Dollar Up, Bond Futures Down on Trump-Win Bets: Markets Wrap

(Bloomberg) — The dollar rose and Treasury futures fell as traders took stock of the likelihood of Donald Trump winning the US presidential election after an assassination attempt.

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A Bloomberg gauge of the greenback’s strength against peers climbed 0.2%, the Mexican peso slipped and Bitcoin touched its highest in more than a week. The moves reflect bets on the prospect of the Republican’s return to the White House ushering in tax cuts and higher tariffs.

Futures point to a rise in yields when cash trading starts in Europe, after being closed in Asia due to a holiday in Japan. Stocks slipped Asia, with Chinese shares opening lower ahead of key data release and a major political event in the country. S&P 500 contracts pointed to a higher US open.

“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.”

Trump’s support for looser fiscal policy and higher tariffs are generally viewed as likely to benefit the dollar and weaken Treasuries. Yields surged in the wake of Joe Biden’s poor debate performance last month, showing the sensitivity of Treasuries — particularly longer-dated securities.

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

Shares of South Korean defense and nuclear energy firms also climbed, reflecting the ripple effects of US political developments around the world. Bitcoin touched $61,000 on Monday, against the backdrop of Trump increasingly embracing the crypto industry in a bid to court voters.

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.

“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

Traders will also be focused on the start of a closed-door meeting that’s expected to set long-term policy on a wide range of economic and political issues.

The People’s Bank of China kept its one-year policy rate unchanged, as expected. Economic activity readings including GDP, retail sales and industrial output are also due soon as President Xi Jinping convenes the first day of the Third Plenum.

“Expectations are low for the meeting to lead to groundbreaking policy initiatives and materially lift confidence about the Chinese economy,” Commonwealth Bank of Australia strategists led by Joseph Capurso wrote. “That said, markets will closely watch if the government signals more demand side policies, for example to stimulate consumer spending or infrastructure spending which may give a boost to Chinese yuan, Australian dollar and New Zealand dollar.”

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