Exclusive from Zhitong | What does Biden's withdrawal mean for the global financial markets?

Current U.S. President Joe Biden announced that he will not seek re-election and endorsed Vice President Kamala Harris as the Democratic Party's candidate. This news, released at a critical moment less than four months before the November election, may exacerbate the instability on Wall Street.

(一) Market Observers Have Different Opinions

The current political uncertainty in the United States is increasing. As the Democratic Party candidate did not go through the normal primary process, the market lacks precedents to predict its impact. Market observers have different opinions, mainly as follows:

Opinion 1: Bringing More Uncertainty

Zachary Griffiths, Director of Investment Grade and Macro Strategy at CreditSights, said: "The primary impact of this statement should be more uncertainty, which usually puts the market in risk-averse mode—the stock market sees selling off, and investors rush to buy quality stocks."

Barry Knapp, Managing Partner at Ironsides Partners, believes that the market's uncertainty has greatly increased, which may affect the performance of futures at the opening. Although Bitcoin has shown some volatility, the market has just experienced a tumultuous week, and the main factors behind it are not Trump. The deeper reasons lie in the weak economic situation and the Federal Reserve's hesitation to cut rates by 50 basis points in September. Clearly, many factors are intertwined, indicating that the market will face more uncertainty in the future.

Gregory Faranello, Director of U.S. Rates Trading and Strategy at AmeriVet Securities, expects that the bond market may experience more deadlock. The U.S. Treasury market will continue to closely monitor bond supply, central bank balance sheet dynamics, and key economic indicators. Although the market may experience some price fluctuations, the Fed's rate decisions should reflect more on what has already happened rather than purely on expectations.

Wayne Kaufman, Chief Market Analyst at Phoenix Financial Services, said that the market may hesitate in uncertainty. He pointed out that although the optimism of artificial intelligence has supported the market to some extent, August and September have historically been periods of weak market performance.

Opinion 2: "Trump Trade" Will Continue

Supporters of the "Trump Trade" believe that the market has long anticipated Biden's withdrawal and priced it in, so the public announcement has little impact.

Art Hogan, Chief Market Strategist at B. Riley Wealth, said that the most notable phenomenon in the current "Trump trade" is the rise in prices of Bitcoin and other cryptocurrencies, reflecting the market's belief that Trump has a more positive attitude towards these asset classes. He believes that the market has gradually absorbed the news of President Biden not seeking re-election and speculates that if Trump is re-elected, it may bring trading opportunities similar to small-cap stocks benefiting from rate cuts. He expects that the Fed may take interest rate cuts in September.

Viewpoint Three: "Trump Trade" is Receding

Yung-Yu Ma, Chief Investment Officer of BMO Wealth Management, expects that Trump's trade may pause temporarily until the identity of the Democratic candidate becomes clearer. He warned that this event has brought more political uncertainty to the market, which may lead to short-term volatility.

Rhona O'Connel, Market Analysis Director at Stonex, said that with Biden dropping out, "my instinct is that everything is in limbo in the short term, especially the issue of the Democratic nomination. But it is likely to put the brakes on the 'Trump trade'. In terms of hedging, purely from this perspective, the tailwind for gold is stronger than the headwind."

Matt Maley, Chief Market Strategist at Miller Tabak + Co.: "Assets affected by the Trump trade, such as Bitcoin and energy, will start to unwind, and trades impacted like solar stocks or electric vehicles will rebound. But there is still a lot of uncertainty, and the market doesn't like that. From now until Labor Day, and then to September, we will see a significant surge in volatility."

Yung-Yu Ma, Chief Investment Officer of Montreal Bank Wealth Management, stated, "Before the Democratic nomination becomes clearer, the ' Trump trade' is likely to catch its breath. This news has also shaken the currency and bond markets, and fund managers in emerging markets expect some early 'Trump trades'—including selling some currencies in Asia and Latin America and buying Salvadoran bonds—to be unwound, bringing short-term benefits to risk assets. Concerns about the strong dollar under the Trump administration, along with tariffs and the possibility of overwhelming Republican victories, have begun to put pressure on emerging assets, with emerging assets continuing to languish under the uncertain Fed interest rate cut schedule."

