The FTSE 100 index opened up while the British pound lifted against the US dollar and the euro today after Labour secured a landslide victory in the General Election.
Sir Keir Starmer will be the UK’s new Labour prime minister after a Conservative rout saw former premier Liz Truss and 11 serving Cabinet members lose their seats.
And the FTSE 100 opened up by 0.4 per cent or 33 points to 8,275 in early trading this morning after logging its best day in almost two months in yesterday’s session.
Meanwhile sterling held firm after Labour’s huge win, rising 0.1 per cent to $1.278 – the highest level since mid June. The pound was also up 0.01 per cent at €1.180.
The pound had largely held steady in overnight trading after exit polls signalled the result, with a big Labour majority already having been priced into financial markets.
FTSE 100 THIS WEEK:Â The FTSE 100 opened up by 0.4 per cent or 33 points to 8,275 in early trading this morning after logging its best day in almost two months in yesterday’s session
FTSE 100 INDEX THIS YEAR SO FAR:Â Analysts hope that the landslide election result could bring a sense of stability to investors who hope that it could end years of market volatility
Housebuilders were leading the way on the FTSE 100 today as Labour’s landslide win was seen as a boost to the sector, amid hopes of planning red tape being cut to pave the way for more developments and housing supply.
Victoria Scholar, head of investment at interactive investor, said: ‘The relaxed mood across financial markets reflects the fact that Labour’s landslide win had long been predicted by the polls and therefore was already baked into market prices.
‘In stark contrast to Liz Truss’s ill-fated mini-Budget in 2022 which sent bonds and the pound tumbling, today’s lack of market volatility and subdued price action suggests investors and traders see the latest election outcome as a democratic vote in favour of a new political era representing stability and calm.’
Experts said attentions in the market will now turn to the state opening of Parliament and the King’s Speech on July 17 and the policies that may usher in, as well as the prospect of a possible interest rate cut in August.
Labour leader Sir Keir Starmer and his wife Victoria Starmer at a results party in London today
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘There may be a honeymoon period for the new administration, but then difficult decisions will have to be taken in office.
‘The size of the victory and the upswell of support for smaller parties and independents will leave Labour MPs concerned about the safety of their seats at the next election.
‘They know they have to deliver for the electorate but are likely to be hampered by a commitment to be fiscally responsible and restrain spending.
‘The priority will be keeping the markets unruffled in the first days, weeks and months of the new administration and not overdoing spending pledges.’
Analysts now hope that the landslide election result could bring a sense of stability to investors who anticipate that it could end years of market volatility.
Ben Ritchie, head of developed market equities at Abrdn, said: ‘A landslide victory provides the sort of clarity and stability that equity markets need in an increasingly volatile world.
Media gather outside 10 Downing Street in London this morning after the General Election
‘If the new government get this right, businesses with significant exposure to the UK economy should be the likely winners – a shot in the arm in particular for companies in the FTSE 250 and FTSE Small Cap.’
Sterling has edged up since Rishi Sunak called the election in late May, earlier than anticipated. It is the strongest-performing major currency against the dollar this year, with a gain of 0.3 per cent.
On a trade-weighted basis, the pound is now back where it was in 2016, at the time of the Brexit vote, reflecting a belief among traders and investors that a period of intense market volatility under the Conservatives may be drawing to a close.
Kenneth Broux, head of corporate research for FX and rates at Societe Generale, said: ‘We know Labour were going to win, so this doesn’t change much and this isn’t a game-changer for sterling.
‘We now want to know what Labour’s plans are. Investors have been long sterling and sentiment has been good and the results won’t change that.’
Prime Minister Rishi Sunak gives a speech in Northallerton today after holding his seat
Echoing this sense of calm in the run-up to the election, the premium that investors demand for the extra risk of holding gilts rather than top-rated German 10-year bonds has remained stable this year around 160 basis points.
This is a far cry from the 230 basis points seen during the mini-budget crisis in 2022.
UK 10-year government bond yields have risen this year to around 4.2 per cent, as investors have sold debt based on their assumption that British interest rates will take longer to fall than many had previously anticipated.
The Bank of England is widely expected to lower interest rates at either its August or September meetings.
Analysts added that investors are likely to quickly look beyond the results of this week’s election and towards monetary policy.
City Index senior markets strategist Fiona Cincotta said: ‘What’s going to be really interesting is there isn’t actually that much headroom for dramatic change in fiscal policy,
‘So I don’t think there is anything that is going to massively move the market as far as these elections are concerned now until the Autumn Statement, so the focus is going to shift, probably pretty quickly, back to the Bank of England.’
A man walks past a board showing the Tokyo Stock Exchange in Japan today. Japan’s Nikkei and broader Topix both nudged up to record levels overnight, as did Taiwan’s benchmark
In Asia overnight, Japan’s Nikkei and broader Topix both nudged up to record levels, as did Taiwan’s benchmark, before retreating slightly.
It comes as outgoing Prime Minister Mr Sunak said he took responsibility for the electoral mauling inflicted on his party as it suffered its worst ever result.
At a victory rally in London, Sir Keir said the country can now ‘get its future back’. He told jubilant activists ‘We did it’, adding: ‘Change begins now.’
It marks a spectacular turnaround since 2019, when Boris Johnson won an 80-seat Conservative majority and Labour suffered its worst result since 1935.
Labour has exceeded 400 Commons seats, with the Conservatives set to fall well below their previous low of 156 MPs set in 1906.
The result is likely to trigger a fresh round of infighting within the Tory Party as MPs scramble to replace Mr Sunak, who is expected to resign in the wake of the defeat.