- The Labour party has won a landslide in the General Election, with the lowest share of vote for a governing party in history.
- Smaller parties and independents saw an upswell of support.
- The result has caused few ripples on financial markets, given the overall result was largely priced in, with the pound little moved.
- The FTSE 100 opens slightly higher and the FTSE 250 gains 1.3% in early trade.
- Focus on non-farm payroll jobs report in US for a steer on direction of interest rates.
- Speculation swirls over the US Presidential race and Joe Biden’s candidacy.
- Brent Crude set for weekly gain amid supply issues and higher demand.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’It’s a Labour landslide victory bringing in a political new guard which has vowed to make big changes to the UK economy, but given poll forecasts the result has caused few ripples on financial markets. The FTSE 100 was in positive territory in early trade and the pound was largely unchanged against the dollar, as the exit polls came in and lifted only very slightly as the overall result became clear, hovering around $1.276. The lack of movement was unsurprising given that the overall result had already been priced in. However, the domestically focused FTSE 250, gained more ground, with a little more confidence swirling about the UK’s prospects. Nevertheless, with an estimated 35% of the vote, Labour still took the lowest share for a governing party in history. There may be a honeymoon period for the new administration, but then difficult decisions will have to be taken in office. The size of the victory and the upswell of support for smaller parties and independents will leave Labour MPs concerned about the safety of their seats at the next election. They know they have to deliver for the electorate but are likely to be hampered by a commitment to be fiscally responsible and restrain spending.
The priority will be keeping the markets unruffled in the first days, weeks and months of the new administration and not overdoing spending pledges. There may be some tinkering with the borrowing rules at some point in the future, to distinguish between day-to-day spending and investment, to propel long term growth, potentially loosening the purse further ahead. So far, this doesn’t seem to have perturbed the debt markets, with bond investors still appearing to be more sensitive to interest rate speculation than the investment plans of an incoming government. 10-year gilt yields barely changed as the exit poll results came in, hovering around 4.2%, down from almost 4.7% last October.
This result comes on the heels of a steady rise for the UK market, retaking its crown as Europe’s most valuable for the first time in nearly two years last month. With political turmoil in France now taking centre stage, the UK looks finally set to enter into a period of financial stability which has the potential to spark renewed investor interest in UK assets.
Before the dust settles around UK pollical results, feverish speculation is swirling about the upcoming US Presidential elections and whether Joe Biden will stand down. There are reports that the President is mulling whether to stay in the race, with key donors calling for him to withdraw. The Nasdaq and New York Stock Exchange were closed for the Independence Day Bank holiday, but stock futures seem for now to be shaking off this fresh uncertainty about who will be in the race for the White House, with futures indicating that the S&P potentially heading for another record. Right now, investors are much more focused on the upcoming key monthly jobs data due later in the US, which is expected to show that the pace of hirings slowed in June, which would fuel hopes that an interest rate cut from the Fed is closer on the horizon. However, an interview Joe Biden has filmed with ABC, which is due to be broadcast on Friday will be closely scrutinized for any further deterioration in performance and the success of a number of other appearances from the weekend onwards, including the NATO summit in Washington is considered to be potentially make or break for his chances.
Brent Crude has dipped slightly but is still hovering near the highest levels in two months and is on course to gain around 3% this week. Oil prices have been held up by ongoing supply disruption concerns and expectations of higher demand, as interest rate cuts in the US are again eyed on the horizon. Minutes of the previous Fed meeting released this week show policymakers assessed that price pressures were diminishing, adding to hopes for an easing of monetary policy this year. This has led to renewed expectations of higher demand for energy, just as the US holiday season gets into full swing, and gasoline guzzlers hit the roads. Traders are also eyeing up potential supply constraints as the damage of hurricane Beryl is assessed and more fierce storms are expected which have the potential to cause damage to refinery capacity in the US.”
