The UK election followed the predictable path of voter dissatisfaction unceremoniously wiping out the Conservative Party in favour of Labour, although their share of the vote was still less than Tony Blair’s. No adverse market reaction was apparent and Sterling strengthened.

Rachel Reeves, new Chancellor of the Exchequer, addressed business leaders at the Treasury and in a solid performance managed to inspire more confidence than expected. She again reiterated she would not be raising headline taxes although CGT appears to be still in the firing line. Her plan to produce much needed growth seems to be mostly based on residential construction but either way her plans and the political stability we appear to have can potentially rekindle interest in UK assets.

In contrast the fallout from Biden’s disastrous performance in the Presidential debate continues and it does look as though he is on very thin ice as more Democrats form up against his candidacy. Finally, the US labour market is showing signs of weakening and we are back to markets discounting two cuts this year from the Federal Reserve. An ongoing current account deficit (last a surplus at the Millenium) of near to 7% reawakens the analogy that the US continues to spend like a ‘drunken sailor’.

France, and therefore the Eurozone, has its own set of problems. Some impressive political manoeuvring kept the far right in third place and unexpectedly delivered the left the most seats, but no majority, meaning gridlock in their system. The parlous state of French finances has led some to speculate that their debt to GDP levels could reach 200%. Bund /OAT spreads have calmed down but remain wide, the ECB stands ready to act if necessary. Germany’s coalition have managed to produce the outlines of a fiscal deal but this does not disguise that it is growth that is needed to get their economy back on track.

Credit spreads have rallied back to where they were before the electoral volatility and the primary market has chuntered on albeit at lower volumes. Sterling issuance had over a two week drought, strongly supporting spreads and demand for high quality credit remains high, leading one respected commentator to describe the demand for A rated paper as ‘insatiable’.
 

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.