It isn’t always immediately clear what impact political change has on market behaviour. Yet this year promised to be more illuminating on this score given the sheer number of elections taking place. Leaving aside the dozens of municipal and state elections across the globe, voters in India, Pakistan and South Africa have already gone to the polls to vote in national elections, while their counterparts in the UK and US will soon have to decide who will take the reins of power.
But perhaps the most striking political development in recent times was the outcome of the 2024 European Parliament election, as right-of-centre parties made sizeable gains, particularly in Italy, France and Germany. It may take a while for the dust to clear, but the result of the vote was seemingly drastic enough for Emmanuel Macron to call a snap election in France – markets reacted accordingly.
The country’s benchmark CAC40 index has been volatile ever since President Macron took the gamble and France’s borrowing costs on debt markets have gone through the roof, drawing comparisons with the impact of the Truss mini-Budget. The premium France pays on its debt compared with Germany is on track for its biggest weekly rise in over a decade. France’s finance minister Bruno Le Maire has even warned that Europe’s second-largest economy is at risk of a financial crisis, although that may simply amount to electioneering on his part. There’s nothing like putting the wind up the electorate to get them to fall in line.
Closer to home, it appears that the UK stock market may be emerging from the doldrums, at least according to Peel Hunt’s chief executive Steven Fine. He points to a recent shift in sentiment towards the UK market after a protracted decline in both primary and secondary volumes. The successful debut of Raspberry Pi (RPI), while not exactly emblematic of a homegrown equities’ renaissance, would certainly have cheered market watchers.
Fine’s comments attracted widespread media attention as Peel Hunt had previously delivered a damning report which indicated that small and mid-sized companies listed in the UK were trapped in a “doom loop” – whatever that is. It’s rather too early to claim that the London market is heading for the sunlit uplands, particularly given that other prospective debuts have faltered. London Stock Exchange boss Julia Hoggett was dismissive of the naysayers when the press was full of stories of the City’s terminal decline. And she was more than justified. Things are rarely as good or as bad as pundits make out, a point rarely lost on contrarian investors.
Nonetheless, a rosier outlook on UK equities will certainly be welcome by whoever is handed the keys to 10 Downing Street after the 4 July election, although their ability to reinvigorate growth in the economy will be impeded by the country’s tight public finances, meaning the government will need more help from the private sector than ever.
Rather than France’s borrowing costs, or the possibility of a prolonged bounce in UK admissions, perhaps the most salient market pointer comes from the International Energy Administration (IEA). Analysis from the Paris-based intergovernmental organisation suggests that crude oil demand will hit a peak by 2029 and will plateau after that. The IEA believes that global oil supply will hit 114mn barrels a day by the end of the decade – around 8mn barrels a day higher than demand. A surplus on that scale would have profound geopolitical and economic implications and given that we’re nearly halfway through the decade, you would imagine that the effects of a growing surplus would be felt sooner rather than later. However, it needs to be pointed out that the IEA hasn’t exactly been on the money in the past, so it may be a little premature to dump oil stocks from your portfolio.
The Trader is written by Mark Robinson
