Asian markets fell yesterday as US President Joe Biden’s decision to drop out of the US presidential race fueled fresh uncertainty, while traders appeared unmoved by China’s decision to cut interest rates in a bid to boost its stuttering economy.
Biden on Sunday gave in to weeks of calls for him to step aside in the wake of a poor debate performance that amplified questions about his health, and endorsed US Vice President Kamala Harris to succeed him.
The news has left traders wondering who would go head to head with former US president and Republican Party presidential candidate Donald Trump, whose expected victory had lifted equities and the US dollar on expectations of tax cuts and deregulation.
Photo: Kazuhiro Nogi, AFP
Analysts said markets would likely be volatile in the near term.
“While market instinct will be to say that the news adds a degree of uncertainty to the outcome of the November 5 election that wasn’t present last week, it will be many weeks... before anyone can reasonably determine if the race for the White House is significantly narrower than looked to be case previously,” National Australia Bank head of foreign exchange strategy Ray Attrill said.
“In short, there’ll be more noise than signal on US politics for markets to contend with in the coming few weeks at least,” Attrill said.
Stocks in Asia fell yesterday, with equities in Taiwan plunging more than 600 points after many foreign institutional investors scrambled to dump stocks and moved their money out of Taiwan following an increase in the odds of Trump winning the election, a move that could lead to further geopolitical tensions, analysts said.
The TAIEX closed down 612.27 points, or 2.68 percent, at 22,256.99. Shares in Tokyo, Shanghai, Sydney, Seoul, Singapore, Mumbai, Wellington and Manila fell, although Hong Kong stocks rallied thanks to healthy gains in Chinese tech firms.
London, Frankfurt and Paris rose at the open.
The developments out of Washington have overshadowed optimism that the US Federal Reserve would cut interest rates as soon as September and possibly again before January next year.
“This means more uncertainty,” Deepwater Asset Management LLC cofounder and managing partner Gene Munster said. “There was a lot of confidence about Trump winning, and markets won’t like this new uncertainty, along with the news cycle about who is in, who is out and all those unknowns.”
Those questions helped fuel a bid for the Swiss franc — a traditional haven asset — as trading began yesterday. US Treasuries, the yen and gold, also common refuges from volatility, saw modest demand, while bitcoin edged up to its highest level in more than a month.
As investors digest the latest news, the Trump trade — favoring sectors and strategies seen as benefiting from the Republican’s advocacy of looser fiscal policy, higher trade tariffs and weaker regulations — is being recalibrated.
Many of the trades are predicated on the notion that a second Trump presidency would be fiscally expansionist, reigniting inflation. That has fueled appetite for the US dollar in recent weeks. The US dollar edged lower yesterday, with a Bloomberg gauge of the currency falling 0.1 percent.
Markets are now debating what a so-called Harris trade would look like.
A win for her would likely mean “policy status quo” in many sectors, Bloomberg Intelligence analysts Nathan Dean and Andrew Silverman said, adding that it could also mean an increased focus on tax relief for lower to middle-income consumers and additional consumer-related regulatory actions.
Traders are likely to remain jumpy, near term at least, as they wait to see if Harris secures her party’s nomination and gathers enough momentum to challenge Trump’s lead in the polls.
Additional reporting by CNA
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