A look at the day ahead in European and global markets by Wayne Cole.
The day started with the, not unexpected, news that President Joe Biden was dropping out of the race and the market reaction has been measured so far. Wall Street futures are a lot firmer, bond yields are down a tick and the dollar is little changed overall.
Biden endorsed his Vice President Kamala Harris for the job, putting her in pole position for the nomination officially scheduled for the Democratic convention on August 19-22. It is also possible that the party is considering a virtual nomination ahead of the convention.
Online betting site PredictIT showed the price for a Donald Trump victory fell 5 cents to 59 cents, while Harris rose 13 cents to 40 cents. California Governor Gavin Newsom, another possible Democratic challenger, was at 3 cents.
Goldman Sachs said in a note that it did not expect the Democrats’ fiscal and trade policy agenda to change meaningfully if Harris were to become the nominee.
The other major event was a surprise rate cut by the Chinese central bank, which cut the seven-day repo rate by 10 basis points. This caused longer-term borrowing costs to fall by a similar amount, while bond yields fell across the curve, despite recent efforts by the PBOC to push them higher.
The yuan also fell, although the move was modest. Analysts thought the PBOC was reluctant to ease as it could put downward pressure on the currency.
As is often the case with Beijing’s policy shifts, investors seemed unimpressed by the move, partly because it only underlines how anemic the recovery has been. Chinese blue chips fell about 0.6% after making a rare rebound last week.
Much of Asia was also in the red, with Taiwan taking a beating amid concerns about US restrictions on chip sales and the risk that a Trump administration would impose tariffs on a host of imports, which could lead to a global trade war.
Technology stocks saw a notable rotation into smaller caps and banks last week, wiping out about $900 billion from the S&P 500’s technology sector. A pullback wasn’t a surprise, as Alphabet, Tesla, Amazon.com, Microsoft, Meta Platforms, Apple and Nvidia accounted for about 60% of the S&P 500’s gains this year.
That set the stage for a raft of second-quarter earnings results this week, with Tesla and Google parent Alphabet taking center stage for the mega-cap group ‘Magnificent Seven’.
Expectations are high: annual revenues for technology increase by 17% and for communications by 22%.
Key developments that could impact the markets on Monday:
– Speech by Bank of England Executive Director Victoria Saporta
– Federal Reserve Bank of Chicago releases the National Activity Index for June
– Corporate profits include Verizon, Nucor and Brown & Brown
(Editing by Jacqueline Wong)