A Labor election victory would be a ‘net positive’ for markets, says JP Morgan

A Labor election victory will be a “net positive” for financial markets, strategists at US bank JP Morgan have said, in an analysis that underlines the appeal of Keir Starmer’s “centrist platform” for the City of London.

A majority for Labor would benefit banks, builders and supermarkets, analysts led by JP Morgan’s head of global equity strategy, Mislav Matejka, wrote in a note to clients published on Monday. The US investment bank said Labour’s policies would be “modestly pro-growth, but substantially with a potentially prudent fiscal approach”.

Analysts at MUFG, a Japanese investment bank, said separately this week that a landslide victory for Labor would be “more positive for the pound” because it would end political instability, raise expectations of higher government spending and would potentially help usher in a more constructive relationship between Great Britain and the EU after Brexit.

According to the polls, Starmer is a strong favorite to become the next Prime Minister of the United Kingdom. Labour’s comeback since the 2019 general election has been marked – including ousting former leader Jeremy Corbyn and scaling back previous spending commitments. It has also included a years-long “smoked salmon offensive” orchestrated by Labor to woo big business.

“We believe that the market impact will be net positive”, they wrote. “The current Labor Party is occupying a centrist platform and the perception of political paralysis will move behind us.

“Labour’s agenda is modestly pro-growth, but crucially with a potentially prudent fiscal approach. Our economists believe that, given the lack of fiscal space, Labor is likely to focus on supply-side reforms to help improving economic growth.

More than half of the 268 respondents to a Bloomberg News poll of financial markets readers and terminal users published on Monday said a Labor victory would be the best outcome for the pound.

Derek Halpenny and Lee Hardman at MUFG wrote last week that Labour’s spending plans are “unlikely to trigger investor concerns”. They wrote that the party is likely to learn the lesson of the Tories under Liz Truss, whose premiership quickly descended into chaos as financial markets spooked over unfunded tax cuts. The pound fell under the Truss to an all-time low against the US at $1.0327, compared with $1.27 on Monday.

Labor has promised to stick to fiscal rules, including not borrowing to cover day-to-day government spending and reducing net public debt as a percentage of GDP over a five-year forecast period. Halpenny and Hardman write: “There is nothing bold here, no change in fiscal frameworks and Labor is essentially committing to the same fiscal restraints that are in place now.”

Matthew Ryan, head of market strategy at financial services firm Ebury, wrote on Monday that the prospect of a Labor government was “actually boosting sterling” against the euro, which has been hit by uncertainty about how much strength so far. right-wing parties will take control after the European elections and Emmanuel Macron’s decision to call early elections in France.

skip past newsletter promotion

In general, strategists at JP Morgan favor the domestically focused FTSE 250 share index of mid-sized London-listed companies over the blue-chip FTSE 100, which has more of an international focus.

JP Morgan’s verdict on Starmer’s Labor is in stark contrast to his dislike of Corbyn’s policies, including the nationalization of some industries. In 2019, JP Morgan said a Labor government would “weigh heavily” on the minds of foreign investors.

However, not all big business would welcome a Labor government in 2024, JP Morgan said, citing the promised nationalization of the train network and proposals to raise taxes on energy companies. Water companies are also likely to face increased regulations, but other utilities could benefit from spending on net-zero energy infrastructure.

#Labor #election #victory #net #positive #markets #Morgan
Image Source : www.theguardian.com

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top