Perhaps one reason for investor hesitancy was post-debate speculation that Democrats may push Biden to stand aside and see an alternative candidate selected at the party’s convention instead.
Either way, U.S. stocks and the dollar were marginally higher early on Friday and Treasury yields steady. The VIX ‘fear index’ of equity volatility, and related futures on that index covering the election, remain subdued near the lowest levels of the year.
Even currencies potentially most sensitive to Trump’s pledges on tariff rises or immigration barriers, like China’s yuan or Mexico’s peso were undisturbed.
Once again, the big mover on the currency markets was Japan’s yen, which continued to wend its way to new 38-year lows and briefly breached 161 per dollar in the face of continued Japanese government warnings about a repeat of April’s intervention to support it.
Japan appointed a new top foreign exchange diplomat as the yen plumbed new lows, heightening expectations of imminent action by Tokyo to shore up the ailing currency. Atsushi Mimura, a financial regulation veteran, replaces Masato Kanda.
French bonds markets grew nervier, meantime, ahead of the two-round French elections on Sunday and July 7. The risk premium on French government bonds over German equivalents rose to its widest since the euro zone crisis 12 years ago with polls still suggesting far right parties with the highest percentage vote, though still short of an overall majority in parliament.
The spread between German and French 10-year yields reached 84 basis points, its widest since September 2012, although nominal 10-year French yields remained below peaks seen late last year.
Back on Wall Street, the economic picture appeared to darken somewhat.
First-time applications for U.S. unemployment benefits drifted lower last week but the number of people on jobless rolls jumped to a 2-1/2 year high in mid-June, suggesting the labor market was cooling amid slowing economic growth.
