SPW MarketWatch: July 2024
- Shunil Roy-Chaudhuri, Personal Finance and Investment Editor
- 02 August 2024
- 5 mins reading time
Source: FactSet, 1 August 2024. Figures are monthly price returns in local currencies for July 2024.
Hung parliament in France
France’s snap elections on 30 June and 7 July created a divided nation: no party holds an outright majority and voters have left the country’s parliament relatively polarised. The far right Rassemblement National party significantly increased its number of seats and the hard left La France Insoumise now stands as the largest single party.
The coalition of centrist and left-wing parties, who formed a united front to fight off the far right, have struggled to agree on a government agenda. And uncertainty in France, which is the Eurozone’s second largest economy, has an inevitable knock-on effect on Europe as a whole.
Meanwhile, France is saddled with its highest levels of government debt for decades. Against this backdrop, French government borrowing costs recently rose substantially against Germany’s (1).
Given these circumstances, we currently take a neutral stance on European corporate bonds and German government bonds, as we do with corporate and government bonds in general. We have also taken a more cautious view of European equities (shares) despite our positive stance on equities overall.
UK looks set for a period of stability
The UK’s 4 July election took place in between the first and second rounds of the French elections. And the result could hardly have been more different.
Labour’s landslide victory now offers new prime minister Sir Keir Starmer a strong mandate to implement his policies. And the prospects of political stability have been broadly welcomed by investors in UK markets (2).
Steve Mann, Director of Investments at Schroders Personal Wealth, said: ‘Labour inherit an economy showing signs of growth and falls in inflation have opened the way for the Bank of England to cut interest rates. This could provide a potential boost to consumers and to domestic markets.’
Indeed we have moved to a positive stance on UK equities at a time when they look lowly priced on equity valuation measures. We also think the change in government could lead to a period of stability and improved investor sentiment.
Kamala Harris set for US presidential nomination
US vice president Kamala Harris secured the support of enough Democrat delegates to become her party’s nominee for the November presidential election, according to a recent survey (3). This followed on from President Joe Biden’s decision to withdraw from the race on 21 July.
Harris needs the support of 1,976 delegates to win the nomination. The survey indicated she had the backing of 3,359 delegates, which appears to be a comfortable margin.
A number of opinion polls carried out since Biden’s withdrawal showed Harris closed the gap somewhat on Republican presidential candidate Donald Trump (4).
We retain a positive stance on US equities as an expected US interest rate cut in the autumn could provide key support. We also expect to see US company earnings grow positively.
Sources
(1) Financial Times (www.ft.com), ‘Will political turmoil sink French bonds?’, 3 July 2024.
(2) Financial Times (www.ft.com), ‘UK stands out for its stability after election landslide, say investors’, 5 July 2024.
(3) Associated Press (apnew.com), ‘AP survey shows Kamala Harris backed by enough delegates to become Democratic nominee’, 23 July 2024.
(4) The Guardian (www.theguardian.com), ‘Kamala Harris closing gap on Trump in tight 2024 race, polls show’, 26 July 2024.
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