Dollar Falls After Biden Leaves Race, China Bonds Rise. (Yahoo)
The US dollar weakened and US Treasury bonds gained after Joe Biden announced he would not seek reelection and endorsed Kamala Harris. In China, bonds rose following a policy rate cut by the central bank.
China’s 10-year sovereign bond yield fell nearly 2 basis points after the People’s Bank of China lowered a short-term interest rate for the first time in almost a year to support economic growth. This move also led to a record high for China’s benchmark bond futures. However, Chinese stocks fell, dragging down other markets in the region, including Japan and Australia. Taiwan Semiconductor Manufacturing Co. dropped by as much as 3.3%, while US equity futures edged slightly higher.
Michelle Lam, a Greater China economist at Societe Generale, mentioned on Bloomberg TV that the policy easing reflects significant economic pressure in China and shows the government’s commitment to supporting the economy.
A Bloomberg index measuring the strength of the US dollar declined by 0.1%, while the yield on the 10-year Treasury fell by 1 basis point. The Mexican peso strengthened, gold prices rose, and Bitcoin hit its highest level in over a month.
Investors have been anticipating a greater chance of Donald Trump winning the November election, especially after Biden’s weak debate performance. Last week’s assassination attempt on Trump further fueled these expectations. With Biden now out of the race, investors are questioning whether to maintain their current investment strategies.
Hebe Chen, an analyst at IG Markets, noted that the Asian market is under intense scrutiny due to recent unexpected events. She mentioned that the heightened risk aversion could impact Asian stocks more severely than before, as investors adapt to the new political landscape. The forex market is also expected to experience increased pressure.
The S&P 500 fell by 0.7% on Friday, marking its worst week since April. Technology stocks declined ahead of earnings reports, and CrowdStrike Holdings Inc., which was behind a major IT failure affecting flights and corporations worldwide, saw its shares drop as much as 15% before recovering some losses.
This week, Tesla Inc. and Alphabet Inc. will be the first of the "Magnificent Seven" to report earnings. Analysts are likely to question Tesla about the progress of its robotaxi plans, while investors will examine Google's revenue growth from artificial intelligence.
In China, banks reduced their main benchmark lending rate for the first time since August 2023, reinforcing efforts to boost economic growth following the central bank’s rate cut. President Xi Jinping also unveiled comprehensive plans to improve the finances of China’s heavily indebted local governments. These plans involve shifting more revenue from the central government to local governments, including a larger share of consumption tax for regional authorities.
Looking ahead, traders will focus on economic activity data in Europe, US second-quarter growth figures, and numerous corporate earnings reports. The Bank of Canada is set to announce a rate decision, and the Federal Reserve’s preferred inflation measure is also due this week.
