Someone’s sprung a leak…
Thanks to some very sloppy housekeeping (read: data leaks), we now have a very good idea about what the Labour party’s general election policies are likely to be.
Several newspapers and the BBC have “obtained” a leaked confidential draft of Labour’s election manifesto.
The policy proposals in the document of specific interest to the markets are plans to privatise both the railways and the Royal Mail.
Royal Mail was floated in October 2013, by the then coalition Government. The stock moved sharply higher on its first day of trading, closing at 455p, a 38% jump above the floatation price.
Causing some to suggest (not without justification) that Royal Mail had been sold too cheaply.
The stock briefly traded at and above 600p in 2014, but has been on a shallow downward trajectory since then.
If Labour should win the election and enact this policy, it’s likely they will have to pay a premium above Wednesday’s closing price of 419p.
I note that a 20% premium to that price would take us to around 500p, which feels about right to me, valuation wise.
Of course that’s a very big IF indeed, if the election polls are to be believed.
Nationalising the railways will not be so straightforward, because the tracks and operating companies are separate entities.
The train operating companies run the networks on a multi-year franchise basis. Labour could just allow these franchises to lapse and take control of each one as it reverts, of course.
But that piecemeal approach will take a good deal of time, and it would create a patchwork of public and private ownership which, at least in the medium-term, could make the situation worse rather than better.
So a hybrid approach with compensation payments to the disenfranchised rail operating companies seems more likely to happen to me.
Let’s watch how the likes of Stagecoach, National Express and the Go Ahead Group perform today, because they could show us what the markets see of Labour’s electoral chances.
A sharp price change in either direction (absent any other news) would suggest they believe that Labour are in with a chance.
But if their prices remain largely static, we can infer that the markets don’t consider a Labour election victory very plausible.
The markets themselves remain largely unchanged, though oil prices have managed to make gains overnight.
Speaking of unchanged, the Bank of England has decided to leave interest rates unaltered at 0.25%. A clear majority of seven committee members voted for the status quo, with only one vote cast in favour of a change.
The bank’s governor, Mark Carney, suggested that UK consumer spending might tighten in the short-term as wages fail to keep up with inflation. And that it would stay constrained until such time as the labour market tightened and wage growth outpaced prices.
This is something the bank believes can happen within the next two and half years, though. The BOE has trimmed its UK growth forecast for this year to +1.9% (from +2.0%), but raised its forecast for both 2018 and 2019 by +0.1% in each case.
We will find out more about UK inflation and its outlook next Tuesday, when a whole host of price related data is released.
And we will also get an update on the Labour market and wages on Wednesday, with the release of unemployment and earnings data drawn from March and April.
So, lots of things to think about in the pipeline.