More than 70 Labour MPs call for Starmer departure

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0:20 Welcome to Squawkbox Europe.

0:21 I'm Karen Cho with Ben Bulos and Riddica Gupta at Downing Street.

0:25 These are your headlines.

0:34 Karma's leadership teeters on the edge with more than

0:37 70 MPs calling for the prime minister to resign.

0:41 London Mayor Sadi Khan tells me uh change is

0:44 needed but a new prime minister is not the answer.

0:49 We got to be a bit careful about calling for change in the prime minister.

0:52 I'm not calling for a change in the prime minister,

0:54 but I am calling for a change in pace of delivery.

0:58 Donald Trump rejects Iran's response to his peace proposal,

1:02 describing Thrron's demands as garbage and dapping

1:06 hopes for a lasting ceasefire deal.

1:09 I didn't even finish reading it.

1:11 I said, I'm not going to waste my time reading it.

1:13 I would say it's one of the weakest right now.

1:16 It's on life support.

1:18 Fears of an impass in the Middle East

1:20 see European futures called well into the red

1:24 this morning and Wall Street around the flatline

1:27 as attention turns to today's US inflation print.

1:30 The last of Jerome Pal's tenure as chair of the Fed.

1:49 K Starmmer's position as UK prime minister rests on a knife edge this morning.

1:54 Ministerial aids resigned from Star's government and more than

1:57 70 of his own MPs told him to quit

2:00 in a day full of political drama with the PM's

2:02 makeorb breakak speech yesterday morning failing to quell a growing rebellion.

2:07 Today's crunch point star is expected to hold

2:09 a cabinet meeting this morning amid reports the cabinet

2:12 ministers including home secretary Sabana Mahmud have told him

2:16 to lay out a plan to leave number 10.

2:19 The Huffington Post reporting in the last few hours that the prime minister

2:22 will be urged to go gracefully or face a wave of ministerial resignations.

2:27 All this just a day before the king's speech where King

2:30 Charles will set out the government's agenda for the reopening of Parliament.

2:34 A look at guilt yields which rose along with the number of MPs calling

2:38 on star to go with the 10-year back above the 5% handle as you

2:43 can see where it's perched this morning and the yield on 30-year paper up

2:46 as much as 11 basis points

2:47 on the day testing last week's generational high 5.67%.

2:52 Well, let's get out to Ritica for more.

2:54 Rita, we know it was a huge amount of emphasis on the speech

2:57 yesterday and didn't carry Stama to the position he wanted to be in.

3:01 Just walk us through what happens from here.

3:06 Yeah, Karen, it's deemed that it wasn't bold enough really to to quell

3:11 a lot of the tension that has been building up here.

3:13 The mood over here in 10 Downing Street,

3:16 it has been tense as there have been more pressure building

3:19 on the prime minister over his leadership

3:22 after those bruising local election results.

3:25 Now, the latest news here is that Kiram is going

3:27 to be holding his weekly cabinet meeting at 9:30 a.m.

3:31 where it is reported that he is going to be urged

3:33 to go gracefully or face several ministers quitting uh to try to force

3:39 his hand with even reports that the Home Secretary Shabban Mood is

3:44 telling the prime minister to lay out a departure timetable behind the scenes.

3:50 publicly we've already seen that more than 70 MPs have already threatened uh

3:54 to resign uh over prime the prime minister so that he uh resigns.

4:00 Now this comes of course after makeorb breakak speech yesterday where

4:04 he vowed to face up to the big challenges facing the UK.

4:08 The issue though Karen was that it they didn't announce uh many

4:12 new policies and it fell flat for those who wanted to hear

4:16 some big changes being announced and one of those was the London

4:20 mayor Sadi Khan who I spoke to in an interview yesterday.

4:23 Now he isn't calling for a leadership change

4:26 but he says that he wants to see Kama be

4:29 bolder and braver particularly when it comes to announcing

4:33 new policies such as having closer ties with the EU.

4:37 Now, he said uh that the uh the party should set

4:40 out a pledge to rejoin the EU in the next general election.

