Biden’s decision to leave US election race: Implications for the markets

One week after the assassination attempt of Donald Trump, US President Joe Biden has decided to withdraw from the 2024 presidential race and endorse Vice President Kamala Harris as the Democratic Party’s nominee. Investors have become more cautious about the market response to recent political events, coupled with widely expected rate cuts by the Federal Reserve in September. Uncertainties are mounting and may cause further risk-off actions in markets.  

The week will also be packed with critical US and European company earnings, with Tesla, Microsoft, and LVMH reporting their second-quarter results. While futures markets point to a higher open on Wall Street amid Biden’s exit, volatility may lie ahead. The potential market impact of the US election is highly unpredictable, depending on how the polling results unfold in the coming months. The 2024 US presidential election will take place on 5 November.

Euro ticks up

The US dollar weakened against most other major currencies in the Asian session on Monday, which lifted the euro, with the exchange rate of the pair rebounding to close to 1.09 after a two-day decline.

The weakness of the US dollar is associated with growing odds that Donald Trump may win the election. This mirrors the market’s reaction to the last time Trump ran for the presidential election in 2016, as investors anticipated that the Fed would lower the interest rate amid political uncertainties. However, the US dollar strengthened significantly after the election as the market usually responded in advance of the actual event.

Notably, cryptocurrencies experienced strong bullish momentum since the assassination attempt of former President Trump last week. The incident has strengthened the odds of victory for the crypto-friendly candidate, who accepted private fundraising in cryptocurrencies. Bitcoin surged more than 18% to more than $68,300 since the assassination attempt, after it jumped approximately 5% following Biden’s announcement to quit the presidential race on Sunday.

Stock markets may set to open higher

Stock futures point to a higher open on Wall Street, as well as in the European markets. There are no clear indications of how equities might react to the weekend’s events, as the market rebound may have been driven by dip-buying following the recent sharp market retreat. However, Harris’s nomination may offer some hope that she could gather more support against Trump, who has seen a rise in opinion polls since the assassination attempt. Historically, Wall Street has experienced more bullish trends under a Democratic government than under a Republican administration, though history does not necessarily repeat itself.

In the short term, markets should focus on the Fed’s policy rather than political events as the presidential outcome becomes more uncertain. The Fed is on the cusp of lowering interest rates for the first time since the pandemic in 2020. The US economic outlook is becoming more unclear based on recent data and the political climate.

Regarding sectors, fossil fuel providers such as Baker Hughes, Exxon Mobil, and Occidental Petroleum could benefit. European counterparts, including BP and Shell, are also likely to follow this global trend. Banking stocks may also be buoyed by the potential loosening of regulations under a Trump-led government, particularly those more exposed to investment banking, such as Goldman Sachs and Morgan Stanley. Additionally, the healthcare sector could see a positive outlook amid potential policy support for private medical insurance. Consumer stocks might also benefit from his tax-cut proposal.

In contrast, renewable energy companies and electric vehicle (EV) makers may be negatively impacted due to the anti-climate change policies that Trump might implement. Stocks that could suffer include EV makers such as Tesla, Rivian, and Lucid. European renewable energy companies, including Iberdrola, National Grid, and TotalEnergies, may also experience ripple effects.

However, there are still months away from the November election, hence, these potential trends cannot be ascertained.

Commodities swing in directions

The prices of commodities, such as metals and energy were volatile due to a fluctuating US dollar in the Asian session on Monday. Prices of gold, silver, copper, crude oil, and natural gas all increased initially before paring gains, as investors sought clues of the market reaction to the dollar. Despite signs of a rebound, it is too early to declare that the downtrend is over, as a potential renewed trade war between the US and China may press on the commodity prices.