Muted reaction to Labour’s landslide

Not surprisingly perhaps, there’s a muted market reaction this morning to Labour’s landslide victory in the UK general election, which had been well flagged in opinion polls before the vote. In FX, sterling and the euro both nudged up against the dollar during yesterday’s session and they are currently trading in and around their highs for the week at $1.2770 and $1.0820 respectively, leaving EURGBP again little changed at about £0.8475. Attention now turns to the key US employment report due later today, while on Monday markets will digest the results of Sunday’s second round of voting in the French elections, with the latest polls suggesting Marine Le Pen’s National Rally will fall short of an absolute majority in Parliament.

In government bond markets, UK 10-year yields are marginally lower at the start of play this morning, in line with a slight decline in equivalent German yields as well. In equity markets, UK stocks are marginally higher, in line with modest gains for European equities generally at today’s open.

The minutes of the ECB’s June monetary policy meeting – at which interest rates were cut by 25bps – noted that “increased confidence was expressed that inflation would decline towards the 2% target over the second half of 2025 and subsequently remain sustainably at around that level”. They also noted that, after a 25bps cut, interest rates were still well above any estimate of a neutral level – this points to the scope for further cuts ahead albeit the ECB is likely to proceed cautiously in easing policy further.

Today’s employment report in the US is expected to show the economy added 190k jobs in June according to the consensus forecast, following a gain of 272k in May. The unemployment rate is seen remaining at 4% last month, while the annual growth in hourly earnings is expected to have dipped to 3.9% from 4.1% in May.

It’s quiet enough otherwise in terms of economic data today, with Euro area retail sales the only release of note.