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-- 119.210 After Biden announced his withdrawal, the US dollar and Asian stocks fell.
The dollar and Asian stock markets fell as Biden announced earlier that he would withdraw from the 2024 US presidential election and support He Jinli to take over the campaign.
Bloomberg Dollar Spot Index $USD (USDindex.FX)$Fell 0.2% on Monday, while the Mexican peso climbed.
Facing continued pressure from within the Democratic Party, Biden had to give up running for re-election and withdrew from the November election. The stock markets of Japan and South Korea opened lower, and the Australian stock market also weakened. Hong Kong stock index futures held steady.
The question facing investors is whether it is necessary to stick to the Trump trade now that Biden has given up running for re-election.
The market may experience significant fluctuations, and traders are watching to see if He Jinli can win the party's nomination, while weighing whether she can build enough momentum to challenge Trump's current leading position in the polls.
"The instinctive reaction is that this is negative for the dollar, but it's still too early to draw conclusions," said Olga Yango, head of emerging market research and strategy at AgriBank of France.
"This largely depends on He Jinli's initial appearance, the choice of a running mate, and the reaction of swing state polls."
In terms of commodities, crude oil and gold prices rose in early trading.
Biden's withdrawal will cause more market volatility.
Is the 'Trump trade' still valid?
Investors will now be busy determining whether Biden's decision to end his reelection campaign and support Vice President He Jinli will increase or decrease the chances of Trump returning to power.
The earliest opportunity for traders to respond will be in Monday's Asian session, when forex market trading is expected to rebound. In Sydney, the U.S. dollar weakened against the Swiss franc and Australian dollar.
Zachary Griffith, Director of Investment Grade and Macro Strategy at CreditSights, said, 'The initial impact of the statement should be increased uncertainty, which usually leads to a decrease in market risk appetite: stock market sell-offs and a shift to high-quality assets.'
A disastrous debate raised concerns about whether the 81-year-old Biden is capable of serving another term as president, and financial markets have lowered the possibility of Biden's reelection in the following weeks.
They are generally optimistic about trades that will benefit from Trump's advocated loose fiscal policy, increased trade tariffs, and weakened regulations.
The specific performance is as follows: the US dollar is supported, the US bond yield rises, bank stocks, medical stocks, energy stocks, and bitcoin rise.
The question that investors face is whether they should continue with these trades since Biden has dropped out of the race for re-election.
As investors wait to see if He Jinli can secure the party's nomination and weigh whether she can gather enough momentum to challenge Trump's leading position in the polls, market trends may fluctuate.
Is the 'Trump trade' still valid?
Investors will now be busy determining whether Biden's decision to end his reelection campaign and support Vice President He Jinli will increase or decrease the chances of Trump returning to power.
The earliest opportunity for traders to respond will be in Monday's Asian session, when forex market trading is expected to rebound. In Sydney, the U.S. dollar weakened against the Swiss franc and Australian dollar.
Zachary Griffith, Director of Investment Grade and Macro Strategy at CreditSights, said, 'The initial impact of the statement should be increased uncertainty, which usually leads to a decrease in market risk appetite: stock market sell-offs and a shift to high-quality assets.'
A disastrous debate raised concerns about whether the 81-year-old Biden is capable of serving another term as president, and financial markets have lowered the possibility of Biden's reelection in the following weeks.
They are generally optimistic about trades that will benefit from Trump's advocated loose fiscal policy, increased trade tariffs, and weakened regulations.
The specific performance is as follows: the US dollar is supported, the US bond yield rises, bank stocks, medical stocks, energy stocks, and bitcoin rise.
The question that investors face is whether they should continue with these trades since Biden has dropped out of the race for re-election.
As investors wait to see if He Jinli can secure the party's nomination and weigh whether she can gather enough momentum to challenge Trump's leading position in the polls, market trends may fluctuate.
"Investors should expect volatility to soar," said Dave Maza, CEO of Roundhill Financial, before the Sunday announcement.
"If Vice President He Jinli can quickly mobilize and give Trump a substantial impact, then we should expect the volatility to continue," he said.
"However, if Trump continues to lead in the polls and investors believe his victory is inevitable, then the 'Trump trade' will prevail and volatility will decrease."
There is almost no historical data to interpret how the market will react. The most recent example of a sitting president not seeking re-election was Lyndon Johnson in 1968.
In a report on July 17, Fergus Hanson, Executive Director of GlobalData.TS Lombard, wrote that replacing Democratic candidates means "as the market recalibrates the odds, the Trump trade will be shaken".
However, she said that if He Jinli becomes the final candidate, these bets are unlikely to change much.
Bonds and currency
If Trump is more likely to return to the White House, it is widely expected that the dollar will be boosted.
Trump's preference for low taxes and high tariffs is believed to stimulate inflation and interest rates, thereby increasing the attractiveness of the dollar. Due to the safe-haven status of the dollar, it also has a higher demand in times of uncertainty.
Faced with the appreciation of the dollar, the Mexican peso and the yuan may become losers.
However, last week Bloomberg Businessweek published an interview with Trump in June, in which Trump said that the strong dollar hurt U.S. competitiveness. His campaign partner James Vance has also raised this point in the past. After the interview was released, the exchange rates of the dollar against the yuan and the yen fell last week.