4:45 Take a listen to what he had to say.

4:47 Those of us who are members of the Labour Party have

4:50 got to acknowledge and recognize how bad the results were last Thursday.

4:52 This is more than a shellakin uh that you

4:55 know that that we talk about in in politics.

4:58 This was a rejection of all all the things that Labor government's done.

5:03 Some of them are really good and we should be really proud

5:05 of from supporting renters to supporting

5:07 workers to supporting parents with uh children.

5:11 Some of these achievements have been overshadowed by basic mistakes and mishaps.

5:15 You know, we're talking about Peter Mson for the last

5:16 six weeks rather than some of the Labor government's uh policies.

5:20 But when I speak to people across the globe,

5:22 whether they're investors, chief executives, venture capitalists,

5:25 or others, they look to the UK as somewhere that provides calm,

5:29 stability, and certainty.

5:31 Compare us to other countries.

5:32 I don't want to name them because don't embarrass friends in other countries.

5:35 And so I think we going to be a bit

5:36 careful about calling for change in the prime minister.

5:40 I'm not calling for a change in the prime minister,

5:41 but I am calling for a change in pace of delivery.

5:45 I'm calling for a change in how we storytell in the policies we deliver.

5:49 I think we should be much closer to the European Union.

5:51 I want us to rejoin the customs union and the uh single market.

5:55 I think it's really important to acknowledge

5:58 uh what people across the country are saying,

6:00 which is they want to see change, positive change much quicker.

6:04 And you called there for bolder policies, including rejoining um the EU.

6:08 Do you think that StarMA needs to go big

6:10 now um instead of waiting for the next general election,

6:15 even if that does mean breaking certain manifesto pledges,

6:18 or else it will maybe it will be too little too late.

6:20 I think you've articulated the the challenge

6:23 and conundrum this government faces,

6:25 which is I think things have changed since July 2024.

6:29 The manifesto the Labor Party put forward in July 24 was a good one,

6:34 but there's been big changes.

6:35 We have a president of the USA who has introduced tariffs.

6:39 We've got a war taking place in Iran and Ukraine

6:43 which is affecting the cost of the fuels we rely upon.

6:47 uh had a big impact on cost of living in this country.

6:50 So we've got to acknowledge and recognize uh the headwinds coming

6:53 from overseas which is why in my view we've got to be bold,

6:56 we've got to be brave.

6:57 My experience over the last 10 years is there's no reward without risk.

7:00 I think what the public don't want is an impression

7:03 given that a leader is an administrator or a bureaucrat,

7:07 important her skills are, they want a change maker.

7:09 And I think my criticism of my government, it's a Labor government,

7:13 I'm a Labor mayor, is we've not been bold enough.

7:16 We've not been brave enough.

7:17 Uh and I think unless we do so,

7:19 we're in danger of losing the next general election pretty badly.

7:33 And as I mentioned there previously,

7:35 more than 70 MPs have called for the prime minister to step down.

7:39 Now the London mayor Sadi Khan has again urged caution about replacing Karma.

7:45 As we heard there in the site,

7:46 he was talking about when he speaks to business leaders,

7:50 when he speaks to venture capitalists, when he speaks to CEOs,

7:52 that they look for the UK to provide stability.

7:55 They don't want to see uncertainty.

7:57 But if you looked at the market reaction yesterday,

7:59 particularly what we saw in guilt yields,

8:01 we saw on that 10-year yield rising back above 5 uh%.

8:05 It is the pressure growing again that we've seen over the past few days

8:10 over the uncertainty in domestic uh UK

8:12 politics of whether there is a leadership change.

8:15 Will it be somewhere with much looser fiscal policies?

8:18 And it seems that that there's not going to be any stability anytime soon.

8:24 Rita, thank you very much for that.

8:25 Ben, just a couple of points here.

8:27 I mean, we heard yesterday that Saki Starama was saying, "Look,

8:30 if there is a leadership contest,

8:32 it would only bring chaos." Is he right on that?

