Market report: Political fracture in France sets off uncertain mood on markets
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “It’s a subdued start for the London market, as traders digest the latest round of political upset in France, and its repercussions. Although the worst-case scenario of an absolute majority for a radical party has been avoided, political stalemate and gridlock looms. The CAC 40 in Paris has opened lower as investors digest the implications for the French economy. FTSE 100 was on the back foot in early trade, although has reversed some losses, but after a lower start the domestically focused FTSE 250 has regained some of Friday’s feel-good factor.
France has lurched into fresh uncertainty and a parliamentary power grouping of different radical stripes, with the surge in support for the far-left New Popular Front alliance. With the most seats, the aim of the party will be to force a back-track on President Macron’s unpopular reforms aimed at cutting France’s deficit. It wants to reverse the raising of the French retirement age from 62 to 64. Candidates also campaigned to raise the minimum wage and cap the price of essential goods. Given no party holds an overall majority, it looks like it will be very hard to push through a specific agenda, but there will be a big push over the coming year for concessions and compromises. But for now, a legislative and policy vacuum looms as the task of forming a coalition government amid such political fracture gets underway.
As the UK seems to be sailing into a period of stability, while waves of uncertainty continue to crash in France, the first speech by Chancellor Rachel Reeves is unlikely to contain many surprises. Determined to project a ‘steady as she goes’ image, to maintain the early aura of calm which has descended on the new Labour administration, she’s set to focus on her aim to stimulate long-term growth in the economy. She wants to steer well clear from prompting any kind of bond market strop out which ensued after the Liz Truss mini-Budget fiasco. So, she’s highly unlikely to veer away from the proposals set out in the ‘fully costed’ manifesto which contained modest spending pledges, coupled with a refusal to categorically rule out specific taxes. The inconvenient truth of the election is that spending cuts were still baked in, but she’s counting on a kick-start to growth to help avoid slashing departmental budgets. That’s why boosting housebuilding by changing planning rules is likely to be the focus today. Growth in the construction industry fell for the third month in a row in April, down 1.4%, so any freeing up of the rules to fast-track developments could help bring fresh life to the sector.
The takeover of Britvic by Carlsberg has finally come to fruition, with an improved offer. The deal will give the Danish giant the chance to expand its global partnership with PepsiCo and streamline its bottling operations across European markets and now the UK. There is also clearly potential for Britvic’s own brands like Robinsons and Fruit Shoot to quench thirst in other markets its so far failed to reach, given Carlsberg’s might. Retaining listed firms and attracting more to launch IPOs in London will be stamped on the new government’s to-do list, although is unlikely to be among the top priorities in the first 100 days.
Oil prices are under pressure amid growing concerns about demand in the US economy. It comes after jobs data shows that the unemployment rate rose to a two and a half year high, helping to curtail wage growth. Average hourly earnings increased in June by 3.9% year on year, the slowest rate of annual increase since the second quarter of 2021. With the US jobs market cooling more sharply than forecast, it’s led to expectations of slower economic growth and a lower appetite for energy, after a stronger demand during the summer. The latest economic data does raise expectations that there could be an interest rate cut coming in September from the Federal Reserve. However, supply issues are still niggling with oil tanker movements severely constrained, with the important crude export hub in the US, Corpus Christi, among the ports closed, as tropical storm Beryl is expected to land later today.’’