In a report on July 17, Fergus Hanson, Executive Director of GlobalData.TS Lombard, wrote that replacing Democratic candidates means "as the market recalibrates the odds, the Trump trade will be shaken".
However, she said that if He Jinli becomes the final candidate, these bets are unlikely to change much.
Bonds and currency
If Trump is more likely to return to the White House, it is widely expected that the dollar will be boosted.
Trump's preference for low taxes and high tariffs is believed to stimulate inflation and interest rates, thereby increasing the attractiveness of the dollar. Due to the safe-haven status of the dollar, it also has a higher demand in times of uncertainty.
Faced with the appreciation of the dollar, the Mexican peso and the yuan may become losers.
However, last week Bloomberg Businessweek published an interview with Trump in June, in which Trump said that the strong dollar hurt U.S. competitiveness. His campaign partner James Vance has also raised this point in the past. After the interview was released, the exchange rates of the dollar against the yuan and the yen fell last week.
"We don't think this is the right trade," Barclays strategists said in a report on Sunday.
"We believe that Trump's second term will mean further strengthening of the dollar, and the recent decline has provided a good level to hold our recommended long positions (such as the dollar against the yuan)."
It is too early to predict the evolution into fashion.
The conclusion that Trump will cause inflation has permeated the world's largest bond market, with traders starting to buy short-term bonds and sell long-term bonds, known as steepener trades.
"With the increasing likelihood of Heather Kinley's victory, the Democrats' chances of winning the House of Representatives have also increased," said Steven England, a strategist at Standard Chartered Bank in New York.
"If the situation evolves in this way, concerns about further fiscal stimulus may weaken, thus easing pressure on interest rates and the dollar. However, it is still too early, and the election may turn out to be completely different from what was expected even two weeks ago.
Political turmoil intensifies.
Analysts comment on the outlook:
Market observers say that with less than four months to go before the November election, political factors could exacerbate volatility on Wall Street, at least in the short term.
Post Biden's disastrous debate performance, the once popular "Trump trade recommendation" (long energy companies, banks, and bitcoin, short electric cars and renewable energy) may suffer with the withdrawal of this U.S. president.
Here are the investor comments:
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Phoenix Financial Services Chief Market Analyst: Wayne Kaufman
Market observers say that with less than four months to go before the November election, political factors could exacerbate volatility on Wall Street, at least in the short term.
Post Biden's disastrous debate performance, the once popular "Trump trade recommendation" (long energy companies, banks, and bitcoin, short electric cars and renewable energy) may suffer with the withdrawal of this U.S. president.
Here are the investor comments:
I hope we encounter fewer historic events. Just last week, my team was discussing the impact of an unsuccessful assassination attempt on the market.
Among all this uncertainty, it remains to be seen whether the crowd that buys on dips will return.
Valuation has always been a concern. The optimism of artificial intelligence largely supports the market, and we are about to enter August and September, historically two soft months for the market. But overall, this is a historic market.
There are now more uncertainties. We do not have many precedents for candidates who have not gone through the normal primary process.
Although we may feel accustomed to everything beyond the norm, this is still a considerable amount of uncertainty that needs to be digested.
Bitcoin, energy, and other Trump trades will start unwinding, and trades impacted by solar energy or electric vehicle stocks will rebound.
But there is still a lot of uncertainty now, and the market does not like that. From now until Labor Day and September, we will see a significant increase in volatility.
Trump trades are likely to take a breather until the Democratic nominee becomes clearer. In a broader sense, this event injects more political uncertainty into the market, which may cause some volatility in the near term.
Ultimately, uncertainty is increasing. What does this mean for futures opening? It's not clear yet.
Bitcoin is a bit volatile. But we just went through a chaotic week, and I don't think it has much to do with Trump.
I believe this is more due to the economic slowdown, and the possibility of the Fed cutting rates by 50 basis points in September. Ultimately, there are many situations with more uncertainty.
Its direct impact has added uncertainty to the dominant Republican sweep of the market. In addition, everything is still unknown until the Democratic candidates become clearer.
Before this, the market had already begun to digest the scenario of President Biden withdrawing from the election. It's difficult to distinguish the 'Trump trade' (if it exists at all) from the market's rotation to small-cap stocks due to potential rate cuts.
The Fed is likely to cut rates in September. The only prominent aspect in the current 'Trump trade' seems to be the rise of Bitcoin and other cryptocurrencies, as Trump is seen as more favorable to this asset class.
Bearish sentiment looms over Malaysian stocks
As for Malaysian stocks, they are also subject to some volatility. $FTSE Bursa Malaysia KLCI Index (.KLSE.MY)$The morning market opened at 1637 points and fell all the way to 1619 points by 11 o'clock, down 1.06%.
How long do you think the market needs to digest, and will the Malaysian stock market fall below 1600 points because of this?
Source of information: Nanyang Business Daily
Disclaimer: This content is for reference and educational purposes only and does not constitute any specific investment, investment strategy, or endorsement. Readers should assume any risk and responsibility caused by relying on this content. Before making any investment decisions, please conduct your own independent research and evaluation, and consult professionals if necessary. The author and related participants are not responsible for any loss or damage caused by the use or reliance on the information contained in this article.
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