UK election reaction: Markets take comfort in widely-expected result

• Labour set to form UK government for first time since 2010
   
• British Pound mixed against G10 peers
   
• UK100 stock index testing 50-day SMA support
   
• Wall Street expects UK100 to add another 14% by mid-2025
   
• UK assets may offer shelter from French, US political risks

 

The UK elections’ results are in!

As widely expected, the Labour party has already crossed the 326-seat threshold and is expected to ultimately gain 410 of the 650 seats up for grabs, securing a landslide win.

This would be the first Labour-led UK government since 2010.

Keir Starmer is set to become UK Prime Minister later today, taking over from outgoing Rishi Sunak.

The latter’s decision to call for an early elections spectacularly backfired, judging by the stunning defeat handed to the Conservative party.

 

How are markets reacting?

With little surprise coming out of the UK elections, both GBP and the UK100 are little changed.

At the time of writing, GBP is putting in a steady performance against its major peers, moving less than 0.1% against most other G10 currencies (except against the Yen, which is enjoying a rebound)

 

 

Over in the equities space, the UK100 stock index is currently testing its 50-day simple moving average for support.

If this stock index can overcome this technical level, then UK100 bulls will be eyeing a return to the 8300-8324 price area over the immediate future.

The UK100 would need a meaningful and sustained breach past 8324 in order to break out of its sideways pattern since late May.

This lurch higher requires either a sustained bout of risk-on sentiment across the global economy, or a notable weakening of the Pound, given that the UK100 and GBPUSD tend to move in opposite directions.

Note that, at the time of writing, this inverse relationship is once again on display between the UK100 and GBPUSD, albeit only slightly.

 

How high could the UK100 go?

The bullish factors above may help the UK100 towards Wall Street’s forecasted target of 9386 over the next 12 months.

That implies a further upside of about 14% from current levels.

However, we’re bound to see a fair few twists and turns over the next 12 months.

 

UK assets to act as safe haven?

Over that period, now with the UK elections done and dusted, global investors and traders hope that UK assets can now provide a shelter from the political uncertainty emanating from other Western economies.

There’s this Sunday’s (July 7th) final round of voting in the French elections, to the US presidential elections in November.

After all, UK voters have clearly rejected the Conservatives that had triggered massive policy shocks, ranging from the 2016 Brexit Referendum, to the ill-fated and short-lived Liz Truss administration.

Global markets will be hoping that this centre-left government will usher in a period of political and policy stability, while fostering closer ties with the EU that can help support the UK’s economic outlook.

Still, the incoming UK government will have to inherit hefty domestic economic challenges.

UK consumers are still living out its historic cost of living crisis, while contending with the fallout from Brexit.

With all that in mind, the new government’s budget, set to be announced in mid-September, will be closely monitored to assess the likelihood of achieving its touted 2.5% annual GDP target.

If markets can be heartened by the new government’s ability to execute on fiscal policy, that should bode well for UK assets as well.

 

 

UK election GBPUSD uk100 UK Prime Minister political risk