dominated by private firms, limiting the government’s ability to impose capacity cuts. Local officials, wary of unemployment, may resist moves that threaten jobs, even if it means keeping unprofitable firms alive.

And while China is eager to defuse the pressure on prices, it’s equally determined to increase its manufacturing might in the face of President Donald Trump’s push to bring more factories back to the US. Beijing is considering a new version of its “Made in 2025” campaign to boost production of high-end technological goods, Bloomberg News previously reported.

For Citigroup Inc., upcoming measures could include capacity cuts in sectors dominated by big state-owned enterprises, such as coal, steel and cement, as well as stricter enforcement of environmental, labor and quality standards in private-dominated industries.

Authorities could also reduce subsidies for industries, including those motivated by local favoritism, or cut export tax rebate, according to a Citi report last week. The latter already happened for products including aluminum, copper and batteries in late 2024.

Officials may also move to rein in bad business practices, such as exploiting suppliers to win lower prices or delaying payments. In March, new rules required firms to pay suppliers within 60 days, and several automakers have since pledged to comply.

Analysts at HSBC Holdings Plc argue that demand-side measures will be equally important, with steps such as improving the social safety net as well as stabilizing employment and the property market.

But longer-term change will require deeper reforms to the China’s growth model, one which relies on investment and production. That could mean adjusting how local officials are evaluated, shifting from pure economic expansion targets to metrics like consumption and income growth, according to Morgan Stanley.

For now, the shift in tone is notable, but the follow-through remains uncertain. “The tone is sharper, the intent more coherent,” Morgan Stanley economists led by Robin Xing wrote in a report. “But no timeline has been laid out, and no mechanism for enforcement has been introduced,” they said, adding that “the gap between diagnosis and delivery remains wide.”

Source: Bloomberg Europe

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Adam

Economic

The euro continues to have a quiet week and is drifting for a third consecutive day. In the European session, EUR/USD is trading at 1.1730, up 0.09% on the day.

German inflation dips to 2% as food, energy prices fall

German inflation rose 2.0% y/y in June, in line with the consensus and a drop lower than the 2.1% gain recorded in the past two months. The drop in CPI was driven by declines in energy and food prices. However, service prices remain high and continue to fuel inflation. Monthly, inflation was flat, in line with the consensus and a touch lower than the 0.1% gain in May.

The annual inflation rate of 2.0% is the lowest level since October 2024. The inflation rate is right at the ECB's target but Bank policymakers know that the tough battle against inflation isn't over.

Services inflation has been persistently above the 2% target and the newest headache for the ECB is the rapid appreciation of the euro, which has skyrocketed some 14% against the US dollar this year. The euro's rise has kept a lid on import prices and dampened inflation, but if the euro continues to rise, it will hurt the struggling export sector.

The ECB lowered the deposit rate in June by a quarter-point to 2.0%, its lowest level since October 2022. If next week's eurozone inflation report indicates that inflation is heading lower, expectations will rise for a rate cut at the July 24 meeting.

FOMC minutes: members split over much to cut

The FOMC minutes from the June meeting were dovish in the sense that there is a broad consensus that the Fed will deliver additional rate cuts this year. The pace of those cuts, however, is up for debate. The minutes noted that some members favored cutting as soon as the July meeting, while others were more cautious and wanted to see where inflation and employment were headed. President Trump's tariffs have not boosted inflation so far, but the tariff effect on inflation could be felt in the following months.

EURUSD Technical

EUR/USD has pushed above resistance at 1.1721 and is testing resistance at 1.1733. Above, there is resistance at 1.1739

1.1715 and 1.1703 are the next support levels

German CPI confirmed at 2.0%, euro drifting, FOMC split over cuts_1

EURUSD 4-Hour Chart, July 9, 2025

Source: marketpulse

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Warren Takunda

Economic

Bond markets are prodding and testing the UK's debt markets, similar to the tremors that arrive before a major volcanic eruption.

"Bond Vigilantes are losing patience with populist politicians who can't seem to do basic fiscal arithmetic. They are casting around for a scapegoat and it is increasingly clear that the UK may well be first to be hit full on," says Albert Edwards, an economist at Société Générale.

Last Wednesday the UK suffered a bond selloff as investors questioned the sustainability of the UK's debt trajectory. We saw a similar episode in January, when it became clear UK growth was going to disappoint, despit the huge boost to public spending announced by the new Chancellor, Rachel Reeves, in October of 2024.

The episodes were mini versions of the market fallout that followed Liz Truss's famed 2022 'mini budget'.

