Closing post
Time for a recap:
A Labour election victory will be a “net positive” for financial markets, strategists at the US bank JP Morgan have said, in an analysis that underlines the appeal of Keir Starmer’s “centrist platform” to the City of London.
A majority for Labour would benefit banks, builders and supermarkets, analysts led by JP Morgan’s head of global equity strategy, Mislav Matejka, wrote in a note to clients published on Monday. The US investment bank said Labour’s policies would be “modestly pro-growth, but crucially with a likely cautious fiscal approach”.
“We believe the market impact will be net positive,” they wrote, saying banks and homebuilders were among the sectors that would benefit.
The JP Morgan team explained:
“The current Labour party is occupying a centrist platform, and the perception of policy paralysis is set to move behind us.
“Labour agenda is modestly pro-growth, but crucially with a likely cautious fiscal approach. Our economists believe that, given the lack of fiscal space, Labour will likely focus on supply-side reforms to help improve economic growth.”
More than half of the 268 respondents to a Bloomberg News poll published on Monday of readers and users of its financial markets terminal said a Labour win would be the best result for the pound.
Analysts at MUFG, a Japanese investment bank, separately last week said that a landslide victory for Labour would be “most positive for the pound” because it would end political instability, raise expectations of higher government spending, and potentially help usher in a more constructive relationship between the UK and EU after Brexit.
Here’s the full story:
European financial markets have been rocked by yesteday’s election results, and President Emmanuel Macron’s surprise decision to call snap parliamentary elections in France.
The pound hit a 22-month high against the euro on Monday, reaching €1.1839, for the first time since August 2022.
Macron’s shock move also hit stocks in Paris, where the CAC 40 index fell over 2% at one stage. Germany’s DAX was is 0.7% in afternoon trading, after German chancellor Olaf Scholz suffered losses in the EU elections.
French bond prices also weakened, which widened the gap between Paris and Berlin’s borrowing costs. France’s 10-year bond yield (the interest rate on the bond) jumped to 3.22%, the highest since last November, up from 3.115% on Friday night.
And in other news…
ABN AMRO Global Insight say there are three potential scenarios how the French elections could play out.
Marine Le Pen’s National Rally party (RN) gains a majority at the parliament: This could lead to a so-called cohabitation for the remaining three years. This refers to a situation where the president’s political party and the Prime Minister’s party are different. In this scenario, the President would be forced to nominate a Prime Minister from the RN.
This would clearly be the most risky scenario for the French debt market as it would negatively impact the country’s fiscal outlook. However, for this to happen the RN would need to substantially increase its number of seats as it currently holds 89 seats in the parliament against 245 seats for the government in place. In our view, it will be difficult for the RN party to be able to close the gap to this extent. Furthermore, the risk of seeing the far-right party leading the government might push traditional parties like the PS (left-wing party) or the LR (right-wing) party to form a coalition to keep the RN party out of the government.Reunification of the left-wing NUPES coalition which was established during the past election composed of the Socialist (PS), the Greens (Les Verts), and far-left party (La France Insoumise). Last time, the NUPES coalition managed to obtain 131 seats (second biggest political force in the parliament after Macron’s party). If this coalition were to gain a majority, then Macron would need to nominate a prime minister from this coalition instead. However, we deem this scenario unlikely given the recent political backlash between the socialist party (PS) and Melenchon’s party (La France Insoumise), particularly following the controversial reactions to the Gaza conflict from the LFI party. Therefore, there is significant uncertainty on whether a coalition could be formed again. The parties are currently in discussion on the possibility to re-form this coalition. An update on this should follow in the upcoming days.
Last, we think there is still a significant chance for Macron’s party to retain its (relative) majority at the parliament. This scenario is in our view the most likely outcome at the moment, as despite the EU election results, this is usually not representative of the likely legislative election outcome. This would be the most market-friendly scenario as the current government would remain in place and continue with its economic and fiscal plan, which are more in line with the EU’s fiscal rules. However, it is likely that Macron’s party will lose seats compared to two years ago.
DBRS: snap French elections bring heightened political uncertainty
Credit rating agency DBRS Morningstar has warned that the snap French legislative elections announced last night increase political uncertainty and present a risk to policy predictability.
