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Markets take Labour victory in their stride

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 5 July 2024.

| 6 min read

The pound remained stable, government bonds rose and equity markets reacted positively to Labour's landslide election victory on Friday. The FTSE 100 and FTSE 250 both gained at the open after the general election looks set to conclude with the Labour Party gaining a majority like that seen by Tony Blair’s government in 1997. The results had been expected and were not a surprise to market participants.

In the US, the S&P 500 and Nasdaq Composite continued to hit new record highs.

Over the week, the blue-chip FTSE 100 index was 1.2% by mid-session on Friday, with the more UK-focused FTSE 250 trading 2.8% ahead.

UK general election

The Labour Party won a landslide victory in the UK general election ending 14 years of Conservative rule. So far, Labour has won 410 seats, while the Conservatives have slumped to just 119 and centrist Liberal Democrats have taken 71. Reform UK, a successor to the Brexit Party, is set to pick up four seats. The expected 170-seat majority in the House of Commons for Labour is, but still short of the majority of 179 won by the party under Tony Blair in the 1997 election. We look at the implications of the victory below:

Energy

The US hurricane season has started early, bringing operations in the Gulf of Mexico in focus. Brent crude prices rose, hitting about $87.50 a barrel after reports noted that Hurricane Beryl had resulted in companies such as Shell, BP, and Exxon Mobil to evacuate platforms in the Gulf. The National Hurricane Center and the Bureau of Ocean Energy Management estimate that around 73,000 barrels per day of federal offshore oil production lie in the storm's projected path. However, Bloomberg reported that major platforms, were now clear of the storm’s path and may not face significant production declines. Hurricane Beryl has hit Grenada and is currently travelling towards Jamaica.

Economics

The minutes of the most recent Federal Reserve (Fed) meeting officials indicated that "price pressures were diminishing," but still urged a wait-and-see approach before committing to interest rate cuts. The minutes noted a weak May reading in the consumer price index as one among "a number of developments” in the product and labour markets that supported a view that inflation was falling. Indeed, data showed that US factory activity shrank for a third straight month in June. Traders will be looking for the US payrolls data later on Friday, which are keenly watched by the Fed.

Geopolitics

Dozens of Democratic members of Congress are considering signing a letter demanding that Joe Biden drop his bid for re-election, a senior party official said, as panic mounts that incumbent US President might cost his allies control of Congress. Mr Biden is rapidly losing the support of Democratic lawmakers following a poor performance in the first debate with Mr Trump. Mr Biden has vowed not to quit.

Wall Street investment banks Goldman Sachs and Morgan Stanley have released analysis of how a Donald Trump victory in November could impact bond markets, Bloomberg reported. Strategists are urging clients to position for sticky inflation and higher long-term bond yields, citing potential policies that could lead to fiscal expansion.

Marine Le Pen’s National Rally dominated the first round of France’s legislative election.

China announced the next step in its anti-dumping investigation into European brandy imports, ramping up tensions on the same day the European Commission's provisional tariffs on Chinese-made electric vehicles took effect.

Marine Le Pen’s National Rally dominated the first round of France’s legislative election and set its sights on an absolute majority as President Emmanuel Macron prepared for the second round of voting.

The fractious US presidential campaign is ramping up a gear and a swing to populism is causing problems in the corridors of power in the European Union. Markets watch election news.

Companies

Shell expects to take a hit of almost $2bn after it suspended construction work on one of Europe’s largest planned biofuels plants in Rotterdam and sold a refinery in Singapore. The oil and gas giant said it expects the decision to stop building work on the biofuels plant in the Netherlands, to cost up to $1bn. The company said the move to sell its Bukom refinery in Singapore will cost between $600m and $800m.

J Sainsbury's reported a slowdown in sales after the damp spring weather hit trading at Argos. The UK's second largest supermarket said it had seen strong food sales, but the wet weather hit demand for garden equipment and outdoor furniture. Cost-of-living pressures also hit non-food sales.

Shares in Smith & Nephew rose after activist investor Cevian revealed it has taken a stake in the medical-device group. Cevian is now the knee and hip replacement maker’s second biggest shareholder after buying a 5% holding.

Samsung Electronics expects its profits for the three months to June 2024 to jump 15-fold compared to the same period last year. An artificial intelligence (AI) boom has lifted the prices of advanced chips, driving up the company’s guidance forecast for the second quarter. The South Korean group is the world's largest maker of memory chips, smartphones and televisions.

Amazon founder Jeff Bezos says he will sell another 25 million shares in group, worth nearly $5bn. The shares hit a record high on Wednesday. In February, he announced that he would sell Amazon shares worth around $8.5bn. That marked the first time since 2021 that Mr Bezos had sold Amazon shares.

India doesn’t expect Tesla to move forward with an investment in the country any time soon after executives at Elon Musk’s electric carmaker stopped contacting them, according to Bloomberg.

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Markets take Labour victory in their stride

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