UK: Gorton & Denton: Scale of Defeat for Labour Could Increase Starmer Pressure
- Opinion polls had indicated the Gorton and Denton bielection would be a close race. However, the Greens won 40.7% of the vote share (almost 12 points ahead of Reform's 28.7% and putting Labour in third on 25.4%). Betting markets (Polymarket) had seen a good probability of a Greens win (65%+ in the days leading up to the poll) but the scale of the Green's victory over Labour will still be surprising.
- As our Political Risk team noted in their coverage earlier this week, the Green's shift from environmentalism to left-wing populism seems to have been vindicated with this result and a shift among students and Muslim voters (usually strong Labour) could translate to strengths in London and other large cities.
- The scale of Labour's defeat will also increase pressure on PM Starmer ahead of the May local, Scottish and Welsh elections where some MPs will likely be concerned that the party will see an even larger defeat than previously expected. It also makes it increasingly difficult to Labour to claim to be the only party able to defeat Reform.
- For financial markets, near-term focus will be on the Spring Statement (due to be delivered Tuesday by Chancellor Reeves). No major policy announcements are expected, with money to cover SEND likely to be the biggest policy change for the OBR to incorporate. However, if there was to be a change of leadership after the May elections, this would put more and more focus on what policy changes there could be in a Budget under a new leader which could come as early as the autumn (if Starmer was removed as leader after the May elections).
- The gilt remit for the FY26/27 is likely to be the biggest market mover from the Spring Statement, however, and the median expectation for the gilt remit we have seen from the previews we have read so far has been GBP242.5bln. This masks a wide range of expectations from GBP205bln up to GBP271bln (but all expectations are comfortably below the GBP300bln+ expected sales in FY25/26).
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USDJPY TECHS: Bear Cycle Still In Play
- RES 4: 159.45 High Jan 14 and a key resistance
- RES 3: 156.65 20-day EMA
- RES 2: 156.01 50-day EMA
- RES 1: 154.88 |High Jan 27
- PRICE: 152.70 @ 06:49 GMT Jan 28
- SUP 1: 152.10 Low Jan 27
- SUP 2: 151.98 38.2% of the Apr 22 ‘25 - Jan 14 bull cycle
- SUP 3: 151.54 Low Oct 29 ‘25
- SUP 4: 150.99 Trendline support drawn from the Apr 22 ‘25 low
USDJPY remains in the grip of a bear cycle. The sharp pullback this week concludes the recent bull cycle and marks the start of a corrective phase. The breach of both the 20- and 50-day EMAs, signals scope for a deeper retracement and sights are on 151.98 next, a Fibonacci retracement point. On the upside, Initial firm resistance to watch is 156.01, the 50-day EMA. A recovery would allow an oversold position to unwind.
EUROZONE T-BILL ISSUANCE: W/C 26 January
Italy and Greece are still due to sell bills this week, while France and Austria have already come to the market. We expect issuance to be E17.7bln in first round operations, down from E26.1bln last week.
- This morning, Italy will look to sell E7.5bln of the new 6-month Jul 31, 2026 BOT.
- Finally this morning, Greece will look to sell E400mln of the new 13-week May 4, 2026 GTB.
EURGBP TECHS: Bear Cycle Intact
- RES 4: 0.8813 76.4% retracement of the Nov 14 - Jan 6 bear leg
- RES 3: 0.8797 High Dec 17
- RES 2: 0.8781 61.8% retracement of the Nov 14 - Jan 6 bear leg
- RES 1: 0.8714/46 50-day EMA / High Dec 31 & Jan 21
- PRICE: 0.8690 @ 06:35 GMT Jan 28
- SUP 1: 0.8644 Low Jan 6 and the bear trigger
- SUP 2: 0.8633 Low Sep 15
- SUP 3: 0.8620 38.2% retracement of the Dec ‘24 - Nov ‘25 bull cycle
- SUP 4: 0.8597 Low Aug 14
Recent weakness in EURGBP signals the potential end of a corrective recovery between Jan 6 - 21. Moving average studies are in a bear-mode set-up and this continues to highlight a dominant bear cycle. Key support and the bear trigger lies at 0.8644, the Jan 6 low. A break of this level would confirm a resumption of the downtrend. Key short-term resistance is 0.8746, the Jan 21 high.