They point out that they could lead to a change of government just before Paris hosts the Olympics.
There are also important fiscal events coming up, including 2024 new expenditure savings and 2025 budget preparation.
Mehdi Fadli, senior vice president in the Global Sovereign Ratings Group, says:
“In a strained geopolitical context, French snap elections bring heightened political uncertainty and the risk of less policy predictability to France.
“Elections now coincide with a time of significant importance for France’s fiscal trajectory.”
OOPS! #France’s bond yield hit the highest level this year on snap election. 10y French bond yield climbs 11bps to 3.21%. Risk spread over Germany rose to 54bps, highest since Jan. pic.twitter.com/F2I1hjGuOn
— Holger Zschaepitz (@Schuldensuehner) June 10, 2024
The State Bank of Pakistan has joined the growing roster of central banks cutting interest rates.
Pakistan’s central bank has cut rates for the first time in four years today, and by more than expected, as it lowered its benchmark rate by 150 basis points (1.5 percentage points) to 20.50%, from 22%.
The State Bank eased policy after Pakistan’s consumer inflation rate slowed to 11.8% in May, a 30-month low.
It says:
“The committee, on balance, viewed that it is now an appropriate time to reduce the policy rate.”
Pakistan cuts interest rates by 150bp .. to 20.5%.
— Charlie Robertson (@CharlieTTEcon) June 10, 2024
Falling rates is one reason why Frontier fund managers like the country.
We do of course all assume that an IMF deal is coming, once the Fund and government agree on how to close the fiscal gap https://t.co/p8TSpg9UnI
Fast-fashion pureplay PrettyLittleThing (PLT) is facing a customer backlash after becoming the latest retailer to introduce a returns fee for customers.
PLT is now charging £1.99 to return items in the UK, having previously offered free returns via couriers including Evri, Royal Mail and InPost.
The BBC reports that some shoppers have posted screenshots on social media showing their PLT apps being deleted from their phones, with many saying they would return fewer items if the brand’s sizing was more consistent. More here.
PLT is hardly the first retailer to drop free returns, though. Two years ago its parent company, Boohoo, began charging shoppers to return unwanted items.
Although next month’s UK election could boost asset prices, it also creates economic uncertainty that could dent confidence.
The 4 July poll is also likely to deter the Bank of England from lowering interest rates at its meeting later this month, explains Thomas Pugh, economist at audit, tax and consulting firm RSM UK:
The general election won’t derail economic outlook, but there is a chance that the uncertainty means confidence takes a temporary hit. When you combine this with sticky service inflation, then it is very unlikely that we will get an interest cut before August.
With markets pricing in just a 5% chance of a rate cut in June, the MPC has a good excuse to hold off until August, when we think the first cut will come. As economic headwinds continue to ease, the MPC will start to feel the heat this summer to make the first move
Updated
Elsewhere today, the average shelf life of a UK mortgage has nearly halved in the space of a month.
At the start of June, the typical mortgage was spending 15 days on the market before being pulled from sale, down from an average of 28 days at the start of May, according to data provider Moneyfacts.
June’s reading is the shortest average time period recorded since March, with offers being pulled as lenders reviewed their ranges, repricing some offers and withdrawing others.
Rachel Springall, finance expert at Moneyfacts, says:
“Consumers concerned about rising rates would be wise to seek advice from an independent broker to see if they can lock into a deal early, as some will let borrowers do this from three to six months in advance.
However, there may well be some borrowers sitting on the fence, hoping the market gets a base rate cut this year, but they could still grab a lower rate deal than if they were to sit on their SVR without fixing, such as with a tracker deal.
Those about to come off a five-year fixed mortgage will have to face the reality that rates are much higher now on an equivalent deal, 2.65% in fact, compared to June 2019, so consumers must ensure they can afford the higher repayments.”
The pound’s rally to a 22-month high against the euro this morning will be a boost to UK holidaymakers visiting the continent this summer (once they’ve got through the queues…).
At €1.1823 this morning, sterling is up 2.5% so far this year against the euro, meaning pound will go a little further at European gift shops, bars and restaurants.
It’s 6% stronger than in the aftermath of the 2022 mini-budget, when the pound fell and was only worth €1.11.
