The UK's Labour Party Returns to Power In a Landslide Victory Amid Myriad Economic Challenges

Bridgette Randall
05 Jul, 2024
London

European markets traded higher and extended weekly gains after the center-left Labour Party won a landslide victory, ending the 14-year Conservative Party government. 

Benchmark stock indexes and the pound in London held steady on the hopes that the new government will retain financial policies in place to lower the national debt below 100% of gross domestic product. 

The new UK government is going to face a tough task in lowering the budget deficit, balancing the increase in social spending, and altering the tax regime. 

In France, voters are heading for the second round of elections on Sunday, and preliminary polls predict a hung parliament as the National Rally Party faces a coalition of parties aligned to prevent the far-right party from winning a majority. 

On the economic front, France's international goods trade deficit widened to €8 billion in May from a downwardly revised €7.5 billion in April, the ministry of finance and economy reported Friday. 

The trade gap reached its largest level since October 2023, after exports decreased 1.8% to €50.2 billion and imports eased 0.7% to €58.2 billion. 

The good trade balance has been negative since 2003, and the monthly deficit hovered around €5 billion before 2019 before deteriorating due to the surge in the cost of imported energy. 

Industrial production in Germany declined 6.7% from a year ago in May, adjusted for seasonal and calendar factors, the Federal Statistical Office, or Destatis, reported Friday. 

Euro Area retail sales increased 0.3% from a year ago in May and slowed from a 0.6% rise in the previous month, Eurostat reported on Friday. 

On a monthly basis, retail sales increased by 0.1% from the previous month and rebounded from an upwardly revised decline of 0.2%. 

 

Europe Indexes and Yields

The DAX index increased by 0.9% to 18,608.56; the CAC-40 index rose by 0.4% to 7,723.98; and the FTSE 100 index rose by 0.001% to 8,240.89. 

The yield on 10-year German bonds edged lower to 2.56%. French bonds inched lower to 3.20%; the UK gilts inched lower to 4.16%; and Italian bonds decreased to 3.95%.

The euro edged lower to $1.08; the British pound inched higher to $1.28; and the U.S. dollar weakened to 89.90 Swiss cents.

Brent crude increased $0.17 to $87.27 a barrel, and the Dutch TTF natural gas fell by €0.21 to €33.24 per MWh.

 

Europe Stock Movers

Home builders in the UK traded higher after the Labour Party won in a landslide, and the new government plans to ramp up the building of affordable housing over the next five years by 1.5 million units. 

Persimmons, Barratt Developments, Vistry Group, and Taylor Wimpey gained between 2% and 3%. 

HSBC Holdings declined 1.9% to 678.30 pence, and a report suggested that UBS and BNP Paribas may be interested in the company's German wealth management unit. 

Volkswagen, BMW, and Mercedes-Benz advanced more than 1% after the European Union imposed additional tariffs of as much as 38% on the imported Chinese electric vehicles. 

Aixtron SE soared 17.5% to €22.19 after the chipmaking equipment maker reported stronger-than-expected orders in the second quarter.