8:35 Because if we think back to what happened from the Tories,

8:37 it feels as though they're almost borrowing the playbook from the Tories,

8:39 which is not a good thing.

8:40 We had what, five conservative prime ministers in a row.

8:43 It was a series of times where that elector

8:45 was rolled out in front of number 10.

8:47 There was another farewell speech, another welcome speech.

8:49 I mean, this just went on and on and ultimately

8:52 it left the Tories in a state of ruins.

8:54 Could that be where Labor is headed if there is a leadership contest?

8:57 Well, I suppose uh the prime minister and his supporters would say it's exactly

9:02 for that reason that you need continuity and stability

9:06 and and not a change at the top.

9:09 uh and I and I suppose with with um

9:12 the current situation as critics would say you

9:15 don't have stability and and and although the argument

9:18 goes you don't want to be spending political capital,

9:20 time and energy on a leadership race when you could

9:22 be focusing on policies uh dealing with uh an economy that's

9:26 growing sluggishly uh trying to deal with the fiscal situation

9:31 that's pushed uh government borrowing costs so high in recent years.

9:35 The prime minister would say actually that's

9:36 what the the time and energy focused on.

9:39 His critics I suppose would say that while there are all

9:42 of these uh feelings of discontent and and mutterings he is

9:47 still having to expend political capital time and energy on on shoring

9:50 up his position and not focusing wholeheartedly on the policies.

9:54 And they would use that same argument to say that is exactly why

9:57 you need a change of leadership to to have a fresh start move along.

10:00 Yes, there might be short-term disruption,

10:02 but then you you shift the focus back onto policy.

10:04 I

10:04 I spoke to a leadership expert in recent years and he was critiquing the former

10:09 prime ministers of the country and saying

10:11 effectively they were all lacking one key talent.

10:14 If you're going to be a great leader, you have to have a vision.

10:16 You have to be able to carry people with you

10:17 with that vision and then execute on the plan.

10:20 He's saying if you look at the past number of leaders,

10:22 they all sort of lacked one of those.

10:24 And the message that came through from Sakir

10:26 Dama yesterday was that he' just been too timid.

10:28 He hadn't gone for it.

10:29 It feels very hard to be able to carry people with you.

10:32 Even if you come up with the vision now to be

10:33 able to carry people with you because they've already hopped jump ship.

10:37 They've already gone elsewhere.

10:38 They want a different leader.

10:39 They want a different plan.

10:40 So it feels it's very hard for him to carry out those three

10:43 different points now because he's been too timid in his own admission.

10:46 Yeah.

10:47 I think what's also interesting is

10:49 that this crunch point was perhaps very well anticipated.

10:53 There had been long discussions and talk about if Labour suffers

10:58 heavy losses in the local and municipal elections that happened last week.

11:01 Uh he could face challenges to his leadership.

11:04 And so he knew that this was in the wings and this was

11:06 potentially going to come come around the corner because the polls all suggested

11:10 as it turned out to be Labour lost support to uh the Greens

11:13 in one direction to the left and then to Reform UK uh on the right.

11:17 So, it it's not come as a surprise.

11:20 And as if you're looking at it politically, tactically,

11:23 you might think actually, might he have gone on the front foot?

11:26 Might he have uh put his stall out more strongly a little earlier on?

11:32 Well, let's turn our focus to the situation internationally uh

11:36 and the Middle East because the US President Donald Trump

11:38 said the ceasefire with Iran is quote on life support

11:42 after rejecting Tehran's latest counterp proposal to end the war.

11:47 It's unbelievably weak.

11:50 I would say I would call it the weakest right

11:53 now after reading the piece of garbage they sent us.

11:57 I didn't even finish reading it.

11:58 I said I'm going to waste my time reading it.

12:01 I would say it's one of the weakest right now.

12:04 It's on life support.

12:06 Well, Dan joins us now.

12:08 Dan, as I understand it, the president also went on to say dismissively.

12:11 He hadn't even bothered to read the full uh response, the document from Iran.

12:15 And that sort of rhetoric,

12:17 it does nothing really to smooth the path for negotiations, does it?

12:24 Fair point.