Matthew Ryan, head of market strategy at global financial services firm Ebury, says:
“The prospect for an overwhelming Labour victory at the General Election next month is actually buoying Sterling, which has broken out of its year long range against the euro.
Markets view a Labour majority as perhaps the most market-friendly outcome of the elections – a reflection of both the lingering damage done by Liz Truss’s ill-fated budget, a shift towards the political centre under Keir Starmer and the likelihood of a less contentious relationship with the European Union.
Updated
Key event
There are three tactical reasons why Emmanual Macron plumped for shock parliamentary elections after learning his centrist alliance had lagged far behind the far-right National Rally (RN) in the European parliamentary elections, says Philippe Ledent, senior economist at ING.
On the one hand, the short campaign ahead will force the other parties to clarify their positions. Remember that in the current parliament, no political group has a majority (neither the president’s party, the traditional parties, nor the RN). Until now, it has almost always been impossible to form stable coalitions on important reforms, forcing the government to go by force (using article 49.3 of the constitution, allowing it to pass laws without a vote in parliament unless parliament passes a no-confidence motion). The threat of a major RN parliamentary victory could move positions.
The president probably also wants to show that the vote in the European elections was a protest vote, giving the image of a stronger RN than is actually the case. Let’s not forget that, contrary to the European ones, the legislative elections are held in two rounds and abstention reached over 48.5% during yesterday’s vote. No doubt President Macron is counting on voter mobilisation and alliances between the two rounds to overturn yesterday’s results.
Assuming, however, that the RN manages to win an absolute majority (which would require it to win over 200 seats compared with its current representation), President Macron would be forced to co-habit with a government drawn from the RN. If anything, history has shown that this works against the governing party. As for the RN, unaccustomed to power, perhaps the president wants to demonstrate that the RN is not the solution, though this remains a gamble.
The European election results aren’t the only factor weighing on markets today.
Investors are also anxious that the US central bank, the Federal Reserve, may not cut US interest rates as soon as hoped.
Early rate cuts look extremely unlikely after America’s economy added 272,000 new jobs last month, much more than expected.
Fiona Cincotta, senior financial market analyst at City Index, explains:
The DAX is falling but is holding up better than some of its European peers, such as the French CaC, as investors digest the results from European parliamentary elections.
Eurosceptic far-right parties performed well, and Chancellor Scholz’s Social Democrats fell to third place behind the far-right Alternative for Germany.
Meanwhile, in France, President Emmanuel Macron surprised the markets by calling for snap elections after Marine Le Pen’s hard-right National Rally party won more than 30% of the votes. French banks were bearing the brunt of the news, with BNP and Société Générale among the largest decliners.
Stocks suffered a double blow as election worries combined with concerns that the Federal Reserve may not cut interest rates anytime soon.
The hotter the following stronger-than-expected U.S. jobs report on Friday has seen the market rein in Federal Reserve rate cut expectations. Meanwhile, in Europe, the ECB cut interest rates last week but refused to commit to further rate cuts and upwardly revised its inflation forecasts.
Over the weekend, ECB President Robert Holzman voiced caution on further rate cuts. The head of the Austrian central bank said the bank would be looking to avoid putting itself in a corner and did not want to comment on the future path for rate cuts.
And here’s why JP Morgan thinks housebuilders would benefit from a Labour government:
Both parties look to focus on increasing the supply of affordable housing. Labour in particular have advocated for the reintroduction of the target to build 300,000 homes a year.
They intend to cut red tape to expedite the approval process. for new-builds (including reform to “Not in my backyard” policy). This would be a positive for home builders, especially the ones geared towards the lower end of the housing market. Labour has also undertaken to extend the current mortgage guarantee scheme which helps homebuyers accessmortgages with low deposits.
Updated
JP Morgan also suggest that an environment of greater political and policy stability after the election could help stabilize the outflows from UK assets.
They point out that British shares have lagged global rivals since the Brexit vote, saying:
UK equities currently trade at a 38% discount versus MSCI World, much larger than typical historically. On the eve of the Brexit referendum in June 2016 they traded at par with the World.
And on the winners and losers of a Labour election victory, they explains:
At sector level, we see a Labour win as a positive outcome for Banks, Homebuilders and Food Retail, while Energy and Transportation are likely to trade negatively as a result of Labour’s policies.
