By Wayne Cole
SYDNEY (Reuters) – U.S. bond futures fell and the dollar rose on Monday as investors bet that the attack on U.S. presidential candidate Donald Trump would make his victory more likely while introducing a whole new level of political uncertainty into markets.
A holiday in Japan led to thin trading conditions and early trade was limited to a modest rise in the dollar while Treasury futures fell.
Investors tend to react to the prospect of a Trump victory by pushing Treasury yields higher, in part because of the assumption that his economic policies would add to inflation and debt.
Proposals to impose tariffs on imports would push up prices while reducing consumers’ purchasing power. At the same time, restrictions on immigration could tighten the labor market and put upward pressure on wages.
“The market reaction to the Trump presidency has been characterised by a stronger US dollar and a steeper US Treasury curve, so we may see some of that in the coming week if his election prospects are assessed to have improved further in the wake of this incident,” said Rong Ren Goh, portfolio manager at Eastspring Investments in Singapore.
Online betting site PredictIT is projecting a Republican win by 66 cents, compared to 60 cents on Friday, and 38 cents for Democrats. Current odds suggest Republicans are twice as likely to win the election as Democrats.
The dollar rose 0.3 percent against the Japanese yen to 158.15 yen, but remained well below its recent high of 161.96 yen after a bout of suspected intervention.
The euro fell slightly to $1.0883, and was slightly stable at $104.20.
U.S. 10-year Treasury futures fell 13 basis points, while cash bonds remained untraded due to a Japanese holiday.
Wall Street and Nasdaq futures were little changed.
The market was closed, but futures were trading at 41,300 compared to a cash close of 41,190.
A busy week of data begins with China’s GDP release on Monday, with annual growth expected to slow slightly to 5.1% in the second quarter. Retail sales and industrial production for June are also due, while China’s once-in-five-yearly meeting of top officials takes place from July 15-18.
Figures from the US include retail sales, industrial production, housing starts and weekly unemployment claims.
Federal Reserve Chairman Jerome Powell will appear later Monday and is expected to be asked about his reaction to last week’s weak inflation reading.
Markets are pricing in a 94% chance of a Fed rate cut in September, up from 72% the previous week.
The European Central Bank is due to meet on Thursday and is certain to keep interest rates at 3.75%, ahead of a possible further cut in September.
Among the companies reporting earnings this week are Goldman Sachs, BlackRock (NYSE: ), Bank of America, Morgan Stanley, Netflix (NASDAQ: ), and Taiwan Semiconductor Manufacturing.
In commodity markets, gold settled at $2,408 an ounce, down slightly from last week’s high of $2,424.
Oil prices rose slightly, after falling on Friday amid signs of progress in a ceasefire between Israel and Hamas. (O/R)
Brent crude futures rose 28 cents to $85.31 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 31 cents to $82.52 a barrel.