Double blow for markets: Biden drops out and China cuts rates

Biden’s Withdrawal and China’s Rate Cut Shake Markets

Two main news stories are capturing market attention today: Biden’s withdrawal from the race to the White House in favor of Vice President Kamala Harris and China’s surprise move on interest rates.

Market Reactions

Asian stocks have slipped again, benefiting only minimally from the unexpected rate cut by the People’s Bank of China.
On the other hand, Wall Street futures have strengthened following President Joe Biden’s decision to step back and give in to mounting pressures.

This week promises to be eventful.
The spotlight is on the S&P 500, which suffered its worst week since April, with tech stocks declining ahead of earnings.
CrowdStrike Holdings Inc.
added pressure, being the company behind a massive cyber failure that disrupted flights and businesses worldwide.

Tesla and Alphabet will kick off the “Fantastic Seven” earnings announcements on Tuesday.
Major European banks will also report their results to see if gains from higher interest rates have stalled and whether recent political unrest is affecting market sentiment.

Throughout the rest of the week, traders’ focus will be on economic activity data in Europe, the second-quarter growth in the United States, and the Bank of Canada’s interest rate decision.

Market Expectations After Biden’s Withdrawal

The dollar has weakened and Treasury securities have risen after Joe Biden withdrew and endorsed Vice President Kamala Harris.
European stock futures indicated gains at the opening.

The markets have greeted the news with a rather calm sentiment, awaiting further developments.

Investors have been weighing for weeks the possibility of Donald Trump winning the November elections following Biden’s weak debate performance.
The question for traders now is whether to continue with this prediction now that Biden has pulled out of the race.

With Biden’s historic move less than four months before the November elections, political chaos threatens to fuel tensions on Wall Street, at least in the short term, market observers have stated.

Implications of China’s Rate Cut

The other news of the day comes from China.

The People’s Bank of China has cut short-term rates by 10 basis points, which has pushed down long-term borrowing costs and bond yields.
This move follows Beijing’s release of a policy document on Sunday outlining its economic ambitions.

Investors seemed disappointed by the surprise decision, partly because it underlined the economy’s weakness, and Chinese blue-chip stocks fell alongside the yuan.

“All the fundamentals indicate that China needs a context with lower rates, especially since the real rate is really high…
in this disinflationary context,” stated Gary Ng, senior economist for the Asia-Pacific region at Natixis in Hong Kong.

Chinese policy actions suggest that “the central bank is faced with a dilemma: it needs to stimulate a slow economy grappling with the property crisis, but it also has to fulfill its mandate of a ‘strong currency’ and project an image of solid long-term fundamentals,” wrote Nomura Holdings analysts in a note.

Uncertainty about the fate of the two major economic powers has once again taken over the markets.