The Utility sector is likely to benefit from the increased spending in “clean” technologies as Labour works towards achieving its net-zero target; however, Water sector could be at risk of increased regulation.
JP Morgan’s research report shows that since 1970 the UK stock market has rallied by 1%, on average, in the month after a Conservative election win, but dipped by 2% in the month after Labour has triumphed.
They say:
Historically, short term market reaction to a Labour victory in UK elections has been somewhat weaker than for Conservatives.
However, we think that this time a Labour win will likely be seen as a positive for the UK markets. The current Labour party has a much more centrist policy agenda.
[interestingly, though, UK markets have fallen by 5% on average after six months of a Conservative government, but gained 8% after half a year of a Labour government].
European elections rattle markets: a quick recap
After a couple of hours trading in Europe, here’s a recap of the main moves.
-
The Paris stock market has dropped deeply into the red, after Emmanual Macron stunned France by calling snap parliamentary elections last night. The CAC 40 is down 2% right now, a three-month low, with bank stocks falling over 4%.
Macron called the snap poll after his centrist alliance was trounced by Marine Le Pen’s far-right movement in the European parliamentary vote.
Antonio Ernesto Di Giacomo, market analyst at xs.com, explains why investors are concerned:
Macron’s decision to call for early elections adds a new layer of uncertainty in France, a crucial country within the eurozone. If Marine Le Pen’s far-right party wins a parliamentary majority, Macron’s ability to govern and manage national affairs could be seriously constrained.
This prospect is causing significant concern among investors, as prolonged instability in the eurozone’s second-largest economy could have considerable repercussions in financial markets.
The euro has dropped to its lowest level since August 2022 against the pound, which rose to €1.1829 this morning.
The euro also dropped to a one-month low against the US dollar.
Charalampos Pissouros, senior investment analyst at XM, says:
Although socialist, liberal and center parties are set to retain a majority in the European Parliament, the surge in Eurosceptic nationalists is likely to make it more difficult for lawmakers to agree and push through reforms and policies that give the Union more power.
Combined with the prospect of a far-right victory in France, this could keep the euro pressured for a while longer.
European stock markets have been roiled too, with Germany’s DAX down 0.9% and Italy’s FTSE MIB losing 0.95%.
In the bond market, the ‘spread’ between the borrowing costs of Germany, and of France and Italy, has widened – a sign that investors are more nervous about the implications of Sunday’s election results.
🇫🇷 France's 10-year government bond yields have risen to their highest level since November, reaching 3.2% and increasing by 9 basis points. #France #GovernmentBonds #stockmarkets
— Millions Capital (@Millionscapital) June 10, 2024
Bill Blain, market strategist at Wind Shift Capital, said today:
There is nothing like the prospect of increasing European political instability, rising distrust of the EU and its agencies (including the ECB), and internal dissent to rile bond markets thinking about European Sovereign Bond markets.
The concept of a united monetary and fiscal union in Europe moves further away.
The UK election is also on the City’s mind, with JP Morgan saying a Labour win would be good for markets….and a Bloomberg poll finding it would support the pound.
Updated
Here’s Moody’s Ratings analyst Ruosha Li on the impact of the European elections:
“A thinner margin for defections from the centrist coalition could make it harder to get a new commission confirmed and some legislation across the line over the next five years.
But parliament is unlikely to impede progress on key priorities like security and competitiveness, including a capital markets union.”
The selloff in French government bond selloff is continuing, pushing up the yield (or interest rate) on France’s 10-year bonds.
Political shock following Emmanuel Macron’s decision to call snap parliamentary elections has pushed up 10-year French government bond yields to around 3.2%, from 3.115% on Friday night. That’s the highest since last November.
FRANCE’S 10-YEAR GOVERNMENT BOND YIELDS HIT HIGHEST SINCE NOVEMBER AT 3.2%, LAST UP 9 BPS
— First Squawk (@FirstSquawk) June 10, 2024
Lizzy Galbraith, political economist at abrdn, says:
“Following poor European parliamentary elections, in which his Renaissance party secured 15.2% of the vote, well behind Marine le Pen’s Rassemblement National (RN) which won 31.5%, French President Macron has announced snap parliamentary elections on 30 June and 7 July.
