A look at the day ahead in European and global markets from Wayne Cole.
The day began with the unexpected news that President Joe Biden had dropped out of the race, and the market reaction so far has been muted. Wall Street futures have become more stable, bond yields have fallen slightly and the dollar has been little changed overall.
Biden has endorsed his running mate, Kamala Harris, for the job, putting her in a position to clinch the Democratic nomination, which is set to be formally held at the Democratic convention from Aug. 19 to 22. The party is also likely to consider a virtual nomination before the convention.
Online betting site PredictIT showed Donald Trump’s price of victory down 5 cents to 59 cents, while Harris rose 13 cents to 40 cents. California Gov. Gavin Newsom, another potential Democratic contender, dropped 3 cents.
Goldman Sachs said in a note that it does not expect the Democrats’ fiscal and trade policy agenda to change significantly if Harris is nominated.
Another major event was a surprise rate cut by the People’s Bank of China, which cut its seven-day repo rate by 10 basis points. That saw longer-term borrowing costs fall by a similar amount, while bond yields fell across the curve despite recent efforts by the People’s Bank of China to push them higher.
The yuan also fell, albeit modestly. Analysts had thought the People’s Bank of China was reluctant to ease monetary policy because that could put downward pressure on the currency.
As is often the case with policy changes in Beijing, investors seemed unimpressed by the move in part because it simply underscored how weak the recovery has become. China’s blue-chip stocks fell about 0.6%, after a rare rebound last week.
Most Asian countries also posted losses, with Taiwan taking a big hit amid concerns about U.S. restrictions on chip sales and the risk that the Trump administration will impose tariffs on a range of imports, potentially sparking a global trade war.
Technology stocks saw a notable shift toward smaller-cap companies and banks last week, wiping about $900 billion from the S&P 500’s tech sector. The pullback was no surprise given that Alphabet, Tesla, Amazon, Microsoft, Meta Platforms, Apple and Nvidia have accounted for about 60% of the S&P 500’s gains this year.
That set the stage for a slew of second-quarter earnings this week, with Tesla and Google parent Alphabet leading the “Magnificent Seven” group.
Expectations are high with annual earnings up 17% for the technology sector and 22% for the telecom sector.
Key developments that could impact markets on Monday:
– Speech by Victoria Saporta, Chief Executive of the Bank of England
– The Federal Reserve Bank of Chicago releases its National Activity Index for June
– Company earnings include Verizon, Nucor, and Brown & Brown.
(Edited by Jacqueline Wong)