12:24 And obviously that uh reply from Iran didn't start well.

12:28 As a result, the president said he didn't read the full document.

12:32 And in fact, President Trump made those remarks Monday morning before

12:34 heading into a situation room meeting with his full national security team.

12:39 The focus of that meeting was whether

12:41 or not to resume military action against Iran.

12:44 This is according to Axios, which also reports that President Trump is

12:47 now leaning towards some form of military action to increase pressure on Tyrron

12:52 and to force concessions on the nuclear file.

12:55 Now, according to the report, the options on the table include resuming

12:59 Project Freedom to guide ships through the straight,

13:02 restarting the bombing campaign,

13:04 or even a special forces operation to secure Iran's enriched uranium stockpile.

13:09 Now, Trump is reportedly hesitant on that last option given the risk involved.

13:13 And of course, it's unlikely the president would order

13:16 military action before he returns from China on Friday.

13:20 But nevertheless, this underscores the concern in the White House

13:23 right now about the trajectory of these negotiations and of course

13:27 the unease that the president has that so far it

13:30 appears that Iran is unwilling to compromise on those US demands.

13:35 Meanwhile, the Wall Street Journal also reporting today a major headline.

13:39 According to the WSJ, the UAE has been conducting military strikes on Iran.

13:44 The journal has been citing people familiar with the matter,

13:48 saying Abu Dhabi's military has carried out attacks on Iranian targets,

13:51 including a strike on a refinery on Iran's

13:53 Leavon Island in early April that sparked

13:56 a fire there and knocked out much of its capacity offline for several months.

14:01 Of course, the Iranians responded to that strike with a barrage

14:05 of missiles and drones against the UAE and Q8.

14:08 Now, important to point out here, yes,

14:10 we're seeing this Wall Street Journal report,

14:11 but the UAE has not publicly acknowledged the strikes.

14:15 CNBC has also contacted the Foreign Ministry for comment.

14:18 Uh, also for context here, the UAE has previously said that it had

14:23 a right to respond militarily to hostile acts.

14:26 And that, of course, comes after we saw the Iranians firing more

14:29 than 2,800 missiles and drones at the UAE,

14:33 more than any other country in this conflict, including Israel.

14:36 And those attacks have had a significant impact on the ground here,

14:40 including on UAE tourism,

14:43 key driver of the economy, on air traffic and the airport,

14:46 and of course on the UAE property market as well.

14:49 So it seems as if the conflict has really hardened

14:51 the UEE's resolve to ensure the region maintains peace rather than conflict.

14:56 But if this report is confirmed,

14:59 its involvement into this conflict and to and into this war

15:04 certainly marks a uh new era for the country and of course a new

15:08 era of its alignment with Washington DC as well.

15:10 It's back over to you.

15:12 Okay, Dan, for the moment.

15:13 Thank you.

15:14 We'll have more on that later and uh plenty as well on the show including this.

15:18 President Trump travels to China for a summit with President Xi bringing seaite

15:23 executives from a number of American major companies joining him for the ride.

15:28 Plus, earnings from German conglomerates Bayer Uniper and Seaman's Energy.

15:32 We'll have the details for you this hour.

15:34 And we'll be joined by the CEO

15:36 of Six to discuss the listing environment in Europe.

15:39 Don't miss that interview at 7:30 London time.

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16:39 President Trump has invited executives from some

16:42 of the biggest US firms including Tesla,

16:45 Apple, Black Rockck, and Boeing to join him on his trip to China this week.

16:49 The summit agenda is expected to cover trade,

16:52 AI, export controls as well as the Iran war.

16:55 Be vitamin joins us now, chairman Porter Advisers.

16:57 Be thank you so much for joining us.

16:59 You've pinned a recent note and you talk about high noon in geopolitics.

17:03 Why is it such a critical juncture?

17:05 I mean, it feels like it is.

17:06 We're getting it from multiple different fronts,

17:08 but why is it so crucial at the moment?

17:10 Well, we have a couple of big conflicts.