Palriamentary elections will not affect Macron’s position as president, but leave him vulnerable to having to govern with opposition parties in control of parliament, further entrenching the difficulties he has had in passing legislation under his current term.
Macron will hope to use any concerns among French voters about the strength of RN to unify opposition votes and strengthen his voter base, but with his personal popularity low, he faces an uphill battle.
Unlike the proportional system used in the European parliamentary elections, French parliamentary elections use first past the post, so while RN appears on course for major gains, they may not be as substantial as this weekend’s result suggests.”
JP Morgan: Labour win would be positive for markets
Analysts at JP Morgan say a Labour win in the UK general election would be a positive development for the financial markets.
In an Equity Strategy note published this morning, they explain that Labour is “occupying a centrist platform”, saying:
Labour agenda is modestly pro-growth, but crucially with a likely cautious fiscal approach. Our economists believe that, given the lack of fiscal space, Labour will likely focus on supply-side reforms to help improve economic growth.
Labour have also sought to reassure businesses by ruling out corporation tax increases. In terms of key policies, Labour’s Green Prosperity Plan will focus on the country’s climate transition, while both parties are focused on affordable housing.
Broadly, they favour the domestically focused FTSE 250 share index, of medium-sized companies listed in London, over the blue-chip FTSE 100 which has more of an international focus.
JP Morgan predict that the banking sector, housebuilders and food retailers would benefit.
They explain:
Banks: political and policy stability from a Labour party win would be supportive for the sector, particularly absent any risks around Corporation tax/Banking surcharge, as was the case during the 2019 elections;
Homebuilders: housing will likely be core to the upcoming elections, with the focus on affordable housing, unlocking land for development and reforming the planning system; and
Food Retail: Labour party support for policies like incentivizing private sector investment and continued focus on cost of living crisis.
But, JP Morgan adds that a Labour party win would be less positive for Transportation, as “nationalisation of the railways would weigh on the sector”; Energy, as Labour plan to increase and extend the Energy Profits Levy.
Updated
The big issue for investors to think about today are the consequences and implications of the far right’s gains across Europe at the EU elections, says Bill Blain, market strategist at Wind Shift Capital.
There is nothing like the prospect of increasing European political instability, rising distrust of the EU and its agencies (including the ECB), and internal dissent to rile bond markets thinking about European Sovereign Bond markets.
The concept of a united monetary and fiscal union in Europe moves further away.
French assets not reacting well to snap elections:
— Joumanna Nasr Bercetche 🇱🇧 (@JoumannaTV) June 10, 2024
10y OAT +8bps
French banks (Soc Gen, BNP, Credit Agricole) -5%
Updated
Key event
Over three-quarters of UK stocks are in the red this morning.
The FTSE 100 share index has dipped by 27 points, or 0.33%, to its lowest level since the end of May.
About 78 of the blue-chip companies on the index are lower, led by gambling firm Entain (-2.2%), packaging group DS Smith (-1.9%) and banks NatWest (-1.8%) and Lloyds (-1.8%).
AJ Bell investment director Russ Mould says:
“Political turmoil in Europe saw the FTSE 100 start the week on the back foot with only a handful of names on the index trading in positive territory.
“An unexpectedly strong showing for far-right parties in European elections in France prompted President Emmanuel Macron to call a snap parliamentary election to be held within the next 30 days. This injects a big dose of the uncertainty which markets hate – with the euro dropping sharply in response to the developments.
“Financial stocks were among the worst performers in London as investors digested the news. Also affecting sentiment were Friday’s better-than-expected US jobs numbers which push back against the narrative that rate cuts are imminent.
Updated
The euro continues to bob around a one-month low this morning, at $1.0763 against the US dollar:
🚨 BREAKING:
— Hataf News (@hataf_news) June 10, 2024
The Euro is under pressure after President Macron dissolved the French parliament following his party's significant political defeat. pic.twitter.com/8CNYSj4qBS
French bank shares slide
French banks are being hit by the political uncertainty created by Emmanuel Macron’s snap election.
Société Générale shares have slumped by 5.4%, while BNP Paribas has lost 4.4% and Credit Agricole is down 4.1%.
