As voters in three of the G7 economies go to the polls this year, investors appear more optimistic about the outlook for the US economy than that of France or the UK, judging by the performance of equity markets in the three countries since Rishi Sunak called the UK election. The relative strength of the US economy and the country’s status as the issuer of the world’s major reserve currency help explain this outperformance. Investors have taken fright at the unfunded spending plans of the left and right in France, who both won more votes than Emmanuel Macron’s centrist party in Sunday’s first round of France’s legislative elections, with concerns of a Liz Truss type run on the country’s bonds still fresh in investors’ minds should either of these groups gain power. Indeed, since 30 May, French equities have underperformed their US peers by more than 11 percentage points. By contrast, the US looks set to continue to run a large budget deficit, whoever sits in the White House next year. Meanwhile, the UK is plotting a somewhat more stable, but less exciting, course. This may be what the country needs after the political turmoil of recent years, according to Labour’s Kier Starmer, who said the party slogan could easily be “Make Britain Serious Again”.
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