Labour Wins Majority, But Markets Remain Calm

As widely projected, initial results from the UK general election show that Labor is on pace to win a commanding majority, with the focus now turning to what might follow next.

A Major Shift, But Same Direction

While vote counting is expected to continue through most of the day, based on the declared seats so far and voting trends, it appears that Labor is on track to win 410 seats out of 610, giving them a commanding majority in Parliament. However, this is less than the 470 seat projection. Still, it represents Labor's strongest performance since 1997, when Tony Blair began his 13-year tenure as Prime Minister. The Conservatives appeared poised to hold 144 seats, their worst modern outcome. Reform, the potential wild card, could only capture four seats. Overall, the emerging election outcomes fit within analyst expectations for minimal market impact.

Later today, after meeting with King Charles at Buckingham Palace around 11:00 AM local time (6:00 AM EST), Keir Starmer is scheduled to be appointed Prime Minister. In his own electoral victory remarks, the new Labor leader gave no new policy previews. However, he is expected to provide further priorities in an additional speech from 10 Downing Street upon assuming the Premiership. Markets will likely review if he will reiterate Labor's campaign assurances that significant fiscal changes are not imminent. Memories of the "mini-budget" issues that briefly disrupted markets after former PM Liz Truss took office could factor into maintaining stability.

The Markets Look Ahead

Markets reacted positively to the conclusion of the UK general election due to a lack of uncertainty. The pound traded steady as results came in but remained near the highs set earlier in the week in anticipation of the results. The FTSE 100 stock index opened modestly higher than its European peers. Analysts believe the markets may be relieved that eight years of intense political and economic uncertainty stemming from Brexit could stabilise under the new, less polarising Prime Minister.

While Brexit was associated with the Conservative party, the new Labor government has no plans to rejoin the European Union. However, it aims to improve relations with the bloc, though the EU does not seem open to UK reentry at this time. Barring major policy changes announced by Starmer in the coming days as he assumes office, markets appear focused on moving past the election and monitoring upcoming interest rate decisions and the economic recovery. For the internationally-focused FTSE 100, the election may have little lasting impact. Labour's housing plans could benefit homebuilders, but tax policies risk offsetting that by hurting energy firms, with government spending providing a slight tailwind. This makes the cable a more interesting asset to cover.

Cable Reversed Following Wedge

GBP/USD spiked from its local bottom of $1.2613, reaching resistance at 1.2780 on Friday morning and leaving behind a wedge pattern. Following the breakout near 1.2645, the measured-move projection points to a potential move to 1.2895, matching previous highs from March. Should buying interest push cable above the recent high of 1.2780, the next key levels lie at 1.30 and above. Conversely, if selling pressure triggers a pullback below 1.27, losing the bottom of the wedge pattern could lead to further declines to around 1.25.

Source: SpreadEx GBPUSD

Key Takeaways

The UK general election results show Labour on track to win a commanding majority with 410 seats, less than projected but the highest since 1997, and just 144 for Tories. Markets reacted positively due to reduced uncertainty, with the FTSE 100 index opening higher as Starmer is set to become Prime Minister after meeting the King. He is expected to outline priorities in a speech after assuming office, seeking to maintain stability. Barring major policy changes, markets now look ahead to interest rate decisions and economic recovery with limited election impact.