Market report: Stocks on the front foot despite political upheaval
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “political uncertainty is making waves on markets at the start of the week, but sentiment remains largely upbeat as investors take on a glass half full attitude. The Footsie has started the week on the front foot, boosted by gains for energy giants. Shell and BP are trading higher thanks to climbing oil prices. Brent Crude has headed higher after the oil cartel, OPEC+ agreed to output hikes in the Autumn but only at a modest pace, and smaller than summer production increases.
The resignation of Japan’s prime minister has caused ructions, with the yen diving on the news, stocks making sharp gains and government bond yields rising again. Investors are speculating about what a change at the top would bring for government policy. There’s an expectation that front runners, in particular Takaichi Sanae would be more pro spending and de-regulation, aimed at supporting the economy amid the pressure on exports from US tariffs. The economy is holding up better than expected, with higher consumer spending providing a boost but there is still concern about the path ahead.
Political turmoil in France is drawing attention today, with the prime minister, Francois Bayrou largely expected to lose a confidence vote. He called the snap poll given the supreme difficulties he’s faced pushing through spending cuts. France is grappling with a highly disillusioned electorate, resistant to austerity moves, which makes reducing the country’s large deficit highly tricky. His ejection will mean president Macron will be forced to name the fifth prime minister in the France in less than two years. France is being seen as the most ’troublesome child’ in Europe when it comes to fiscal position. But it’s the prime ministers who keep being expelled for being unable to tame unruly lawmakers and impose spending restraint.
UK prime minister Keir Starmer will be hoping the large cabinet reshuffle will quell concerns about his authority and close a highly difficult political chapter. Gilt yields eased back after the big moves were made, with some relief that chancellor Rachel Reeves’ position appears secure. The government is attempting to move the narrative back to policy delivery and a longer-term boost to growth. The focus today is on launching the Defence Industrial Strategy to provide the skills which the forces and military contractors will need to meet the UK’s commitments.
Wall Street looks set for a higher open despite the sense of unease which spread after Friday’s monthly jobs report was released. Recession fears have risen after the numbers were released, which showed just 22,000 new hirings in August and unemployment rising to 4.3%. Optimism though remains high partly because expectations of a super-size interest rate cut this month has risen. Current market enthusiasm and the weight of tech stocks on indices means bad news on the economy is still seen as good news. It’s partly because of expectations of lower borrowing costs helping consumers and companies they buy from, but also because a lower rate environment boosts the current value of potential earnings which are baked into valuations.
Tesla’s shares have risen after the company proposed a $1tn award for Musk if he hits targets. With more here’s Matt Britzman, senior equity analyst, Hargreaves Lansdown: “Elon Musk’s latest compensation package is arguably Tesla’s most daring move yet. When you’re trying to incentivise the world’s richest man, a standard pay deal simply won’t cut it. This is exactly what Tesla shareholders wanted to see and will likely be voted into action in November.
The structure is audacious: Musk won’t earn a cent until he creates close to $1tn of value for Tesla shareholders, and that’s simply the start of the market cap milestones, with the top tier needing Tesla to reach a staggering $8.5tn valuation. Running in tandem are a series of equally challenging product and performance triggers that must be achieved before any tranches unlock. Even under optimistic assumptions, we’re likely talking 2030 and beyond before any of these targets are met.
This isn’t just a pay deal; it’s a strategic tether. It binds Musk to Tesla for the long haul and ensures his success is directly tied to the creation of enormous shareholder value. But for someone like Musk, outlandish goals are the only ones worth chasing, and that’s what Tesla shareholders want to see.’’