I said it before and I say it again, watch the bond market.

Americans are 24 hours away from a day off for Independence day, and the Brits from a sweeping change in government, if the opinion polls are anywhere near correct. In the past week, Biden’s poor performance in the television debate led to an increase in the belief that it would put Trump another step closer to a return to the White House. Yields at the longer end of the curve rose as Trump’s policies, tax cuts, and higher tariffs could lead to stronger growth but also push prices up again. Likewise, French bonds sold off, in particular, relative to German ones after the strong showing from France’s far-right as speculators worry about the implications for the euro. The bond market leads where others follow. It was the bond market’s reaction to Liz Truss’s budget that was the main focus of attention, as it was spooked by the possibility of higher borrowing costs.

So far, asset prices in the UK have remained relatively stable, at what appears to be a foregone conclusion that we will see a change of guard on Friday. The pound has weakened against the dollar slightly, very slightly. UK stocks have fallen in the past month, which may have something to do with investors taking some profits off the table as they prepare for the possibility of higher capital gains taxes. Finally, the UK gilt market, which has so far likewise reacted little to the prospect of a Labour government. That’s where I will look for a reaction first thing on Friday morning. Will longer-dated bond prices fall as investors fear the Labour government will fund their spending plans with increased borrowing as they argue that this is the best way to stimulate the economy? Will they try to settle quickly with striking unions, which could risk further unrest, and bond markets may get spooked again, as this again risks higher borrowing?  They may give Ms Reeves the benefit of the doubt in the early days anyway; we will get the bond markets vote on Friday after the polls have closed.

The three themes that have dominated the start of the year’s first half are first interest rates and inflation. Politics has replaced geopolitics as much of the world goes to the polls, and finally, the dominance of technology on stock markets. That theme continues into the start of the second half as both Lagarde and Powell provided modestly hawkish comments on interest rate policy in the past few days. As earnings season kicks off, a new factor will influence investors in the coming weeks. Banks and tech will be in focus early on. FactSet reports that analysts’ consensus is for earnings to grow for the S&P 500 by over 8% in the 2nd quarter of 2024 over the 2nd quarter of 2023.