Summer is often termed the “silly season” in politics, with hard news hard to find and broadsheets turning to lighter stories to fill the pages.
Similarly, the old adage “Sell in May and go away” has long held sway for market participants.
But neither of these quaint phrases helps in describing the current political juncture. We have snap elections taking place in the 6th-largest economy in the world (the UK) and the 2nd-largest economy in the EU (France). At the same time, unprecedented political drama is playing out in the United States as pressure mounts on President Joe Biden to stand down from running for a second term.
We will delve into the implications of these developments in more detail during our upcoming webinar on July 11th at 9 am EST/2 pm UK, which I hope you will register for: click here to register. If you are still a free subscriber, please note that this will be your final opportunity to participate in our quarterly webinars—something you can easily rectify by signing up to become a Premium Access Client (click here to enquire). We are also holding a call on Monday afternoon at 2 pm UK time to discuss the final results of French legislative elections, for clients only (click here to find out more).
For now, here are the highlights of our views on the key global political developments that matter for markets and the C-suite:
UK Elections:Labour Landslide
After 14 years of Conservative party leadership, the UK’s centre-left Labour party, under the leadership of lawyer Sir Keir Starmer, has achieved a landslide victory of historic proportions. This result is less of an endorsement of the Labour party, an outlier in Europe as a left-wing party winning a majority, but rather a crushing rejection of the Conservative party. This fact is further reinforced by the strong performance of Nigel Farage and his newly-minted Reform party and the Liberal Democrats.
The British right has now fractured, with the remaining vote shifting to the Reform party and formerly safe seats and Keir Starmer has already taken over as Prime Minister. Things move fast in Britain—there is no “lame duck” session or transition period. The removal van is at Downing Street already. As one of his first prime ministerial duties, Sir Keir will head to Washington for the NATO 75th anniversary summit meeting in two weeks.
The UK result is notable for several reasons which we have discussed previously, including that from a global perspective, the new British government is expected to deliver broad continuity with regard to the trans-Atlantic relationship, NATO participation and support for Ukraine, with the potential upside for UK plc of more constructive “mood music” with Brussels and the EU.
Having said that, Starmer dashed the hopes of many when he said on Wednesday that he did not expect the UK to rejoin the EU “in his lifetime”, something that surprised many given how support for doing so only continues to increase. Whether this was a sign of the extreme caution that he is known for or a genuine reflection of his position is hard to say.
French Elections: RN heading to be largest party, with hung parliament a key risk
Since the first round of legislative elections in France on June 30th, 224 second and third place candidates have dropped out—a tactical manoeuver to form a “Front Republicain”, designed to prevent the far-right National Front from forming a majority. The combination of the two-round system and tactical blocking moves have successfully kept the far-right out of power so far, but it is far from certain that they will work this time.
Markets have now digested the idea of the RN as the largest party in parliament and appear fairly relaxed at the prospect. We think this is a mistake. First of all, a hung parliament in France is not the equivalent of a divided US Congress, an outcome that markets typically like, on the expectation that less legislation is a net positive. Instead, a hung parliament with new-to-government RN with much to prove is likely to result in infighting and a contentious “cohabitation” with the centrist Macron, who would stay on as president. Civil unrest would also likely follow a strong performance by the RN, with fears fanned by the left wing. As noted on our first conference call , (click here to view our notes from the conference call), the RN would be at pains to demonstrate that it can govern effectively, but this is easier said than done.
US Elections Watch: Polling numbers for Biden worsen, improve for Harris as pressure mounts
I came out early after last week’s debate with my view that the president’s poor performance was a game-changer for the race, and since then, the pressure on Biden to step down has mounted. At the same time, VP Kamala Harris has seen her support increase, such that early simulations suggest that she is running roughly equal to, or slightly better than Biden in a matchup against Trump.
The trouble is that President Biden continues to insist that he will remain in the race, and there is no mechanism to force an incumbent president from power (apart from the dramatic measure of invoking the 25th amendment), and possession is 9/10ths of the law, as the saying goes.
I joined Bloomberg’s Francine Lacqua on The Pulse to discuss the outlook, together with John Authers, Chief Market Strategist. Watch our conversation here:
“Growing Old is Not Reversible” Tina Fordham on Bloomberg with Francine Lacqua and John Authers
"People give more credence to the idea that they need to be more aware of risks, but they’re not actually trading on them." Tina Fordham, the founder of advisory firm Fordham Global Foresight
Fordham says that the imprisonment of several prominent business leaders in China is the sort of shift that helped to permanently change investors’ willingness to invest in the Chinese market. But in general it takes “a big shock” to really change the widespread belief that markets will keep bouncing back. “Normalcy bias is very common,” she says. “People assume things will be as they have been indefinitely and you will always get mean reversion . . . [but] I think there’s a massive failure of imagination going on.”
We'll keep you posted with our analysis of these developments in the days and weeks ahead, but for more depth on the implications, hit Reply to set up a briefing. July is looking like an uncharacteristically busy month in politics.
