Dollar Gains and Treasuries Slump on Trump Bets: Markets Wrap

(Bloomberg) — The dollar advanced and Treasuries fell as investors ratcheted up wagers that Donald Trump would win the US presidential election after an assassination attempt.

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The greenback strengthened against all other Group-of-10 currencies, the Mexican peso slipped and Bitcoin touched its highest in nearly two weeks. The yield on 10-year Treasuries climbed six basis points to 4.24%.

The moves reflect bets on the prospect of the Republican’s return to the White House ushering in looser fiscal policy and higher tariffs, which are generally viewed as likely to benefit the dollar and weaken Treasuries.

European equity futures traded lower, while S&P 500 contracts pointed to a higher US open. Stocks slipped Asia, with Chinese stocks in Hong Kong extending losses after data showed weakening momentum in the world’s second-largest economy.

“With markets pricing in a greater possibility of Trump 2.0, the US dollar will likely get some tailwinds while the Mexican peso and Chinese yuan could suffer,” said Charu Chanana, market strategist at Saxo Capital Markets. “Trump trades could be back in focus.”

Shares of South Korean defense and nuclear energy firms climbed, while a Chinese company whose local-language name sounds like “Trump Wins Big” soared, reflecting the ripple effects of US political developments around the world. Bitcoin topped $62,000 on Monday, in response to the former president’s pro-crypto stance.

To be sure, there’s still plenty of room for surprises with almost four months to go in the US election campaign.

Monday’s action also follows what many considered a watershed week in the Federal Reserve’s fight against inflation, with economic reports bolstering bets on two rate cuts in 2024. Both Chair Jerome Powell and San Francisco Fed President Mary Daly are due to speak later on Monday.

“If Trump emerges as an even more obvious winner, then we should see the bear-steepener we saw after the debate,” said Michael Purves at Tallbacken Capital. “In terms of equities, I don’t think this changes the trajectory at the overall level, though some stocks which will benefit from lower corporate taxes and lower regulation.”

China

The decline in Chinese stocks in Hong Kong Monday partly reflects “an element of front running the increased odds of 60% tariffs placed on Chinese exports” following a potential Trump win, Chris Weston, head of research at Pepperstone, wrote in a note.

Traders are also focused on the Third Plenum, a meeting of China’s top leadership that starts Monday, for policy support after economy grew at the worst pace in five quarters.

Metals, including iron ore and copper, rose on the soft economic data, buttressed by expectations the country will announce stimulus measures.

“I guess the weak release is a good set up for the Third Plenum to look into more constructive policies to support the economy,” said Vey-Sern Ling, managing director at Union Bancaire Privee.

Earlier Monday, the People’s Bank of China kept its one-year policy rate unchanged, as expected.

Key events this week:

Eurozone industrial production, Monday
US Empire State Manufacturing, Monday
Goldman Sachs earnings, Monday
Jerome Powell is interviewed by David Rubinstein, Monday
Fed’s Mary Daly speaks, Monday
Germany ZEW survey expectations, Tuesday
US retail sales, business inventories, Tuesday
Morgan Stanley, Bank of America earnings, Tuesday
Fed’s Adriana Kugler speaks, Tuesday
Eurozone CPI, Wednesday
US housing starts, industrial production, Wednesday
Fed Beige Book, Wednesday
Fed’s Thomas Barkin speaks, Wednesday
ECB rate decision, Thursday
US initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday
Fed’s Mary Daly, Lorie Logan and Michelle Bowman speak, Thursday
Fed’s John Williams, Raphael Bostic speak, Friday