Was PM Starmer’s resignation perfectly priced?

At Tricio we look at charts in order to gauge investor sentiment and behaviour. The resignation of PM Keir Starmer was well flagged ahead of time and the market is happy to wait for more information. He will remain as PM until a new Labour leader is chosen, with nominations open on 9^th July. This should see a new PM by September when Parliament returns from their summer break. Of course, if nobody stands against Andy Burnham, the UK may have a new PM by mid-July!

GBP Chart View

From a chart view though (weekly charts of Cable and EUR/GBP below with 13 and 50-week moving averages) the early impression is that GBP found a few buyers. This may or may not last of course!

Our long-term view for GBP has focused on the USD trend for over 5-years now. We were bullish on the broader USD trend, especially vs. GBP, until late 2022. The Liz Truss-inspired all-time lows in Cable then saw us change our mind as the USD strength seemed overdone.

We currently lean to a test of the top of the post-EU referendum range near $1.42/$1.44. This is on a slightly bullish GBP view, and a slightly bearish USD view. There is a lot to be said that GBP should be near $1.50 or higher, but the market does not back this. Watch rising line support at hand just now, if this holds then a pullback to $1.38/$1.40 over the summer seems likely. A break? Back to $1.30/$1.28 probes… 

EUR/GBP shows the GBP gains today pretty well. The risk is that this extends to £0.8550/£0.8500 again. We don’t favour a break below this zone, but if seen GBP bulls will be aiming for £0.8250/£0.8200 it seems. Watch for a potential test of support, and then back to range trading.

The bottom line is that sometimes what may seem like a big change (like a PM resigning) is greeted by the markets with a proverbial shrug of the shoulders. A bit of this could be that the event was priced in already of course. And with so much uncertainty around what Andy Burnham (if it turns out that he will be the next PM) will do, why panic now. Of course, if he is bound by the notion of listening to the OBR and fiscal rules etc., there is a scenario that he may not do much to rattle markets, and will be around for a few years in any event given his popularity. Win-win as markets can put up with inaction as long as no harm is done and love stability. 

Gerry Celaya, Chief Strategist