🔍 The focus this week: Up for a vote

This is the biggest election year in history, with over half of the world’s population heading to the polls. And this week, it's Britain’s turn to cast some ballots. Polls widely suggest that the country’s opposition Labour Party will win by a big margin. The party’s been pledging to boost economic growth, keep spending tight, rein in debt, build new homes, and upgrade crumbling infrastructure.

Strategists at JPMorgan expect a Labour victory will be a “net positive” for financial markets, and would benefit the nation’s banks, homebuilders, and grocers the most. They’re betting on sharper gains for the more domestically focused FTSE 250 index of medium-sized UK companies, compared to the more internationally focused big-cap FTSE 100. And that adds up: historically, the FTSE 250 has done better than the FTSE 100 after elections, with even stronger outperformance when Labour’s made the victory speeches.

Mind you, JPMorgan said not all businesses would welcome a Labour government in 2024. The party has promised to nationalize the country’s rail network and has proposed higher taxes on energy firms. Its environmental plans could mean increased regulation for water companies, but other utilities could benefit from more spending on green energy infrastructure.

Japanese investment firm MUFG says the British pound could be the market’s biggest winner if Labour wins. And that’s both because it would end the Conservative Party’s politically tumultuous time in 10 Downing Street and because it could potentially usher in better relations between the UK and the European Union (EU), post-Brexit. Experts polled by Bloomberg tended to agree.

Just remember though: what’s widely expected by investors is usually already reflected in asset prices. Put differently, if the election results point to a very different outcome, you can expect some serious market volatility. Let’s not forget the aftermath of the 2016 Brexit referendum, when the unexpected result caught some investors seriously off guard.

📅 On the calendar

• Monday: UK M4 money supply (May).
• Tuesday: Eurozone inflation (June), eurozone unemployment (May), US job openings and labor turnover survey (May).
• Wednesday: US trade balance (May), minutes of the Federal Reserve’s latest meeting. Earnings: Constellation Brands.
• Thursday: Minutes of the European Central Bank’s latest meeting, UK general election, US markets are closed for the Fourth of July holiday.
• Friday: Japan household spending (May), eurozone retail sales (May), US jobs data (June).

👀 What you might’ve missed last week

Global

• Issuance of sustainable debt hit a record high in the first quarter.

Europe

• Denmark approved the world’s first carbon tax on agriculture.
• The EU charged Apple and Microsoft for breaching the region’s tech rules.

Asia

• The Japanese yen fell to its weakest level against the US dollar in four decades.

🤔 Why it matters

Social, green, and sustainable are all pretty big buzzwords these days. So it’s little wonder that the issuance of bonds linked to those things has been on a roll – hitting a record $272.7 billion in the first quarter. More than 70% of the new debt was in green bonds, the type used to finance environmentally friendly projects. The assets have grown in popularity among increasingly eco-minded investors, with the amount offered since 2006 crossing the $3 trillion mark early this year for the first time.

Agriculture accounts for a fifth of global greenhouse gas emissions, with a huge portion coming from raising livestock. And as a major pork and dairy exporter, Denmark knows that all too well. After all, farming is the country’s biggest source of those emissions. So in an effort to make the sector greener and inspire other nations to do the same, the Danish government approved the world’s first carbon tax on agriculture last week.

The EU’s Digital Markets Act aims to stop tech giants from dominating the market, ensuring actual competition and more choice for consumers. And last week, the EU accused Apple’s App Store of restricting developers from directing customers to cheaper alternatives. Apple could face hefty fines of up to 10% of its global annual revenue. Microsoft also fell into the EU's crosshairs, accused of anti-competitive practices for bundling its Teams app with its Office software suite.

A grim reality is setting in for Japanese authorities as the yen continues its rapid plunge. The currency hit a 38-year low against the US dollar last week, slipping past the level it reached in late April before Japan’s finance ministry intervened, selling a record $62 billion and buying yen, in a bid to boost the currency. Analysts suspect authorities might not want to repeat the move, given that it didn’t make a real difference. After all, the interventions can’t address the root cause of what’s dragging the yen lower: the yawning gap between US and Japanese interest rates.