That’s helped to knock the French CAC 40 share index to its lowest since late February this morning.
The snap election called in France has added to the “uncertain tides swirling around financial markets, says Susannah Streeter, head of money and markets at Hargreaves Lansdown, adding:
Investors are assessing Macron’s gamble in attempting to reassert his authority after voters shifted en masse to the Far-right during the EU elections, in both France and Germany. The euro has dropped sharply against the dollar, to $1.074, the lowest in a month amid the surprise turn of events.
Analysts at Deutsche Bank say Sunday’s EU elections will ‘shift the direction of travel’ for European policy over the next five years”
Here’s their take:
The two main take-aways of the election results are (1) the centrist majority in the European parliament is holding as the far-right did not outperform and (2) the biggest impact could be at the national level with Macron calling a legislative election.
As implied by opinion polls, centrist parties managed to secure a majority in the European parliament. While the far-right saw gains, fears of a populist shock at the EU level seem to have been premature. This is all the more the case, as right-wing parties are not a coherent bloc. Nevertheless, while the elections did not bring a seismic shock to EU-level politics, they are still likely to shift the direction of travel for policy over the next five years.
The biggest impact of the election result could be at a national level with President Macron announcing the dissolution of the French parliament after the defeat of his Renaissance party. Snap elections are called for June 30. Domestic government stability in other major eurozone economies is unlikely to be affected by the elections (despite the electoral defeat of Scholz’s SPD).
Eurozone government bond spreads widen
The gap between Germany’s borrowing costs and other eurozone members is widening this morning, a sign that Sunday’s EU election results have rattled investors.
The difference between the yield (or interest rate) on German and French government bonds has widened, after Emmanuel Macron called new parliamentary elections last night.
That’s because the price of French government debt has weakened, pushing up the yield on 10-year OATs to 3.18%, an increase of 6 basis points, from 3.12% on Friday night.
German bunds, which are a classic safe-haven asset, are little changed; their yield is only up 2 basis points to 2.64%.
The spread between Italian and German yields has widened 7 bps to 138 bps.
Reuters points out that the gains made by Eurosceptic nationalists in the European Parliamentary elections may complicate EU policymaking and attempts to deepen integration over the next five years.
Updated
German’s DAX share index has also opened in the red, falling about 0.7%.
⚠️ EUROPE'S STOXX 600 DOWN 0.7%
— PiQ (@PiQSuite) June 10, 2024
**BRITAIN'S FTSE 100 DOWN 0.7%; GERMANY'S DAX DOWN 0.6%
**FRANCE'S CAC 40 DOWN 1.9%, HITS LOWEST LEVEL IN OVER THREE MONTHS; SPAIN'S IBEX DOWN 0.9%
**EURO STOXX INDEX DOWN 1.2%; EURO ZONE BLUE CHIPS DOWN 1.2%
Updated
French stock markets slides
Ouch. Paris’s stock market has dropped sharply in early trading, after Emmanual Macron stunned France by calling a snap election.
CAC40 pic.twitter.com/oHwK9YOBV2
— TimBukOne INDEX (@TimBukOneINDEX) June 10, 2024
The CAC 40 index, of the largest stocks in Paris, has fallen by over 2% to a three-month low.
That would be its biggest one-day drop since last November.
CAC40 pic.twitter.com/oHwK9YOBV2
— TimBukOne INDEX (@TimBukOneINDEX) June 10, 2024
Pound highest since summer 2022 against the euro
The euro’s weakness today has sent it to its lowest level against sterling since August 2022.
The pound traded as high as €1.1829 this morning, up half a euro cent, a level last seen shortly before Liz Truss’s mini-budget sent sterling reeling:
The euro has weakened in recent months as it became clear that interest rates would be cut faster in the eurozone than in other advanced economies.
Last week the ECB lowered interest rates for the first time in five years, while the Bank of England is not expected to cut rates until November.
Matthew Ryan, head of market strategy at global financial services firm Ebury, agrees that a Labour majority would be the most “market friendly” outcome for the UK election.