Viewpoint Four: More Optimistic about Democratic Victory

Jack McIntyre, Portfolio Manager at Brandywine Global Investment Management, believes that risk assets, including emerging markets, may receive initial positive impacts, as the market is more inclined to see a Democratic victory in the House.

Jung In Yun, CEO of Fibonacci Asset Management Global Pte, expresses concerns about the possibility of Trump's reelection, believing that his protectionist policies may have negative effects on trade, geopolitical risks will intensify, supply chain disruptions may become more frequent, thereby driving up overall inflation levels. This macroeconomic environment poses a severe challenge to industries that rely on global supply chains and stable market conditions, such as automotive, biotechnology, and real estate.

(二) Market Spotlight on Harris

US President Biden supports Vice President Kamala Harris, but cannot guarantee her nomination by the Democratic Party. Representatives of the Democratic National Committee can freely vote for their own choice. The most popular candidates in recent weeks are California Governor Newsom and Michigan Governor Whitmer, but Harris remains the most likely candidate.

Dave Mazza, CEO of Roundhill Financial, said, "Investors should expect a significant increase in volatility. If Vice President Harris can quickly mobilize and bring substantial impact to Trump, then we can expect volatility to continue. However, if Trump continues to lead in opinion polls and investors believe his victory is inevitable, then the 'Trump trade' will take over and volatility will decrease." Therefore, whether the highly anticipated Harris can bring substantial impact to Trump is the current market's main focus.

Zhītōng Finance summarized Harris's main political positions as follows:

Politics:

-- Supports transitioning to universal healthcare, but with a role for private insurance plans;

-- Advocates for a more aggressive drug pricing policy, including linking prices negotiated in the US with those in other wealthy countries;

-- May continue many of Biden's foreign policy goals, including supporting Ukraine and maintaining alliances in the Asia-Pacific region;

-- May take a more sympathetic stance towards Palestinians in the Israel-Hamas conflict.

Economy:

-- Expected to push forward the economic policies of the Biden administration, including the "Infrastructure Agreement and Inflation Reduction Act";

-- Supports raising corporate taxes and criticizes Trump's tax reduction policies;

-- Supports proposed policies for the middle class, such as providing refundable tax credits for low-income individuals and couples.

Climate Change Response:

-- Supports policies to address climate change, including transitioning to 100% renewable energy;

-- Helped introduce a $200 billion plan to fund climate and clean energy projects.

Immigration:

-- Over time, her stance has evolved to now support potential ICE reform and criticize Trump's border wall;

-- Supported a bipartisan border security agreement (ultimately rejected by Senate Republicans).

Harris VS Biden Main Differences

-- Harris supports transitioning to universal healthcare, although private insurance plans also play a role. This is more progressive than Biden's position, which favors offering a public health insurance option on the exchanges under the Affordable Care Act;

-- Harris calls for a more aggressive drug pricing policy than Biden, such as linking US prices to those negotiated in other wealthy countries;

-- While both support a $15 national minimum wage, Harris is more outspoken in punishing companies that violate labor wage regulations;

-- Harris advocates for stronger pro-union policies, including repealing "right-to-work" laws and allowing secondary boycotts, which goes beyond Biden's labor stance; --Harris proposed specific tax credits for tenants to offset paying over 30% of their income on rent and utilities, a policy not prominently featured in Biden's agenda;

--Harris approved $2,000 monthly stimulus payments during the pandemic, which is more generous than the proposal implemented by Biden;

--Harris expressed opposition to the Trans-Pacific Partnership and stated she would vote against the North American Free Trade Agreement, positions more protectionist than Biden's stance