17:13 One, of course, almost forgotten for the time being in Ukraine

17:16 with Russia pitting also the US a bit against Europe, of course.

17:21 And then we have this war of choice in Iran,

17:25 which uh holds uh sway over the economy because of the oil price.

17:30 Um and then we have a whole host of events upcoming.

17:33 the the the China summit, then the G7 summit, the NATO summit,

17:38 uh the football championship and all these type of things.

17:41 So, it's getting really um high noon in in many

17:45 ways and markets are uh uh risk assets are rising

17:49 and I think uh the immediate outlook is still very

17:52 positive because the market just look through all that noise.

17:54 a huge amount of concentration risk is what we're seeing.

17:57 But we're also witnessing defense stocks not being carried forward.

18:00 And that is surprising when you still got two active conflicts,

18:03 let alone all the rest that could be around the corner

18:05 that if you look at the three major German defense names,

18:08 Rhyme Matel, Rank and Henshot, they've all been drifting over the course

18:12 of this year and over the course of this conflict,

18:13 what is happening with those names?

18:15 Well, I have a very simple and clear answer.

18:17 We have been very positive on that sector and defined it

18:20 as the major investment themes for the decade uh more than three years ago.

18:25 So all these stocks simply went up five times and now of course that it's

18:30 very obvious to everyone that we are

18:32 in rearmament cycle and in a tech information cycle.

18:37 Um of course a lot of that news is

18:39 right now priced in and people took uh profits.

18:43 That's it.

18:43 The the trajectory the underlying growth trajectory

18:46 is very very positive for this sector and I think the next three to five

18:50 years it will be the dominating sector performance-wise.

18:52 That is fascinating because if we think

18:54 about where investors now place their bets.

18:56 The concentration risk that I was mentioning was at 10 US

18:58 stocks now accounting for about a third of the overall market's value.

19:02 It gets extreme too when you borrow down at other markets like South Korea

19:05 and Taiwan where you have a couple

19:06 of single stocks also accounting for large swings.

19:09 Uh Samsung I believe 20% of the market there.

19:12 TSMC 40% of the Taiwan market.

19:14 Extraordinary numbers.

19:16 Right.

19:16 I expect these trends to continue.

19:18 Um we see huge concentration risk in the US.

19:21 Um and I think we'll go into a fiscal expansion.

19:26 I think oil prices will be significantly low the next

19:29 two three months because uh the Iran crisis will not be

19:32 over for good but it will just back off and the US

19:36 will will pull out and um and that's of course

19:39 um that's of course really a boost to uh

19:42 to to to risk assets and everything which is defense sophisticated industry

19:48 and technology that's one complex is performing very well that's also

19:52 why a market like South Korea performed more than 50%% last year.

19:56 It's a technology bit of it.

19:59 Uh be I note from your uh observation that you say global equities remain

20:04 the asset of choice um into well into the the second half of this year.

20:09 Uh and I just wonder against

20:11 the backdrop of the ongoing geopolitical uncertainty uh

20:15 the murky situation around trade tariffs that's

20:18 still in the courts and and unresolved.

20:21 I I wonder if it's the same feeling

20:23 you have that Gamar Road Capital Partners chief investment

20:27 officer Jordan Ruto told our colleagues in the US

20:30 that we're now in a show me sort

20:32 of attitude in the markets where investors don't want

20:35 to react to risks unless they see it has

20:38 materially disrupted economic or corporate fundamentals and so far

20:42 they have not seen that disruption in the numbers.

20:45 Well, show me uh that's right.

20:47 But when you look at the US corporate um earning season

20:51 that has been uh uh positive um and and above uh consensus.

20:57 The um restructuring,

20:58 repositioning and reevaluation of of European risk assets is is a trend

21:04 that has been in place for 3 years and will be accelerated.

21:08 Um so that's all positive and as I said um we will

21:12 have oil prices that will significantly

21:14 decline because of the demand destruction.

21:16 And now the easing of this of homeless crisis.

21:20 And um and then there are midterm elections and uh the Trump administration

21:24 will do whatever it takes in terms of um fiscal gifts to the population,

21:30 easing of uh of regulation in the financial sector, in the energy sector.

