Starmer readies for government after historic Labour win

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Good evening.

The UK’s Labour party has won a seismic majority today, buoying markets after years of post-Brexit volatility.

Labour made fiscal competence a central part of its sales pitch to voters, eschewing the more radical agenda the party espoused under former leader Jeremy Corbyn. Rachel Reeves, the UK’s first female chancellor, has pledged a suite of pro-growth policies and courted big business in a years-long effort to rebuild credibility on the economy.

Voters have also embraced Sir Keir Starmer’s “no-drama” brand of competence — not least because the shadow of Liz Truss’s disastrous mini-budget still looms in the minds of the public, when the pound approached parity with the dollar and mortgage rates rocketed. (Truss this morning lost her seat.)

The City’s reaction to Labour’s win has been muted, with stocks rising modestly as investors bet on a period of economic stability. UK housebuilder stocks have rallied in particular today, as markets price in the new government’s pro-development rhetoric on planning reform.

Labour will inherit an improving economy, with inflation having subsided and markets expecting rate cuts later this year. 

But the fiscal picture looks bleak. Ongoing public sector pay negotiations, a chronic funding shortfall in the NHS and the potential collapse of Thames Water are just some of the myriad issues facing the party in its first 100 days. Adding to this is Reeves’ self-imposed “ironclad” fiscal straitjacket, which will further limit the party’s spending plans.

The embrace of centre-left politics in the UK stands in stark contrast to much of the rest of the world, where rightwing populism dominates. Investors are now closely watching France, where anxiety abounds in markets ahead of Sunday’s second-round parliamentary election run-off. Stateside, Treasury markets have been swinging at the prospect of a Donald Trump win in November.

Amid that tumult, the UK could find a new reputation as a pocket of relative calm among bond investors and businesses — a happy coincidence for Labour as it shoots for “growth, growth, growth”.

Need to know: UK and Europe economy

Ireland’s central bank governor has warned the new finance minister Jack Chambers to avoid pre-election giveaways, advising him instead to use the country’s budget surplus on the big transitions facing the country: “demographics, climate change and digitisation”.

The minutes from the European Central Bank’s June meeting suggest that a number of council members think the central bank should hold firm on cutting rates, given stickier than expected services inflation and surprisingly strong wage growth.

Portugal’s new government plans to reintroduce tax breaks for skilled foreigners as part of a package of measures to boost growth, despite criticism that it could drive up house prices in what is one of the Eurozone’s lowest-income economies.

Need to know: Global economy

The US economy added 206,000 jobs in June, the monthly Bureau of Labor Statistics said today, which was higher than forecast but down on the previous month. The slowing labour market increased investors’ confidence that the Federal Reserve might soon be able to cut interest rates.

So-called “frontier markets” — risky, emerging markets with cheap valuations — have been among the best-performing stock markets in the world this year, as investors bet on economic reforms in countries like Argentina and Pakistan.

The US has intervened in the sale of a Congolese state-owned copper mine to a Chinese arms manufacturer to prevent Beijing from increasing its control of critical minerals, according to people familiar with the matter.

Anger at the IMF continues to fuel anti-tax riots in Kenya, as protesters blame the fund for president William Ruto’s fiscal and austerity policies.

Need to know: business

Samsung, the world’s largest maker of memory chips by sales, expects a more than 15-fold increase in second-quarter operating profits on the back of a strong recovery in demand for the chips in artificial intelligence products.

Chipmaker Nvidia is on course to surpass rival Huawei in AI chip sales in China, despite US export controls inhibiting its business in the country

Proxy season results illustrate waning support for environmental and social issues across the US, with not one inclusion shareholder proposal and only two climate-related ones receiving majority support at Russell 3000 companies.

Science round up

The Supreme Court has overturned the Chevron deference, a doctrine which for 40 years gave federal agencies significant latitude to set environmental protection standards. This is a ruling at which “consumers and citizens . . . should tremble”, science commentator Anjana Ahuja writes.

UK pharmaceutical company GSK has reached a licensing agreement with German mRNA vaccine developer CureVac to develop its vaccines for flu, Covid-19 and avian flu worth up to €1.4bn.

A clinical trial led by Massachusetts Institute of Technology has developed a bionic leg driven by the body’s nervous system which restores a natural walking gait more effectively than other prosthetic limbs.

The Paris Olympics promises to be the greenest in Olympic history, swapping out air conditioning for a cooling system that uses the currents of the Seine to moderate the temperature.

Some good news

The health benefits of saunas for humans are widely reported, helping us to boost circulation and reduce stress. But what about for frogs? Researchers in Sydney have found that warm, humid hotspots can help frogs battle a deadly infection — and could perhaps stave off extinction for as many as 10 species.