"In retrospect, the Liz Truss budget debacle back in September 2022 might seem like a tea-party compared to what is coming down the line," he adds.

Looming UK Debt Crisis Will Make Truss Fallout a "Tea Party"_1

Above: Price action from Wednesday July 02. Bond yields up (lower panel) and GBP down. Usually GBP would rise when gilts rise. When this breakdown in correlation happens it signals an unease over UK debt sustainability.

An eruption is getting closer, and the warnings are becoming louder and more frequent. The Office for Budget Responsibility this week focused minds when it stated "the risks to the fiscal outlook are mounting."

UK debt yields are rising, particularly on long-dated debt issuance, such as the ten-year and 30-year. This is being driven by rising term premium, which in financial speak is simply the premium investors demand to account for rising fears that the government won't be able to honour that debt at some point in future years.

Edwards, who is a chief global strategist at Soc Gen, has been an economist in the City of London for over 40 years, which means he knows that the decade of ultra-low interest rates that followed the 2008 financial crisis was an anomaly.

That decade allowed governments to become spendthrift and pay lip service to debt sustainability. But the return of inflation means interest rates are resetting close to historical levels, putting significant pressure on governments that haven't adjusted to the new reality. Looming UK Debt Crisis Will Make Truss Fallout a "Tea Party"_2

Looming UK Debt Crisis Will Make Truss Fallout a "Tea Party"_2

Above: The cost of debt is rising.

The current left-wing Labour Government is particularly unsuited to meet the needs of the new reality.

"Successive humiliating U-turns by the UK government as it struggles to get welfare cuts through parliament despite its massive majority really has placed the UK Gilt market dead centre in the crosshairs," says Edwards.

Prime Minister Keir Starmer last week had to abandon an effort to trim the growth in the UK's runaway benefits bill.

More and more working-age people in the UK are signing up for out-of-work benefits, with the Personal Independence Payment (PIP) being the main gateway. This allows those with a wide ranging set of ailments, including acne, anxiety and ADHD, to 'sign on'.

As a result of the government's generosity, the Centre for Social Justice, a think tank, says jobless Universal Credit claimants who also receive PIP will receive £25,000 next year, while a worker on minimum pay will, after tax and NI, only receive £22,500.

Looming UK Debt Crisis Will Make Truss Fallout a "Tea Party"_3

But the biggest component of the welfare bill is the state pension, which continues to grow in real terms thanks to the Triple Lock guarantee that was designed to ensure pensioners are left better off year after year. It is something the OBR is particularly concerned about.

"Having witnessed the debacle of the UK budget arithmetic, the Bond Vigilantes are now voting with their feet. Who can blame them? This week’s report from the Office of Budget Responsibility (the UK’s fiscal overlord) makes for disturbing reading," says Edwards.

Yet, the UK's debt dynamics are not as bad as those of the U.S., France and Japan. So why the focus on Britain?

Each of those three examples has some sort of special dispensation, which the UK doesn't:

The U.S. has the exorbitant privilege of issuing the U.S. Dollar, the world's global currency.France is wrapped tightly in the Eurozone, which is dominated by Germany, a fiscally more austere country. The ECB also provides a formidable backstop, similar to that the U.S.Federal Reserve offers the Dollar.Japan has the highest debt-to-GDP ratio of the developed world, yet it runs current account surpluses, meaning it is a net saver.

The UK is none of the above. Bond specialists say the UK Gilt market is noticeably more vulnerable to the fickleness of foreign investors than most other government bond markets because foreigners make up a decent chunk of the UK debt customer base.

Looming UK Debt Crisis Will Make Truss Fallout a "Tea Party"_4

Image courtesy of Societe Generale.

Are there any routes available to the UK other than massively cutting spending? No, says Edwards:

"All the UK has left in its armoury is the ability to either:back away from QT (but it was the BoE announcement of aggressive QT the day before Liz Truss’s Sept 2022 budget that likely triggered the Gilt market rout as much as the expansionary budget itself), ordo more of what the US Treasury and BoJ have been doing - twisting issuance away from the long end (see right chart above). But for me, that would be symptomatic of an overindebted EM country shuffling the fiscal deckchairs on a sinking Titanic. Delay is not a solution."

"I don’t want to be melodramatic here," he adds, "but I think Bill Gross may have been right about the UK Gilt market sitting on a bed of nitroglycerine, some 15 years on from his original pronouncement. The Bond Vigilantes are angry, and having identified the UK Gilt market as 'the weakest link' have started voting with their feet – in other words giving the extremely exposed UK Gilt market a good kicking."