HG MARKETS:

Following Labour’s historic election triumph, investors reacted favorably, driving up UK markets and prolonging the pound’s longest winning run in four years. For the seventh straight day, the pound increased by 0.1% to $1.2770, while the FTSE 100 Index increased by 0.4%, driven by homebuilders. The yield on UK ten-year bonds decreased by two basis points to 4.17%.  It is anticipated that KeirStarmer’s center-left platform will avert the financial turmoil of 2022 and usher in a new age of steady and moderate British politics. Rishi Sunak announced his resignation as prime minister after Labour won a resounding majority in the House of Commons. Starmer will take over as prime minister. The UK financial markets remain stable, especially in light of the political issues facing the US and France. British stocks are getting close to all-time highs, while bond market volatility has decreased. Investors are comforted by the UK’s dedication to fiscal restraint, believing that Starmer and the next chancellor, Rachel Reeves, will refrain from making drastic cuts to borrowing or spending. Labour promised tight spending controls and placed a strong emphasis on economic stability in its manifesto.  This optimism is reflected in the performance of the pound. This year, it has outperformed all other currencies in the Group of Ten thanks to rising interest rates and anticipations of a gradual easing cycle from the Bank of England. The expected volatility of sterling dropped to 5.76%, the lowest level since May. Assuming the position of finance minister, Rachel Reeves promised not to increase key taxes, as well as to increase housing production, establish a publicly-owned energy firm, and strengthen ties with the EU—all while ruling out a return to the single market or customs union.  The economy is weak even if the new administration is seeing encouraging signs. Although the Bank of England’s 2% target for inflation has been reached, service costs are still high, and recent growth indicators point to a failing recovery. Investor interest in UK gilts may increase in anticipation of the BOE cutting interest rates. By contrast, political unpredictability is causing market instability in France, underscoring the relative calm in UK markets. The financial stability of the UK is in contrast to previous years of political turmoil, like the Brexit vote and the economic turmoil of 2022, when former Prime Minister Liz Truss’s unfunded tax cuts caused market chaos. During the election campaign, both the Conservatives and Labour stressed the need for fiscal prudence. The national debt is at its highest point since the 1960s, and investors are keeping an eye on any potential further bond issuance to support it.