A Bloomberg gauge of the US currency’s strength fell 0.2% Monday after the US President bowed to pressure from the Democrats and pulled out of the November election race, while the Mexican peso climbed. US stock futures gained.
Stocks opened lower in Japan and South Korea, adding to weakness in Australia. Futures for Hong Kong equities pointed to a steady open. The People’s Bank of China said it will lower the seven-day reverse repo rate to 1.7% from 1.8%, in a move that supports the economy and marks a step toward making the rate the new policy benchmark.
Investors have mulled for weeks a greater prospect Trump will win the November election following Biden’s weak debate performance, only for bets on a Trump win to accelerate last week following an assassination attempt on the former president. The dollar rose for the first time in three weeks, while emerging market assets suffered amid fears of higher trade tariffs, increased US-China tensions and looser US fiscal policy.
The question for investors is whether to stick with such trades now that Biden has dropped his bid for reelection. Markets may be jumpy as traders wait to see if Harris secures her party’s nomination and weigh if she can then gather enough momentum to challenge Trump’s lead in the polls.
“The knee-jerk reaction would be to say that this negative for the US dollar, however it’s too soon to say,” said Olga Yangol, head of EM research and strategy at Credit Agricole. “A lot will depend on Harris’s initial appearances and choice of a running mate and how the swing state polls react.”
In commodities, oil and gold rose in early trading Monday.
The S&P 500 dropped 0.7% on Friday to cap its worst week since April, while the Nasdaq 100 slumped about 1%. The Russell 2000 Index of smaller firms fell 0.6%. Tech shares fell ahead of earnings reports this week, while CrowdStrike Holdings Inc., the firm behind a massive IT failure that grounded flights and disrupted corporations around the world, slumped as much as 15% before paring losses.
Tesla Inc. and Alphabet Inc. will be the first of the “Magnificent Seven” to report earnings on Tuesday. Analysts will likely press Elon Musk’s electric-vehicle giant on the progress of its plans for robotaxis. And investors will delve into the details of Google’s parent revenue boost from artificial intelligence.
“The S&P 500 has seen a solid flush out of extended and concentrated positioning in some incredibly well-owned areas of the market,” said Chris Weston, head of research at Pepperstone Group in Melbourne. With volatility expected in Tesla, Alphabet and IBM shares over their earnings, “I wouldn’t be stepping in to buy the S&P 500 or Nasdaq 100 just yet,” he wrote in a note.
BloombergChina’s one- and five-year loan prime rates are expected to remain unchanged later Monday as the nation’s central bank shrugs off anemic second-quarter growth.
Instead, President Xi Jinping at the weekend unveiled sweeping plans to bolster the finances of China’s indebted local governments as the ruling Communist Party announced its long-term blueprint for the world’s second-largest economy. Those are centered around shifting more revenue from the central to local coffers, such as by allowing regional governments to receive a larger share of consumption tax.
“Like most documents of this kind, it did not say how Chinese leaders intended to reach those goals, many of which would require policies that are contradictory in nature,” said Bob Savage, head of markets strategy and insights at BNY Mellon. “The contradiction of China growth vs. stability are hanging over APAC markets and flows, still leaving Chinese yuan and commodities a key focus.”
Elsewhere this week, traders will be focused on economic activity data in Europe, US second quarter growth and a slew of corporate earnings. The Bank of Canada will give a rate decision while the Federal Reserve’s preferred measure of inflation is also due.