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Markets appear calm after Biden abandons re-election bid

Markets appear calm after Biden abandons re-election bid

Markets appear calm after Biden abandons re-election bid

The announcement – ​​not entirely unexpectedly – ​​that Joe Biden will not seek a second term has so far failed to significantly change the global investment mood. China eased monetary policy today.

The dollar and U.S. Treasury yields fell early this morning. NASDAQ 100 stock futures rose slightly as investors in Asia and Europe tried to make sense of U.S. President Joe Biden’s announcement yesterday that he will not seek re-election in November.

Financial markets have appeared relatively calm so far following Biden’s announcement, which follows days of mounting calls from senior Democratic Party figures for him to step down amid concerns that Biden was becoming too physically and mentally frail to serve a second term. At 81, Biden’s recent televised debate with Donald Trump (78), in which Biden stumbled over answers and appeared unable to finish sentences, sent Democratic Party officials into a frenzy. Since Trump’s assassination attempt in Pennsylvania a week ago, the former president has seen his lead over Biden in the polls widen.

“The news that President Biden has seized the opportunity to end the election campaign on a high note will be music to the ears of many Democrats, but perhaps less so for Donald Trump, who will likely see a new challenger as a greater threat than President Biden has been in recent months. This will be especially true of Kamala Harris, who represents continuity with the Biden administration but brings a different style,” said Lindsay James, investment strategist at Quilter Investors.

“Markets have increasingly priced in a Trump victory in November, with smaller companies buoyed by expectations of broad tariffs and the growing likelihood of a rate cut as early as September. JD Vance as Trump’s vice presidential pick is a divisive choice, given that he is a man known for his desire to tighten regulations on banks and ease those on cryptocurrency trading,” James continued. “Much will depend on whether Democrats can quickly coalesce around a new candidate with just four months to go, and whether that candidate can win the swing states at a time when Trump clearly has the momentum. While it will remain an uphill battle, this has reopened the race, with the age of the candidates likely to remain a point of contention, but one that would now favor the Democrats.”

The head of investments at UBS Global Wealth Management said Biden’s withdrawal and support for Harris leave her “well positioned” to clinch the nomination.

“But she still needs to convince convention delegates, who are no longer obligated to support Biden, that she is the person best positioned to defeat the Republican nominee in November. We expect her to emphasize the continuity of Biden’s platform, her service as vice president and her ability to appeal to women, younger voters and voters of color,” UBS said. “Second, we do not expect a major shift in policy priorities from any of the leading Democratic candidates on the issues that investors care about. The continuity would be clearest if Harris becomes the nominee. But we do not expect a Democratic nominee to significantly deviate from Biden’s focus on climate change, increasing scrutiny of anticompetitive practices by large corporations and maintaining pressure on China over its trade practices.”

UBS said that before Biden’s exit from the race, it had expected a 60 percent chance of Trump retaking the White House, with a 45 percent probability of a “red sweep.” It had also expected a 15 percent probability of a Trump presidency with a divided Congress, a 30 percent probability of a Democratic victory with a divided Congress and a 10 percent probability of a “blue sweep.”


China eases
Meanwhile, in China, markets were hit today by the People’s Republic of China cutting its seven-day reverse repo rate for the first time in nearly 12 months to 1.7 percent, a 10 basis point drop. China is trying to revive an economy reeling from concerns about slowing growth. Chinese banks cut prime rates on one- and five-year loans by 10 bps to 3.35 percent and 3.85 percent respectively, near record lows.


Political implications
In the US asset management sector, the prospect of a potentially heavy Biden loss to Trump – with the House and Senate also coming under Republican control – would have increased the likelihood of, for example, even higher US tariffs, while potentially reducing the prospects of further large tax hikes on ‘the rich’. In contrast, Republicans have taken a more populist turn, as evidenced by
Trump’s choice of J.D. Vance as his vice president and running mate, suggesting that a return to Republican control of Washington would be very different from the more “Reaganite” policy mix (free trade, economic liberalism, and strong support for NATO) of previous decades. It’s worth noting that protectionism has gained ground under Biden and Trump, and neither politician nor their party appears to be much focused on the country’s high national debt.

UBS said a Trump victory – especially if backed by a Republican majority in Congress – would likely raise market expectations for tax cuts and lighter corporate regulation, while raising concerns about higher trade tariffs. The biggest beneficiaries of regulatory changes could be the financial services sector, while higher tariffs on imports could hurt U.S. companies with global supply chains. A Democratic administration would likely continue to support initiatives that benefit green energy, efficiency and electric vehicle makers.

“In the near term, we should expect some market volatility as investors digest the news. We have seen some rotation into ‘red’ sectors and away from ‘blue’ sectors in recent weeks as recent momentum favors the Republican Party. That could be at least partially reversed in the coming days as markets digest the latest developments,” UBS said. “Investors should remember that political outcomes in the US are far from the biggest driver of financial market returns, or even sector performance. Economic data and expectations of Fed rate cuts remain at least as important. Moreover, much can change before the November vote and multiple outcomes are still possible.”