Dollar Edges Lower Following Biden’s Election Exit: Markets Wrap

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(Bloomberg) — The dollar fell in early Asian trade after Joe Biden ended his re-election campaign and endorsed Vice President Kamala Harris, with stocks in the region looking set for a mixed start.

The Bloomberg Dollar Index fell 0.2% on Monday after the U.S. president bowed to Democratic pressure and dropped out of the November election race, while the Mexican peso rose. U.S. stock futures rose after the S&P 500 fell on Friday.

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Longer-dated US bond futures rose more than their shorter-dated counterparts, suggesting a modest reversal of the so-called “curve-flattening” trade linked to Donald Trump’s victory. In Asia, stock futures pointed to a mixed open after contracts in Australia and Japan fell in line with US stocks, while Hong Kong stock futures were flat. Australian bonds also fell.

Investors have been pricing in a Trump win in November’s election for weeks after Biden’s poor debate performance, but bets on a Trump victory accelerated last week after the assassination attempt on the former president. The dollar rose for the first time in three weeks, while emerging market assets suffered amid concerns about higher trade tariffs, rising U.S.-China tensions and looser U.S. fiscal policy.

The question for investors is whether they should continue such trades now that Biden has abandoned his re-election bid. Markets could be nervous as traders wait to see if Harris secures her party’s nomination and weigh whether she can gain enough momentum to challenge Trump’s lead in the polls.

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“The emotional reaction would be to say this is negative for the US dollar, but it is too early to say,” said Olga Yangul, head of emerging markets research and strategy at Credit Agricole. “A lot will depend on Harris’s debut, her choice of running mate and how the polls in swing states react.”

On the commodities front, oil and gold prices rose in early trading on Monday.

The S&P 500 fell 0.7% on Friday to cap its worst week since April, while the Nasdaq 100 fell about 1%. The Russell 2000 index of small companies fell 0.6%. Technology stocks fell ahead of earnings reports this week, while CrowdStrike Holdings, the company behind the massive IT failure that grounded flights and crippled businesses around the world, fell about 15% before paring losses.

Tesla Inc. and Alphabet Inc. will be the first of the seven major companies to report earnings on Tuesday. Analysts are likely to press Elon Musk’s electric-car giant on the progress of its robotaxi plans. Investors will also dig into details of parent Google’s revenue boost from artificial intelligence.

“The S&P 500 has seen a strong influx of extended and concentrated positions in some incredibly owned areas of the market,” said Chris Weston, head of research at Pepperstone Group in Melbourne. With Tesla, Alphabet and IBM expected to see volatility on earnings, Weston wrote in a note: “I wouldn’t be buying the S&P 500 or Nasdaq 100 just yet.”

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China’s key one- and five-year lending rates are expected to remain unchanged later Monday as the central bank shrugs off weak growth in the second quarter.

Instead, President Xi Jinping over the weekend unveiled sweeping plans to shore up the finances of China’s debt-ridden local governments, while the ruling Communist Party announced its long-term blueprint for the world’s second-largest economy. These plans center on shifting more revenue from central to local coffers, such as allowing regional governments to take a bigger share of the consumption tax.

“Like most documents of this nature, the report does not say how Chinese leaders intend to achieve these goals, many of which require inherently contradictory policies,” said Bob Savage, head of market strategy and insights at Bank of New York Mellon. “The contradiction between growth and stability in China is looming over Asia-Pacific markets and flows, and the yuan and commodities remain a key focus.”

Elsewhere this week, traders will focus on economic activity data from Europe, second-quarter growth in the United States and a slew of corporate earnings. The Bank of Canada is due to issue its interest rate decision, while the Federal Reserve’s preferred inflation gauge is also due.

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Main events this week:

• China’s key lending rates, Monday
• Hong Kong Consumer Price Index, Monday
• Taiwan unemployment rate, export orders on Monday
• Retail Sales in Mexico, Monday
• Israeli Prime Minister Benjamin Netanyahu to begin visit to Washington on Monday
• EU foreign ministers to meet in Brussels on Monday
• Singapore Consumer Price Index, Tuesday
• Taiwan Industrial Production, Tuesday
• India’s Budget for the Financial Year to March 2025, Tuesday
• Turkey Interest Rate Decision Tuesday
• Eurozone Consumer Confidence, Tuesday
• Alphabet, Tesla, LVMH Earnings Tuesday
• Malaysia Consumer Price Index, Wednesday
• South Africa Consumer Price Index, Wednesday
• Eurozone HCOB PMI, Wednesday
• S&P Global UK PMI, Wednesday
• Canada Interest Rate Decision, Wednesday
• IBM, Deutsche Bank Earnings, Wednesday
• European Central Bank Vice President Luis de Guindos speaks on Wednesday
• Hong Kong Trade Thursday
• South Korea’s GDP, Thursday
• US GDP, Initial Jobless Claims, Durable Goods, Commodity Trade, Thursday
• G20 finance ministers and central bank governors meet in Rio de Janeiro on Thursday and Friday
• Bitcoin Conference 2024 in Nashville, Thursday through July 27
• Tokyo CPI, Friday
• U.S. Personal Income, Personal Expenditure Price Index, University of Michigan Consumer Confidence Index, Friday
• Mexico trade friday

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Some key movements in the markets:

Stores

• S&P 500 futures were up 0.3% as of 8:22 a.m. in Tokyo.
• Hang Seng futures were little changed.
• S&P/ASX 200 futures fell 0.8%
• Nikkei 225 futures fell 1.1%.

Currencies

• The Bloomberg Dollar Index fell 0.2%.
• The euro rose 0.2% to $1.0900.
• The Japanese yen rose 0.1% to 157.26 yen per dollar.
• The offshore yuan was little changed at 7.2799 against the dollar.
• The Australian dollar rose 0.2% to $0.6698.

Cryptocurrencies

• Bitcoin rose 0.4% to $68,042.9
• Ether is little changed at $3,500.

Bonds

• The yield on the 10-year Australian bond rose four basis points to 4.32%.

Goods

• West Texas Intermediate crude rose 0.5% to $80.55 a barrel.
• Spot gold rose 0.4 percent to $2,410.64 an ounce.

This story was produced with the help of Bloomberg Automation.

—With assistance from Joanna Osinger and Richard Henderson.

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