A confused market tries to find its footing

Market digests the events of the weekend

A numb start to the trading week as the market is digesting the weekend’s events regarding the US Presidential candidate Donald Trump. The attack during a Republican rally in Pennsylvania brought back memories from a distant past. There is lots of speculation about the impact of this attack on the November election result with some analysts talking about an increased probability of the Republican candidate returning to the White House for a second term.

A Trump presidency is associated with trade wars that will include tariffs, and hence an increased possibility for stronger inflationary pressures down the line. In principle, this means that the Fed might be forced to keep its powder dry until the conclusion of the November election and then make its decisions. Chairman Powell and Fed member Daly are scheduled to speak later today but they are unlikely to venture into politics. Instead, they will probably focus on the recent set of weaker data releases, especially last week’s CPI report, which cemented expectations for a September rate cut.

The calendar is rather light today with the Empire State manufacturing survey being the key release of the day. However, the week is bound to become more interesting as US retail sales will be published tomorrow, followed by the UK CPI report on Wednesday and Thursday’s ECB meeting. The latter is not expected to generate many headlines as president Lagarde will most likely avoid pre-committing to any action. A September ECB rate cut is still on the cards, possibly in anticipation of a Fed rate cut a week later.

Market reaction after the attack on Trump

The dollar is steadier today as the euro/dollar pair is trying to cover the gap recorded from Friday’s close. Liquidity was relatively nonexistent during the Asian session as Japan observed a rare bank holiday. Dollar/yen continues to hover around the 158-yen level as most market participants are convinced that the BoJ actually intervened last week to support the yen.

Despite the disappointment following the Euro 2024 final and the dovish commentary from BoE member Dhingra, the pound is on the front foot against the euro. Gold continues to trade above the $2,400 level with one eye on the dollar’s performance and the other one on the Israeli-Hamas truce talks. Interestingly, bitcoin appears to have benefited the most from the latest developments as it is now trading comfortably above the $62,000 level, erasing the early July correction.

China weakness lingers

In the meantime, a plethora of Chinese data was published earlier today. Importantly, GDP for the second quarter of 2024 surprised on the downside with the annual figure showing a 4.7% growth, below the government’s 5% target, and retail sales easing considerably to just 2% year-on-year. The latter is a product of the ailing housing sector that is limiting consumer spending. In fact, the June house price index showed a 4.5% annual drop, the largest one since July 2015.

In this context, the third plenary session of the 20th Communist Party of China Central Committee will be held on July 15-18 with the main topic being the weak demand situation. Developments in the housing sector will most likely also be analysed with the market speculating that further support measures could be announced during the plenary. Considering that the May 2024 support package has yet to make an impact, the onus is on the authorities to act sooner rather than later.