Jenson Holmes from Titan Wealth offers this week’s round-up of global markets
ANDY Burnham’s Labour Party Conference speech appeared reassuring for investors by emphasising fiscal discipline and recognising the need to reduce government borrowing and debt.
Despite concerns that a change in leadership could lead to significantly higher public spending, the government appears committed to operating within existing budget constraints and avoiding major new business tax increases.
There was also an acknowledgement that previous increases in employer National Insurance contributions have weighed on employment, suggesting a more business-friendly approach going forward.
The government’s primary objective is to reduce the cost of essential goods and services, such as housing, water and energy, with the aim of improving living standards and lowering costs for businesses. While the details remain limited, proposed measures include continuing council house construction, increasing regulation of water companies and landlords and attempting to bring UK energy prices closer to European levels.
Burnham also announced plans for a National Care Service and signalled that the UK State Pension triple lock will be reformed after the next election to help control long-term spending.
Overall, the conference suggested a sensible approach focused on balancing fiscal responsibility with measures to improve affordability, economic competitiveness and growth.
Across the water, the US employment data came in slightly softer than expected and the unemployment rate ticked up to 4.2% thanks to a rise in the labour market participation rate. However, the employment market continues to perform well and the Fed will be encouraged by the reduction in average hourly earnings to 3.0% for the first time since the pandemic.
Some dovish comments from several Fed members helped Treasury and global bond yields to ease back modestly and also encouraged markets to pare back expectations for rate hikes over the next year or so.
In Europe, political and economic tensions are rising with the government bond markets seeing the biggest impact. Sovereign yields in Europe have risen materially over recent weeks in line with global government bonds but notably, and of concern, is the fact that the spreads of French and Italian bond yields over the equivalent German bonds are at the widest since the initial European debt crisis in 2012.
France is the main concern as the combination of rising financing costs, high energy prices and political fragmentation is complicating the substantial fiscal consolidation needed to stabilise public debt. This is not being helped by calls from one of the leading candidates for the 2027 French presidential election, Jean-Luc Melenchon, for Banque de France, the French central bank, to cancel debt.
The US has backed down from a threat to stop exporting diesel to the world as part of a deal in which European countries agreed to release more diesel from their strategic reserves, bringing some modest relief to energy prices. Reports that global oil supplies, including those moving through the Strait of Hormuz, are improving also brought some relief to markets.
Equities ended last week on a positive footing, led by technology. Markets will remain focused on economic data and the upcoming earnings season for signs that strong global growth and buoyant profits growth will continue to drive equities higher. Investors will also be watching energy prices and inflation data for clues about future central bank policy and interest rates.
