The fourth of July is a special day for the US every year, as they celebrate their independence. This year it was also a key date in the UK calendar with the UK General Election taking place. The Labour Party, led by Sir Kier Starmer, had long been touted as favourites to win, and this was confirmed by Friday morning, with Labour securing a landslide victory to claim an absolute majority with 412 seats.
It has been 14 years since Labour were last in power, under Gordon Brown, and their turnaround from a poor showing in the 2019 election has been profound. Many high-profile Tory MPs lost seats, including Liz Truss and Jacob Rees-Mogg. Labour has campaigned on change, and is focusing on providing economic stability, improving the NHS and creating “Great British Energy” with the aim of reducing bills and making Britain a clean energy superpower.
The reaction from UK markets has been largely positive to the news. The outcome was widely expected and much of Labour’s rhetoric has been seen as pro-growth and pro-business. Mid-cap, more domestically focused equities have had a strong week and this continued, rising over 1% on the election news. Interestingly government bond yields dropped this morning (prices rose), which highlights that Labour are not seen as a fiscally irresponsible party. Sterling nudged higher versus the USD, potentially on the prospect of political stability.
In France, the snap election that President Macron called for has not been so smooth as Le Pen’s National Rally (NR) party won the first round. This coming Sunday will be the final round of voting, and we have seen over 200 candidates drop out from the local polls to stop the NR achieving an outright majority. The French are known to protest, and this time is no different, as thousands gathered in Paris calling for voters to block the rise of the far right. The uncertainty has rocked French markets as bond yields have risen and the equity market is down -3% over a month, although it has rebounded this week. The expectation now is that the NR will not be able to secure an outright majority and that helped soothe markets.
We have spoken about the Swiss National Bank (SNB) in recent weeks, noting that they have cut interest rates twice this year. There was a pleasant surprise, when on Thursday, June’s inflation (year-on-year) fell beyond market forecast to 1.3% and inflation (month-on-month) came in flat at 0%. The reaction to falling inflation has been positive and there are expectations that the SNB will look to continue the cutting cycle in September.
US equity markets are steadily continuing their climb as the main market closed at its 32nd record high of 2024. The tech-heavy NASDAQ has risen over 2% for the week with huge contributions from the Magnificent 7 stocks. Tesla reported better than expected car sales for Q2 24 and their share price has rallied over 25% for the week. Microsoft and Apple have raced back ahead of Nvidia in terms of market cap with extremely strong performance this week.
US Non-farm Payrolls are in and remain strong once again as 206,000 jobs were created in June, beating market expectations of 190,000. The previous month’s figure of 272,000 has been revised down to 218,000. Wages (year-on-year) have slightly eased to 3.9%, in line with market expectations. US Fed Chair Powell spoke earlier this week at a conference in Portugal, emphasising the need to see more data which will provide an accurate picture of the economy.
While the UK General Election has passed with little disruption to markets, both the French and US elections could create more volatility, with the outcomes less certain. As a result, it is prudent to ensure portfolios are well diversified and not overly concentrated by sector or country.
Nathan Amaning, Investment Analyst
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