An electric stock board at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on 19 April 2024. Equities indexes in Australia and South Korea slipped while those in Japan and Hong Kong advanced. The greenback strengthened against most of its Group-of-10 peers while 10-year Treasury yields retreated after rising seven basis points overnight to approach 4.5%.
Bloomberg News reported the Democratic National Committee is considering formally nominating Biden as early as mid-July to ensure he’s on November ballots. After last week’s debate hurt Biden’s chances of winning reelection, Wall Street strategists are urging clients to position for sticky inflation and higher long-term bond yields.
Meanwhile, Biden called on voters to “render a judgment” on Trump, after a Supreme Court ruling paved the way for the presumptive Republican presidential nominee to potentially escape prosecution for his role in the 6 January US Capitol riot.
The selloff in Treasuries “continued overnight as the rates market starts to price in a Trump election victory, which would likely see continued federal deficits and potentially higher inflation,” said Tony Sycamore, a market analyst at IG Australia. “Higher US Treasury yields will bring with it a stronger US dollar, both of which would be problematic for many Asian share markets.
Australian bonds held declines as the central bank saw the case to hold interest rates at a 12-year high in June as the “stronger one”. Contracts for US equities slipped during Asian hours, despite Wall Street edging higher Monday amid a rally in tech megacaps.
In China, pessimism about the domestic economy has sparked a surge in demand for government bonds. The central bank said it will borrow government bonds from primary dealers, a sign it may be contemplating selling securities to cool down the rally.
Meanwhile, the prospect of a Bank of Japan interest rate hike coming later this month increased after an index showed confidence among the nation’s large manufacturers rose from three months earlier. Vanguard sees the yen at risk of falling toward 170 per dollar if potential BOJ policy changes this month fail to boost the country’s bond yields.
In Europe, ECB President Christine Lagarde signalled that there is not sufficient evidence that inflation threats have passed, feeding expectations that officials will take a break from cutting interest rates this month. The euro was little changed after French election results suggested there’s a smaller probability of extreme policies coming from the far-right.
Following last week’s presidential debate that has shifted the probabilities of Trump winning over Biden, Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra are re-evaluating their assumptions going into the elections.
“The key issue is the market now has to contend with rising probabilities of changes in immigration and tariff policies in an economy where growth has already been cooling, making the market more likely to price more rate cuts,” they wrote. “On the other hand, higher prospects of a Republican sweep, amid growing focus on deficits, could put upward pressure on long-end term premiums.
While there’s a common debate about whether the timing of the election impacts the Federal Reserve’s policy choices, history shows the US central bank has not refrained from taking action during those years, according to Komson Silapachai at Sage Advisory.
In commodities, oil traded near a two-month high on an escalation in tensions in the Middle East and concerns over the rapid start to the Atlantic hurricane season. Elsewhere, gold was little changed.