Lucia Langella’s Post

Although last week’s landslide election victory for Keir Starmer’s Labour Party might have marked a seismic political shift, the initial reaction from markets was somewhat muted. This was perhaps due to strong polling in the months leading up to the election, allowing investors to effectively ‘price in’ the anticipated election results.

Markets don’t like surprises. So, the shock decision by French President, Emmanuel Macron, to call a snap election, just a few weeks before the Paris Olympics and a few days after the commemoration of the D-Day landings on the Normandy beaches, triggered an inevitable reaction from investors who already had plenty of news to digest in an event-packed week. Macron’s centrist alliance was trounced by Marine Le Pen’s far-right party in the European Parliament elections. His decision to call a national election raised understandable fears about Europe’s future political direction, prompting a sell-off in risk assets that set the tone for global markets at the beginning of the week.

In a week that commemorated the beginning of its liberation by Allied forces 80 years ago, Europe was also the focus for markets, as investors geared up for the European Central Bank’s (ECB) latest interest rate decision. Earlier in the week, in emerging markets, investors were rattled when early voting showed that Indian Prime Minister Modi’s BJP-led alliance was not headed for its predicted landslide win in the country’s election; a victory that had been expected to be positive for its financial markets.

“Having a little inflation is like being a little pregnant”, observed Leon Henderson, economic adviser to US President Franklin Roosevelt. Markets drifted at the start of the week following holidays in the UK and US, as investors awaited Friday’s news on whether consumer prices in the US and eurozone were now going up slowly enough to keep interest rate cut hopes alive.

Last week, Rishi Sunak caught a number of commentators off guard by calling a General Election for 4 July. Although a month is a long time in politics, current opinion polls suggest the incumbent Prime Minister faces a steep, uphill battle to remain in his post. Instead, it is Sir Keir Starmer and the Labour Party who are heavy favourites to come out on top.

Stock markets continued to grow last week, as improving inflationary data in the US encouraged continued optimism from investors. In particular, the US Index, the Dow Jones, broke the 40,000 mark for the first time ever. This Index is sometimes overshadowed by the NASDAQ and S&P 500, which are home to most of the ‘Magnificent 7’ and have been the biggest beneficiaries in the A.I. boom so far. Yet it is worth noting the Dow has grown 50% since it first hit 30,000 back in 2020, and doubled since it first hit 20,000 back in 2017.

The tradition of May festivities dates to Roman times and the celebration of Flora, the goddess of flowers. The UK has got Michael Foot to thank for the May Day bank holiday, which he introduced in 1978 when he was the Labour Employment Secretary. With Japan also on a public holiday, it was left to China and Europe to get markets off to an upbeat start, as the previous week’s softer-than-expected US jobs report continued to underpin sentiment.

If the market values of the big-tech Magnificent Seven were combined, it would create the second-largest stock exchange in the world. In a relatively quiet week for economic data, it was therefore little wonder that investors’ attention was focused on earnings announcements from the bellwether US companies, in a welcome return to market fundamentals rather than geopolitics.

Jeremy Hunt declared the UK economy was finally ‘turning a corner’ late last week, after the Office for National Statistics (ONS) revealed the economy grew by 0.1% in February. The ONS also revised up its January growth figures from 0.2% to 0.3%. Together, these figures suggest the UK will end the first quarter reporting some economic growth, meaning the UK is likely out of recession.