The USD eases, oil prices slip, while equity markets and US yields are mixed as markets respond to Biden's exit. The currency market's reaction to Biden's decision to withdraw from the presidential race and endorse Harris has been muted. The US Index slipped 0.2%, while the 10-year treasury yield dropped just a basis point. Asian equity markets are down, S&P futures tick higher after the worst week since April, and the European equity index rebounded from its worst week of 2024 as investors look beyond Biden and refocus on earnings. Market's appear cautious, unsure if investors will unwind the "Trump Trade" after Biden drops out. At the same time, Harris jumps into the race with some experts suggesting she could head into November with serious momentum. Elsewhere, China cuts several major interest rates to support its fragile economy. Oil and silver prices slip, Bitcoin is flat, and gold inches higher. The focus of this week: Monday, when EU foreign ministers meet in Brussels. Tuesday, EU Consumer Confidence and Existing Home Sales. Wednesday German Consumer Confidence, French, German, EU, UK PMI, BoC Interest Rate Decision, and US PMI. Thursday, US Durable Goods, US GDP, ECB President Lagarde Speech, US Initial Jobless Claims, Friday US PCE & Michigan Consumer Sentiment will help guide currency markets this week.
In other news. Leading Democratic donors swing behind Harris after Biden drops out. The number of UK businesses facing 'significant' financial distress rises sharply. Beijing and Manila struck a deal to reduce tensions in the South China Sea. Netanyahu heads to Washington and says Israel will remain a key US ally to whoever replaces Biden. Italy's Meloni put domestic concerns first, rejecting von der Leyen. Ukraine struck a deal to restructure $20 billion in debt. China cuts interest rates in a bid to prop up lagging economic growth. Vast Olympic security operation descends on central Paris. India's Modi faces budget demands from 'Kingmaker' allies.
In currency markets. The USD eases as Biden ends his re-election bid, and the pound holds steady ahead of PMI data as investors hold record-long positions. China's surprise rate cuts haven't hurt the CNY, while AUD & NZD weaken as risk sentiment sours on China. CNY and Asian currencies are flat on average against the USD. Trading currencies are mixed, with AUD weakening 0.3%, NZD easing 0.1%, NOK & ZAR Flat, CHF & SEK firming 0.15%, MXN gaining 0.35%, and JPY strengthening 0.55% against the USD.
In commodity markets. Oil, Copper & Silver prices slipped 0.25%. Natural Gas prices rallied 2.75%. Gold prices firmed by 0.3%. Wheat prices gained by 0.7%, and Soybean prices strengthened by 1.25%.
CAD remains under pressure, holding near 20-day lows as investors have almost wholly priced in another 0.25 bps interest rate cut by the Bank of Canada on Wednesday. Domestically, last week's weaker-than-expected Canadian inflation and softer retail sales data supported bets the Bank of Canada will ease on at its July meeting. Intraday, with the absence of high-tier US or CAD economic data and the muted response to Biden stepping down, we expect markets to remain within their current trading range.
EURCAD retests eight-month highs as investors anticipate a 0.25 bps interest rate cut by the Bank of Canada on Wednesday.
EUR continues to straddle 1.0900 amid an easing USD. The Euro holds steady near 1.0900 as risk sentiment improves on the news that President Biden has stepped down and Harris picks up support from Democrats. In the short term, we anticipate the Euro will hold within its current range as political uncertainty remains in the US. Investors increasingly expect the ECB to cut interest rates in September. Domestically, investors will be focused on Tuesday's EU Consumer Confidence. Then Wednesday's German, French & EU PMI data and ECB President Lagarde's speech will help guide the Euro this week.
GBPEUR holds steady as investors are sidelined amid the lack of high-tier economic releases and US political uncertainty.
GBP holds above 1.2900 as investors hold on the sidelines while risk sentiment improves. The pound remains vulnerable to further volatility after testing 2024 highs of 1.3000 on the "Labour victory effect" and then weakening to 1.2900 on increasing expectations of a BoE interest rate cut in September. Domestically, the focus will be on Wednesday's UK Composite, Manufacturing & Services PMI, which are all forecasted to edge higher in July vs June. Intraday, we expect the pound to hold within its current trading range with the lack of US high-tier economic data and as markets digest President Biden exiting the presidential race.
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