[MARKET ANALYSIS] Counting down to UK PM Starmer's reset speech at 10:00BST

TLDR: The speech is unlikely to save Starmer's premiership, but could delay the stalking horse challenge from West and allow Burnham more time to secure a return to the House of Commons. Immediately after, look for any junior- or cabinet-level resignations and/or talk of a reshuffle; in either case, Chancellor Reeves is the one to watch. Then, we await West's decision on her stalking horse challenge and whether Streeting will change his mind and challenge directly. Finally, attention will also turn to which MP might be willing to stand aside to allow Burnham to return to the Commons.
For markets, the general bias is bearish for both Gilts and GBP, as the immediate bias is to greater political instability. Gilts currently underperform into the speech with losses of 55 ticks vs 20 for Bunds. If the move continues, we look to support at 86.52, 85.90 and then the contract trough of 85.76.
A speech that follows on from last week's local elections, where Labour lost just under 1,500 council seats, and Reform gained nearly the same amount. More broadly, the results were a rejection of the traditional Conservative and Labour two-party system, in favour of Reform, Greens and, to a lesser extent, the Liberal Democrats.
Given this, Starmer's speech is in significant focus but may well underwhelm, as the PM is limited in what he can announce or pledge that hasn't already been enacted, proposed, leaked or U-turned on. The speech is expected to stress hope, urgency, closer EU ties and an acknowledgement that changes, though not at his level, are needed. Following the speech, Starmer will take questions. As a reminder, Parliament is currently prorogued until the King's Speech on Wednesday, 13th May.
Depending on his speech, we could see a leadership contest launched in the next 24 hours. Politico reports that MP Catherine West, a Labour backbencher, will watch the speech and then, unless there is a significant change, she will start the process of actively gathering support for her stalking horse challenge; the Independent reports that she is closing in on the 81 MPs needed.
The real near-term challenge would be from Health Secretary Wes Streeting or former Deputy PM Angela Rayner. Both are said to have the 81 Labour MPs required to launch a leadership challenge. The general weekend takeaway for Streeting is that he won't challenge Starmer, but is prepared for if/when it collapses. From Rayner, interestingly, her weekend address said that blocking Andy Burnham from the by-election was a mistake, and the "best players" are needed in the Commons. A remark that was potentially made in a public attempt to court favour from Burnham, particularly as recent reports suggest Rayner has lost union support in favour of Burnham. Note, Rayner is due to speak today at 12:30BST.
Greater Manchester Mayor Andy Burnham remains the key theoretical challenger. There are numerous reports around his path back to parliament and whether he would agree to a last-chance deal with Starmer or not. Most recently, Politico outlines that Burnham has identified a specific MP who is on board and prepared to stand down so Burnham can run. However, this approach has issues. Namely, Burnham needs the PLP support to do so, and they might take the view that the local election results mean a Mayoral election would go to Reform and block him on that ground; however, the likelihood of the PLP blocking him continues to diminish. Secondly, Burnham might not win the by-election.
There is no clear timeline for Burnham to return, as West's stalking horse and/or a surprise Streeting move would derail the near-term narrative to the detriment of Burnham; however, it would likely just delay rather than prevent an eventual leadership challenge from the current Greater Manchester Mayor. The Sun's Ferguson reports that an MP could step aside this week for Burnham.
Immediately after Starmer's speech, watch for any junior or cabinet-level resignations. Furthermore, any talk of a cabinet reshuffle. Markets would in either event be most sensitive to any movement around Chancellor Reeves, though there is no talk of her stepping down/being moved at this point.