Ryan explained:
“Indeed, the pound continues to comfortably outperform the euro in the past month, as markets view a Labour majority as perhaps the most market-friendly outcome of the pending general election – a reflection of both the lingering damage done by Liz Truss’s ill-fated budget, and a shift towards the political centre under Keir Starmer’s leadership.
The latest polling continues to give Labour a solid lead:
Latest YouGov Westminster voting intention (5-6 Jun)
— YouGov (@YouGov) June 7, 2024
Con: 19% (no change from 3-4 June)
Lab: 41% (+1)
Reform UK: 16% (-1)
Lib Dem: 11% (+1)
Green: 7% (=)
SNP: 3% (=)https://t.co/S5IUXPCQ9G pic.twitter.com/gU4FG2bmlB
Updated
Bloomberg: Labour victory would be best outcome for the pound
With less than a month to the UK general election, City investors are weighing up the implications of a new government.
And a poll conducted by Bloomberg has found that a Labour victory in next month’s UK election would be the best outcome for the pound, while a hung Parliament was seen as the worst result.
That’s a verdict that will cheer Labour, as it tries to persuade voters that it is a safe choice on 4 July.
As Derek Halpenny, head of research for Europe, Africa and the Middle East at MUFG, put it:
“A large stable majority for the Labour Party, which is less divided than the Tories, will signal better stability ahead.”
Shadow chancellor Rachel Reeves has put a lot of effort into reassuring the City they can trust her party, arguing that Labour is the “natural party of British business”, and ruling out raising income tax, national insurance and VAT.
Less encouragingly, about 60% of those polled – which included portfolio managers, economists and retail investors – reckon it will take the pound more than five years to return to the $1.50 level it traded at before the EU referendum of 2016.
A Labour victory in next month's UK election would be good news for the pound, a Bloomberg survey shows https://t.co/eGg23Wrr77
— Bloomberg (@business) June 9, 2024
Updated
Introduction: Euro hit by political anxiety
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The euro is under pressure today as traders digest last night’s EU election results, and a shock parliamentary election being called in France.
Political uncertainty has knocked the single currency to a one-month low; it’s down half a cent this morning to $1.0753. Against the pound, the euro has dropped to a near two-year low.
European stock markets are set to open in the red, too.
🇪🇺 Deepening political angst in Europe is likely to add fresh pressure on the #euro after parliamentary votes saw leaders in France and Germany suffer losses.
— Jack Hoogland (@jack_hoogland) June 10, 2024
The euro fell to its lowest in a month against the dollar after Macron and Scholz were trounced by far right parties in… pic.twitter.com/Roi0CYNMyG
The euro lost ground after France’s president, Emmanuel Macron, announced he will dissolve parliament and call snap legislative elections after his allies suffered a crushing defeat to Marine Le Pen’s far-right National Rally (RN) in Sunday’s European parliament elections.
It was also a bad election for German chancellor Olaf Scholz, whose Social Democrats scored their worst result ever while the far-right Alternative for Germany (AfD) secured second place.
Macron took his shock move after his centrist list, headed by MEP Valérie Hayer, scored just 15% in the European poll, less than half the 31.5% tally booked by RN, whose lead candidate was the party’s president, Jordan Bardella.
Analysts say it’s unprededented in modern French politics for a president to call an early parliamentary election from a position of weakness.
Macron, who still has three years of his presidential term to serve, may want to put RN under more scrutiny, and present French voters with a clear choice – either a pro-European, pro-Ukraine, centrist position, or the far right alternative.
Mujtaba Rahman, managing director for Europe at Eurasia Group, explains:
Only just over half of French voters turned out on Sunday, compared to 70% in national elections. No party which has “won” a European election in France has gone on to win the following national. election.
All attempts by Macron’s camp to make the campaign a referendum on the Ukraine war or the. survival of the European Union or on the competence and extremist background of Le Pen and her chief allies, fell on deaf ears. The campaign was from the beginning a referendum on Macron’s seven years in power—and turned especially on “far right” themes such as immigration and violence.
Although right-wing parties made significant gains across Europe, Commission president Ursula von der Leyen was able to declare that “the centre is holding”, with candidates from her centre-right European People’s party securing the most seats.
But mainstream parties did lose seats overall, which will complicate von der Leyen’s bid for a a second five-year term at the helm of the EU commission.
Updated
