The dollar advanced and Treasuries fell as investors ratcheted up wagers that Donald Trump would win the US presidential election after an assassination attempt. The greenback strengthened against all other Group-of-10 currencies, the Mexican peso slipped, and Bitcoin touched its highest in nearly two weeks. The yield on 10-year Treasuries climbed six basis points to 4.24%, as the gap with two-year debt widened to the most since January.
Dollar Gains and Treasuries Slump Amid Trump Re-Election Bets
The moves reflect bets on the prospect of the Republican’s return to the White House, ushering in looser fiscal policy and higher tariffs, which are generally viewed as likely to benefit the dollar and weaken Treasuries. In equities, Europe’s Stoxx 600 index dropped as weak Chinese economic growth figures pulled miners lower. Luxury stocks were the biggest drag, with Burberry Group Plc slumping 8% after the company suspended its dividend. Swatch Group AG sank after a disappointing update. US futures contracts pointed to a higher open on Wall Street later.
Market Reactions to Trump’s Increased Election Odds
“If Trump emerges as an even more obvious winner, then we should see the bear-steepener we saw after the debate,” said Michael Purves at Tallbacken Capital. “In terms of equities, I don’t think this changes the trajectory at the overall level, though some stocks which will benefit from lower corporate taxes and lower regulation.” In Asia, equities slipped, with Chinese stocks in Hong Kong extending losses after data showed weakening momentum in the world’s second-largest economy.
Global Market Ripple Effects
In moves reflecting the ripple effects of US political developments around the world, shares of South Korean defense and nuclear energy firms climbed, while a Chinese company whose local-language name sounds like “Trump Wins Big” soared. Bitcoin topped $62,000 on Monday, in response to the former president’s pro-crypto stance. To be sure, there’s still plenty of room for surprises with almost four months to go in the US election campaign.
Federal Reserve’s Role and Market Expectations
Monday’s action also follows what many considered a watershed week in the Federal Reserve’s fight against inflation, with economic reports bolstering bets on two rate cuts in 2024. Both Chair Jerome Powell and San Francisco Fed President Mary Daly are due to speak later on Monday. The decline in Chinese stocks in Hong Kong Monday partly reflects “an element of front running the increased odds of 60% tariffs placed on Chinese exports” following a potential Trump win, Chris Weston, head of research at Pepperstone, wrote in a note.
China's Economic Influence on Global Markets
Traders are also focused on the Third Plenum, a meeting of China’s top leadership that starts Monday, for policy support after the economy grew at the worst pace in five quarters. Metals, including iron ore and copper, rose on the soft economic data, buttressed by expectations the country will announce stimulus measures. “I guess the weak release is a good setup for the Third Plenum to look into more constructive policies to support the economy,” said Vey-Sern Ling, managing director at Union Bancaire Privee.
Conclusion
The increased odds of Donald Trump winning the US presidential election have had significant effects on global markets. The dollar's strength and the slump in Treasuries reflect investor bets on a potential shift in US fiscal policy. As the election campaign unfolds, market participants will continue to monitor political developments closely. Additionally, the Federal Reserve’s actions and China's economic performance remain critical factors influencing market sentiment and movements.
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