The financial markets, including currencies, shares, cryptocurrencies, and commodities, are poised to react to US President Joe Biden's decision to withdraw from the 2024 presidential race. With Biden endorsing Vice President Kamala Harris as the Democratic Party's nominee, Wall Street and European markets are expected to experience increased volatility.
Biden Withdraws, Endorses Harris
Following the assassination attempt on Donald Trump, President Biden announced his withdrawal from the 2024 race, backing Vice President Kamala Harris as the new Democratic nominee. This political upheaval has heightened investor caution, especially amid expectations of Federal Reserve rate cuts in September. The mounting uncertainties are likely to trigger risk-off actions in the markets.
Key Earnings Reports
This week is critical for the markets, with major US and European companies like Tesla, Microsoft, and LVMH reporting their second-quarter results. While futures markets indicate a higher opening on Wall Street following Biden's exit, the potential for volatility remains high. The market's reaction to the upcoming US election is unpredictable, depending heavily on polling results in the months leading up to the November 5, 2024, election.
Currency Market Reactions
In the Asian session on Monday, the US dollar weakened against major currencies, lifting the euro to around 1.09 after a two-day decline. The dollar's weakness is linked to growing odds of a Trump victory, reminiscent of the 2016 market reaction. Investors anticipate that political uncertainties may prompt the Federal Reserve to lower interest rates. Notably, cryptocurrencies have shown bullish momentum since the assassination attempt on Trump, with Bitcoin surging over 18% to more than $68,300.
Stock Market Outlook
Stock futures suggest a higher opening on both Wall Street and European markets. However, the reaction to the weekend's events is uncertain, with potential dip-buying following the recent market retreat. Harris's nomination may instill some optimism, as she could garner more support against Trump, who has risen in opinion polls since the assassination attempt. Historically, Wall Street has thrived under Democratic administrations, though this pattern is not guaranteed.
Focus on Fed Policy
In the short term, market focus will likely shift to Federal Reserve policy rather than political events. The Fed is expected to lower interest rates for the first time since the 2020 pandemic, amid an increasingly unclear US economic outlook. Key sectors to watch include fossil fuel providers, banking, healthcare, and consumer stocks, which could benefit from potential policy changes under a Trump-led government.
Conversely, renewable energy companies and electric vehicle (EV) makers may face challenges due to Trump's anti-climate change policies. Companies like Tesla, Rivian, Lucid, and European renewable energy firms such as Iberdrola, National Grid, and TotalEnergies might experience negative impacts.
Commodity Market Volatility
Commodities, including metals and energy, were volatile on Monday due to fluctuations in the US dollar. Prices of gold, silver, copper, crude oil, and natural gas initially increased before paring gains, as investors assessed market reactions to the dollar. Despite signs of a rebound, the potential for a renewed US-China trade war could pressure commodity prices.
As President Biden withdraws from the 2024 presidential race, the financial markets brace for increased volatility. Investors are advised to closely monitor developments and focus on Federal Reserve policies amid the evolving political landscape. The coming months will be critical in determining market trends as the US election approaches.
Source: Euronews
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