21:35 That's all boosting uh equity markets.

21:38 So I think we'll see the 50,000 and the 30,000s.

21:42 Um and then there's a lot of retail money going into the market.

21:45 And I think these trends prevail.

21:47 Um now um the negative scenario however there

21:50 is no tail risk priced into the market.

21:54 If the Iran crisis doesn't stop, if Trump doesn't blink,

21:59 um then of course we have a stlflation risk

22:01 and then markets will catch up with the reality.

22:04 But that's not my base case.

22:05 The thing I want to get your thoughts on as well is the divergence.

22:08 I note when we do an update for our viewers on the markets,

22:12 the phrase fresh intraday high, fresh closing high used in relation to markets

22:17 in Asia and certainly the markets in the US.

22:20 I I can't recall using that phrase for the European markets.

22:24 Do you think that's because fundamentally

22:27 European um equities are less attractive?

22:30 they're in a slower speed lane and so um they're

22:34 less appealing or you know are they treading more cautiously

22:38 and could potentially provide a hedge if people are worried about

22:40 going into the equities in markets that are already very elevated.

22:45 Well European markets are underowned.

22:48 US markets are overowned in 24 and 25.

22:51 European markets in Euros have massively outperformed the US market.

22:56 Um and the European defense industrial complex has

23:00 massively outperformed the magnificent 7 in the US

23:02 in 2425 and now we have a breather here

23:06 because of course Europe suffers under the oil prices.

23:10 Um Asia much more but then Europe as well US a bit less.

23:14 So this is a uh opportunity here a rough spot

23:18 for repositioning and you know you see it in the banking

23:22 consolidation discussion right now in defense you see also then

23:26 with NATO uh the confrontation troop reductions of the US

23:30 which makes sense basically and Europeans have to step up

23:34 and they will step up and that's a very positive

23:36 multiplier effect in terms of uh growth when you invest

23:40 in critical infrastructure in transportation

23:43 in communication in energy transition.

23:46 Um you know there's always a flip side to everything.

23:49 High oil prices you know produce demand destruction and they

23:53 they push of course alternative energies which is structurally very positive.

23:57 B I just want to revisit the comment you made

23:59 about the US pulling out when it comes to Iran because

24:02 we've got this morning as we see the wash up

24:04 from Trump's comments yesterday that the uh ceasefire is on life support.

24:09 Massive life support was the terminology he used.

24:11 We heard yesterday the location of a US

24:14 submarine that can launch nuclear missiles.

24:16 It's located off the coast of Gibralta.

24:18 It feels as though Trump is agitating to get something done.

24:22 But is there a scenario where he just does this taco where he just walks away?

24:26 Well, my view has always been and that's largely like that um um to attack

24:31 Iran militarily and to think that this is a winnable thing or you invade it.

24:36 That's uh that's I mean that's completely unrealistic.

24:39 Um and therefore if the Trump administration really doubles down on this um then

24:45 the losses will also be doubled down for the US and um I don't see that.

24:49 I think he walks away and claims victory

24:52 and there are lots of uh ways to do this.

24:55 Um the Chinese certainly uh will try to influence the situation a bit.

25:01 Do you think the Chinese will get involved because we

25:03 didn't see the involvement they came to Russia and Ukraine?

25:05 No, they will not be physically involved.

25:08 um they run a they they run a a long-term um economic

25:13 uh strategy and they hold pretty strong cards uh to use Trump's language.

25:18 Um but do they use them to your point around the soft power?

25:21 Do they actually use any of them econ?

25:23 Well, they have an interest of course to have smooth uh trades

25:26 and they they play right now the good citizens in terms of global rules,

25:31 multilateralism and all that.

25:34 So I mean it's the irony of the situation.

25:36 They play the soft power cards basically right now.

25:40 I don't expect them to intervene in any

25:42 hard power way in this in this situation.

25:45 Um why should they?

25:47 There's nothing to be win and they have

25:48 pretty well diversified in terms of energy supply.