Labour Set for UK Win as Sterling Hits Three-Week High

The UK election looms with Labour poised for a significant majority. In financial markets, FTSE futures are steady, and sterling is near a three-week high against the dollar, reflecting confidence in Labour's economic stance. In Asia, Japan's Topix index and Taiwan's main index hit record highs, driven by gains in banking, automotive sectors, and AI-related stocks like Taiwan Semiconductor Manufacturing Co.

Equities

The FTSE 100 closed up 0.6%, marking its best day in nearly two weeks after a recent low. The FTSE 250 climbed 1.7%, the best performance this year, breaking a three-session losing streak. The market focus was on the UK parliamentary election, where the Labour Party is expected to win, ending 14 years of Conservative rule. Metal miners led the gains, with precious metal miners rising 4.0% and industrial metal miners up 2.4%, tracking higher gold and copper prices. British Airways owner IAG saw a 5.5% increase after the EU antitrust regulator approved Lufthansa's purchase of 41% of Italy's ITA Airways, boosting IAG’s hopes for acquiring Air Europa. However, JD Sports fell 4% following a downgrade by Barclays to "underweight" from "equal-weight".

In the US, the S&P 500 and Nasdaq closed at record highs, driven by hopes for a Federal Reserve rate cut in September due to data indicating a weakening economy. The Dow Jones Industrial Average dipped 0.06%, affected by declines in healthcare and consumer stocks. Both the ADP Employment report and weekly jobless claims suggested a softening labour market, raising expectations for a rate cut.

Tesla jumped 6.5%, nearing a six-month high, following a smaller-than-expected drop in Q2 vehicle deliveries. The Philadelphia Semiconductor Index rose 1.92%, buoyed by gains in Taiwan Semiconductor Manufacturing and Broadcom. Nvidia closed 4.6% higher, despite a previous dip, whereas Amazon declined 1.2%. The S&P 500 has risen over 15% in the first half of 2024, largely due to high-momentum tech stocks, while its equal-weighted counterpart only gained 5%, and small to mid-cap stocks have lagged.

Paramount Global's stock rose nearly 7% after National Amusements reached a preliminary deal to sell its controlling interest to Skydance Media. First Foundation slumped almost 24% following an unexpected $228 million capital raise

Forex & Commodities

The yen dropped to a 38-year low against the US dollar and an all-time low against the euro, with traders watching for potential Japanese intervention. The dollar fell after weak US economic data increased expectations for a Federal Reserve rate cut later this year.

The euro reached a three-week high against the dollar, bolstered by high inflation data suggesting the European Central Bank may delay rate cuts. Sterling rose ahead of the UK election. The yen fell to 161.96 per dollar for the first time since December 1986 and hit a record low of 174.48 against the euro.

Gold prices increased by more than 1% to a near two-week high, driven by bets for a September Fed rate cut following the weak US data. Spot gold was up 1.2% at $2,357.06 per ounce, with US gold futures settling 1.5% higher at $2,369.40.

Oil prices rose about 1% after a larger-than-expected decline in US crude stocks, despite concerns over rising global inventories and thin trading ahead of the US Independence Day holiday. Brent crude futures increased by $1.10, or 1.3%, to settle at $87.34 a barrel, while US West Texas Intermediate (WTI) crude futures gained $1.07, or 1.3%, to $83.88.