Live Markets: Burnham by-election in the bag: what it means for markets
LIVE MARKETS-Burnham by-election in the bag: what it means for markets Adds new blog entry
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
BURNHAM BY-ELECTION IN THE BAG: WHAT IT MEANS FOR MARKETS
With Andy Burnham comfortably winning the Makerfield by-election, most now expect the new MP to trigger a formal leadership contest within the ruling Labour party.
Nothing is a given, but prediction markets believe Burnham will be Prime Minister by the end of the year. Polymarket traders give an over 90% chance that Burnham is the PM in 2026, with "no next PM" (i.e. Starmer staying on) at just 6%.
Burnham, seen as more left-leaning than Starmer, had previously said that Britain should not be "in hock" to the bond markets, leaving those nasty bond vigilantes licking their lips.
And while he's attempted to row back on those comments, for as long as Britain is borrowing huge sums of money, the bond markets will have an impact on Britain's fiscal policy.
"Our preferred expression remains gilt curve steepeners, with heightened fiscal uncertainty and rising leadership risk arguing for higher term premia," writes Jefferies economist Modupe Adegbembo.
"In outright terms, gilts still look cheap, particularly at the front end, where markets continue to price Bank of England hikes that we do not expect given weak underlying demand conditions."
That's a view shared by Mark Dowding, chief investment officer for BlueBay fixed income, who thinks there is a risk that Burnham's credibility could be tested by the market.
"On this basis, we remain cautious with respect to UK assets for the time being and feel that markets have discounted relatively little, by way of a UK political risk premium," Dowding says.
On FX, Jefferies believes that sterling remains vulnerable due to domestic political uncertainty, a hawkish Fed and a dovish BoE. Hawkish rhetoric from the ECB could also support the euro versus the pound, Adegbembo says.
Citi analyst Monique Pollard has taken a look at the UK consumer sector for the impact of a weaker pound.
Pollard found that the largest beneficiaries of a 1% drop in the pound are JD Sports JD.L, Currys CURY.L and Entain ENT.L, due to their sizeable ex-UK sales exposure.
(Samuel Indyk)
*****
EARLIER ON LIVE MARKETS:
EUROPEAN SHARES SET FOR POSITIVE WEEK CLICK HERE
EUROPE BEFORE THE BELL: RELIEF RALLY SET FOR PAUSE CLICK HERE
WHAT A GREAT WEEK FOR PEACE CLICK HERE