After a jarring Monday that spurred a wave of U.S. election trades, world markets zeroed in Federal Reserve easing hopes, China’s economic stumble and the unfolding earnings season.
The appearance former President Donald Trump at the Republican party convention after Saturday’s failed attempt on his life underscored speculation the attempted assassination now boosts his chance of re-election in November.
And for longer-term investors, Trump’s pick of like-minded Ohio Senator J.D. Vance as his running mate also focuses minds on the political landscape through 2028.
“The decision is crucial because one-third of US presidents throughout American history have previously occupied the position of vice president,” said UBS Global Wealth Management’s Tom McLoughlin, adding this “effectively anoints” Trump’s successor.
With betting markets putting Trump’s chances of a return to the White House at more than 70%, Monday’s reaction sent the 2-to-30 year Treasury yield curve into positive territory for the first time since January, lifted Bitcoin and Trump-related stocks sharply, underlined a rotation to small cap stocks and knocked Mexico’s peso.
Republican presidential nominee and former U.S. President Donald Trump and Republican vice presidential nominee J.D. Vance shake hands as Eric Trump watches with Lara Trump during Day 1 of the Republican National Convention (RNC), at the Fiserv Forum in Milwaukee, Wisconsin, U.S., July 15, 2024. REUTERS/Elizabeth Frantz
Some of those moves cooled a bit ahead of Tuesday’s bell, Bitcoin slipped back under $63,000 and the 2-to-30 year yield curve ebbed into negative territory again as attention switches to mounting Fed easing hopes.
With last week’s renewed disinflation hopes as a backdrop, Fed chair Jerome Powell’s latest comments in Washington on Monday only encouraged that thinking.
“We didn’t gain any additional confidence in the first quarter, but the three (inflation) readings in the second quarter, including the one from last week, do add somewhat to confidence,” he told the Economic Club of Washington.
Futures markets are now fully priced for a first Fed rate cut in September and upped full-year easing bets to 68 basis points and 110 bp by March. Two-year Treasury yields fell to their lowest in more than four months at 4.41% early on Tuesday ahead of the June retail sales update, while 10-year yields also fell back below 4.2%.
With big bank earnings streaming in, S&P500 futures held steady first thing – although stock market attention on Monday was once again on the outperformance of small caps.
Even though the S&P500 eked out another small gain, the Russell 2000 gained almost 2% and is now up more than 7% in just five sessions.
Stock market volatility is starting to creep higher, however, with the VIX ‘fear index’ nudging up to its highest in three weeks.
Asia stocks were mostly higher overnight, with the exception of another sharp drop in Hong Kong as the Chinese Communist Party’s ‘Third Plenum’ is watched closely for major economic reforms. Details will likely come out on Thursday.
China’s latest series of economic misses and the Trump speculation – not least his sweeping trade tariff pledges – created a more mixed picture elsewhere.
China’s yuan and Japan’s yen weakened against the dollar again despite Fed easing bets.
And European stocks underperformed too – hit by a variety of concerns from Chinese luxury goods demand to tariff concerns. The European Central Bank meets on Thursday, but is not expected to cut rates again until September and the euro was firmer.
Germany’s July ZEW sentiment indicator came in below forecast.
Shares in Hugo Boss plunged nearly 9% on Tuesday after the German fashion house cut its annual sales forecast over weakening global consumer demand especially in markets such as China.
Sales at Cartier-owner Richemont were almost flat in the three months through June, with a slump in Chinese demand pushing the overall result slightly below expectations.
Back on Wall Street, Goldman Sachs‘ second-quarter profit more than doubled, beating analyst estimates on solid debt underwriting and fixed-income trading, and the broker’s shares advanced almost 3% on Monday.
Bank of America and Morgan Stanley are among the big financial names on the earnings diary later today.
Key developments that should provide more direction to U.S. markets later on Tuesday:
U.S. June retail sales, June import/export prices, July NAHB housing index, May business/retail inventories; Canada June consumer price index, June housing starts
US corporate earnings: Bank of America, Morgan Stanley, State Street, PNC, Progressive, Unitedhealth, Omnicom, JB Hunt
Federal Reserve Board Governor Adriana Kugler speaks
ECOFIN European Union finance ministers meet in Brussels to review seven member states’ excessive deficits: Belgium, France, Italy, Hungary, Malta, Poland and Slovakia; European Central Bank board member Luis de Guindos participates
U.S. Republican party convention
US Treasury auctions 3-, 6-month bills
Graphics are produced by Reuters.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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