Labour win the UK general election and Sir Keir Starmer is appointed prime minister

James McManus, chief investment officer at Nutmeg, told CNBC that the vast majority of the time, “markets don’t really care” about elections. “Historical data shows us that elections and their results rarely move markets when the expected outcome is delivered.”

Strategists and economists predict the British pound will not be impacted strongly by the election. If results are as expected, attention will shift away from the U.K. election quickly, Shreyas Gopal, strategist, and Sanjay Raja, senior economist at Deutsche Bank, said in a note published Wednesday. “For EUR/GBP, this then means turning attention to the election across the channel [in France], and then the forthcoming UK data in mid-July that will determine whether the Bank of England are able to pull the trigger on a first rate cut in early August,” they said.

Source: https://www.cnbc.com/2024/07/05/what-a-new-labour-government-means-for-investing-in-the-uk-.html

Political uncertainty on the Continent

The snap election in France has produced a hung parliament, with the left-wing party claiming victory and the far-right party pushed into third place. None of the three main blocs can form the required outright majority by themselves, so the alliance between the left and the centrists should take control. President Macron’s time in office is not directly impacted as he has three years left of his presidential term.

The polls prior to the election spooked European markets. The parties-in-waiting, faced with debt greater than GDP and heavy spending, plan to increase spending, roll back modest pension reforms, while on the left they are talking of nationalisation. Prices for French government bonds and bank shares (a large cohort in the French stock market) have dropped sharply. Yet, research on hundreds of elections across nine major countries over 40 years shows that they rarely divert an economy or its financial markets from the path they were already on.

The race for the White House

As for the US, there are a few signs that middle-class consumers are starting to come under pressure from past changes in interest rates. Inflation-adjusted retail sales have been stagnant in 2024, and now that restaurant sales are trending down this might be a precursor to weaker spending on services — which takes the lion’s share of the US economy. However, US consumers are generally in reasonable health and not showing the excesses that can characterise the eve of a recession. The risk is that some (although not all) indicators of labour market health are suggesting rising job losses later this year. Personal income is the main determinant of spending, not wealth or household balance sheets, so jobs are the key risk to watch.

With a potentially very significant and uncertain US election approaching, some investors are nervous about the prospect of Donald Trump returning to the White House. The race for the White House looks to be on a knife edge, and the contests for the Senate and House are almost as tight. There are also big differences between the Republicans and Democrats in the consequential policy areas of corporate taxation and trade, and no clear view on which outcome markets would prefer — that’s likely to vary from issue to issue.

Source: Rathbones Quarterly Investment Update Q3 2024