Political updates in the U.S. and China’s surprise easing move dominated the headlines at the start of this week.
How did asset classes react to the news?
Here are the market headlines you need to know:
Headlines:
- U.S. President Biden dropped out of the presidential race, and VP Harris endorsed as the Democratic Party nominee
- New Zealand’s trade surplus in June grew from 54M NZD to 699M NZD vs. 294M NZD estimate, as exports dipped by 0.1% while imports tumbled by 13%
- PBOC lowered its key short-term interest rates, as it cut its 1-year prime loan rate from 3.45% to 3.35% and its 5-year prime loan rate from 3.95% to 3.85% instead of holding steady
- ECB official Kazimir hinted that market expectations of two rate cuts by year-end are “not entirely misplaced”
- Bundesbank Monthly Report for July: German economic output probably grew somewhat more slowly in Q2 2024, and is likely to strengthen “somewhat” in Q3 2024
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Monday was off to a generally risk-friendly start, as crypto and commodities started on a positive note. Market watchers buzzed about the impact of Biden dropping his reelection bid and potential Democratic Party nominee Harris’ economic agenda, sparking gains for U.S. equity indices on a likely favorable stance for big tech.
Crude oil’s gains did not last very long, though, as the energy commodity gave up ground on a softer growth outlook for China after its central bank announced surprise interest rate cuts. Gold also took hits midday but eventually rebounded to end up just marginally in the red.
Bitcoin cruised lower upon hitting a ceiling around the $68,000 region but soon found support at $67,000 and rebounded to its intraday highs.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
In the forex market, the dollar had a mostly solid start, save for a sharp dip in USD/JPY from the 157.85 level during Asian market hours. There appeared to be no major catalysts behind the move, apart from the usual set of intervention-related jitters the moment the yen pair pulls up to a key technical area.
Meanwhile, AUD and NZD tumbled during the PBOC easing announcement, as the move was largely seen as a sign that the Chinese economy was facing weaker growth prospects. Both commodity currencies cruised lower across the board for the most part of the day, before consolidating during the U.S. session.
European currencies were stuck in consolidation throughout while USD/CAD and USD/CHF ended slightly in the green, despite the lack of economic reports.
Upcoming Potential Catalysts on the Economic Calendar:
- Eurozone consumer confidence index at 2:00 am GMT
- U.S. existing home sales at 2:00 am GMT
- U.S. Richmond manufacturing index at 2:00 am GMT
- Australia flash manufacturing and services PMIs at 11:00 pm GMT
It’s another relatively quiet day on the data front, leaving market participants to take directional clues from political headlines and overall market sentiment.
Do note that earnings reports are lined up from top tech companies, namely Alphabet and Tesla, so stay on your toes for strong reactions from U.S. equity indices that could carry over to the rest of the financial markets.