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It’s been a full decade since the 2016 Brexit referendum and public opinion has shifted dramatically. Will the U.K. ever formally apply to rejoin the bloc?
Click here to take the poll and don’t forget to share your thoughts in the WSB comments section.
Good morning! Here’s the latest in trending:
Box office boom: Pixar’s (DIS) ‘Toy Story 5’ delivers record $160M opening.
Different approach: Microsoft’s (MSFT) Nadella calls for AI reset beyond frontier model race.
Technical talks: U.S. and Iran agree to a 60-day roadmap after threats from both sides.
What is going on? The U.K. is set for its seventh leader in a decade after Prime Minister Keir Starmer officially announced his resignation. The change at the top comes after months of political turmoil, with Andy Burnham, Labour’s former Greater Manchester Mayor, seen as the current favorite to replace Starmer after winning a special local election last week.
Backdrop: It was only two years since Starmer led Labour to one of its largest parliamentary majorities in a landslide vote, but his party just suffered heavy election losses in May and an internal rebellion started brewing over his leadership. There was broad discontent about his promises regarding economic growth, the cost of living, and public services. He was also seen as out of touch with the masses given repeated political missteps, like his highly controversial appointment of Peter Mandelson as the U.K. Ambassador to the U.S.
The problems in the U.K. predate Starmer, but things have been economically challenging for quite some time. Brexit has impacted gross domestic product and trade access to its closest neighbors, while serious declines have been recorded in heavy manufacturing and North Sea oil & gas extraction continues to hit new lows. The U.K. government also has little room to maneuver, with no appetite to cut spending, the highest debt servicing costs in the G7, and bond investors that are opposed to any additional borrowing.
Zooming out: U.K. markets have not performed anywhere near their U.S. counterparts over the past decade, with the FTSE 100 (UKX) returning 68%, compared to the 268% of the S&P 500 (SP500). Unless the country can return to political stability and right the economic ship, British assets will likely continue to carry a risk premium. Stay tuned to whether Burnham can take the reins unchallenged, if former Health Secretary Wes Streeting will mount a rival bid, or if subsequent chaos will force a general election well ahead of 2029. Take the WSB survey.
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Today’s Markets
In Asia, Japan +1.6%. Hong Kong -0.7%. China +1.8%. India +0.4%.
In Europe, at midday, London +0.4%. Paris -0.5%. Frankfurt -0.2%.
Futures at 7:00, Dow flat. S&P -0.1%. Nasdaq +0.1%. Crude -0.6% to $75.41. Gold -0.6% to $4222.50. Bitcoin +0.7% to $64,508.
Ten-year Treasury Yield +3 bps to 4.49%
On The Calendar
Companies reporting today include Fervo Energy (FRVO).
See the full earnings calendar on Seeking Alpha, as well as today’s economic calendar.