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FTSE 100 up for third day ahead of general election result

As we prepare for the result of what appears to be a very one-sided election, City writer Graeme Evans reports on market reaction so far.

4th July 2024 15:34

by Graeme Evans from interactive investor

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General election sign in front of Big Ben, Westminster, London

A polling day bounce for the FTSE 100 index today highlighted the City’s relaxed stance on the UK’s part in a packed year for elections.

In contrast to last week’s response to France’s snap elections or the US presidential debate, the UK election build-up has served up little in the way of market uncertainty or volatility.

The positioning reflects a run of campaign surveys that have pointed to Labour securing the largest Commons majority since Earl Grey’s Whig party in 1832.

Latest four MRP polls point to a historic Labour majority

Election polling chart

Deutsche Bank said this week: “As the Labour lead in polls is that significant, we do not expect any major surprises from the UK election, and hence expect UK markets to remain calm over the next weeks.”

This has been the case historically after the bank’s analysis of market performance since 2000 found that volatility tends to be significantly higher before and after French elections.

In addition, the biggest 10 companies in the FTSE 100 generate on average two-thirds of their revenues outside Europe. This means the impact of a new UK government is likely to be limited and does not change Deutsche Bank’s “fundamentally positive outlook”.

Since April, the FTSE 100 index outperformed Europe’s STOXX 50 by more than 5% and the volatility of the index has been the lowest across Europe.

Deutsche Bank’s year-end forecast for the FTSE 100 is 8,700 and remains much higher than the Bloomberg consensus of 7,871.

It said: “The last time we were overweight the FTSE 100, in 2022, the index outperformed the STOXX 50 by 8%. In 2023 to Q1 2024, it underperformed the STOXX 50 by 23%.”

Another reason for the lack of volatility in the run-up to the UK election is that both main parties are faced with very limited fiscal leeway.

Deutsche Bank said: “Interest cost to GDP has risen sharply in the UK and is not expected to come down to pre-Covid levels anytime soon.

“Consequently, both parties’ programmes are (almost) fiscally neutral and both plan to bring down the budget deficit and debt level over the next five years.”

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