Weekly Market Update: from Downing Street to downward oil prices

The latest economic news and market highlights from the UK and abroad.

This week's headlines: 

• Keir Starmer resigns – on Monday the Prime Minister announced he would resign. Two years after winning the General Election, Starmer has said he’ll step down, staying in post until his successor is chosen. Andy Burnham is currently the sole candidate for the job, with nominations and elections expected to conclude in July.
  
  
• Oil falls – off the back of last week’s memorandum of understanding between the US and Iran, global oil prices fell to their lowest levels since before the war began.
  
  
• SK Hynix overtakes Samsung – the semiconductor manufacturer briefly overtook Samsung in becoming the most valuable company in South Korea, as investors continued to back AI-related stocks. Samsung later reclaimed top spot after reports of potential share buybacks.
  
  
• Japan announces AI investment – Prime Minister Sanae Takaichi unveiled a plan to invest $2.3tn over 14 years for the country’s economic development, including massive spending on AI, semiconductors and defence, space and shipbuilding.
  
  
• Asian stock markets drop – South Korea’s KOSPI was temporarily paused on Friday after an 8% fall triggered circuit breakers designed to prevent panic selling – the index later closed 5.8% down. The sell-off followed announcements from Apple and Microsoft that they would raise product prices due to the high cost of computer chips.

Larry the cat, No 10’s chief mouser, has been in post since 2011 and has outlasted six prime ministers - soon to be seven. It’s a reminder of how much UK politics has changed since the days of Thatcher, Blair and Cameron when full terms were the norm.

While it currently seems certain that Andy Burnham will replace Keir Starmer, it’s less clear what a Burnham government would look like in practice, and who will be the new Chancellor of the Exchequer.

Burnham has pledged that he’ll stick to Labour’s election pledge to not raise the main rates of income tax, VAT or National Insurance. That then raises the question: what does that leave? 

His previous comments provide some clues. Burnham has argued that UK over-taxes work while under-taxing wealth and has hinted towards land taxes replacing council tax and stamp duty. 

Could nationalisation also be on the cards? He’s advocated for bringing water and energy companies under stricter control but has stressed that doesn’t necessarily mean full nationalisation. As mayor in Greater Manchester, the bus network operated a franchise system where private operators bid to run services, while local authorities controlled fares and timetables. 

Another area to watch is social care reform, suggesting in 2023 that inheritance tax could be replaced by a national care levy. He’s also historically in favour of cutting business rates for pubs and music venues, reducing the burden on smaller high street shops, while taxing online retailers more.

While it’s looking likely Burnham will become Prime Minister, these things might not necessarily come to fruition or be supported by his cabinet or the rest of the party. For financial advisers, his past positions offer a useful indication of the direction a future government could take, particularly around wealth taxation, property taxes and inheritance planning.

Jet fuel prices and airfares consumer price index (CPI)

While oil prices have come down further this week, the impact isn't felt across the economy overnight. Here you can see that jet fuel prices are yet to be fully passed on to travellers through airfares.

It often takes time for lower energy costs to feed through to consumers. Natural gas can sometimes take up to three months before the prices are passed on to homes.

Lower energy prices could also ease food prices, as ammonia-based fertiliser production is heavily reliant on natural gas, with a large proportion of supply linked to the Gulf.

Not to mention, the supply still needs to move. Although ships resumed passing through the Strait of Hormuz this week, traffic is at a lower rate than before, meaning disruptions to global energy markets are still possible.

It’s welcome news that oil prices are beginning to come down, but there could still be further impact on inflation over the next few months. The ceasefire is still fragile, on Friday morning a cargo ship was attacked causing limited damage, but paused navigation – we’re not out of the geopolitical woods yet.

UK: The FTSE 100 showed modest gains while the FTSE 250 saw a small fall.

US: The S&P 500 and Nasdaq both saw falls this week on the back of a global tech sell off. US semiconductor company Micron saw profits which dramatically beat market expectations which saw it hold things up, before seeing a decline.

Oil: Oil is now below the prices we saw at the start of the year and before the start of the US-Iran war.

Emerging Markets: This week saw a tech-sell off in Asian markets as mentioned above which dragged on the index.

Gold: Normally seen as a safe haven asset, gold has seen a marked decline this week. It’s been sensitive to news surrounding potential US interest rate hikes.

Join our market update webinar live on 14 July, our last one before resuming in September. 

Save your spot ➞

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.