"Biden drops out over the weekend"? The market is pricing in this possibility

Last week, Biden performed poorly in the debate with Trump, leading to a surge in expectations of "Biden's withdrawal" and triggering a rapid adjustment in the global investment landscape, with the "Trump trade" making a comeback.

With the recent drastic changes in the US election situation, speculation about Biden dropping out of the race has been rampant. According to a report by Global Times on Wednesday, CNN revealed that some high-ranking members of the Democratic Party "hope Biden will withdraw from the election this week." The betting market believes that the likelihood of him continuing to run is less than 50%.

Market expectations suggest that Biden may issue a withdrawal statement on July 4th Independence Day holiday or the following weekend.

Global financial markets are rapidly adjusting to cope with potential political risks. Following the first debate, the market reacted, with the US dollar showing a significant increase, and the bond market reacting particularly sharply, with the benchmark 10-year Treasury yield rising by as much as 20 basis points in the following days.

It is widely believed that if Trump is re-elected, it will drive a series of "Trump trades" benefiting from inflationary fiscal policies and protectionism, including a strong US dollar, higher US bond yields, and the rise of bank, healthcare, and energy stocks.

Global Markets Alert to Biden's Withdrawal

Biden's poor performance in the debate with Trump last week has raised doubts about his suitability for re-election as president.

According to Global Times, CNN revealed that some high-ranking members of the Democratic Party hope Biden will withdraw from the race this week. Biden has told allies that he is weighing whether to continue running," but a White House deputy spokesperson denied this.

As the US election situation evolves, global financial markets are on high alert. Gennadiy Goldberg, head of US rate strategy at TD Securities in New York, pointed out that the market has been reassessing election probabilities since the debate, and the news in the past 24 hours has only added fuel to the fire.

A Wall Street fund manager stated that he prefers to hold US dollars and short-term bonds to hedge against potential risks. This cautious attitude is spreading throughout Wall Street, with investors preparing for various scenarios, including Biden's withdrawal, Trump's victory, and even a more uncertain political landscape.

Resurgence of the "Trump Trade"

The market has begun adjusting portfolios, betting on Trump winning the election, and the "Trump trade" is making a comeback. Specifically:

US Dollar: Rose in the hours following the debate, reflecting market expectations of a potential Trump victory. Trump has promised to impose more tariffs and take a tougher stance on immigration, which could lead to rising inflation and a stronger dollar.

US Bonds: Investors are buying short-term bonds and selling long-term bonds, betting on a steepening yield curve. Over the two days starting late last week, the 10-year US Treasury yield rose by about 13 basis points relative to the 2-year yield, marking the steepest increase since October last year.

US Stocks: Healthcare insurance companies, banks, and energy stocks are favored by investors, as these industries are expected to benefit from anticipated regulatory easing and pro-business policies

Financial Sector ETF: There has been a significant inflow of funds into the financial sector ETF, with the financial sector ETF-SPDR (XLF) seeing the highest inflow in over two months last week, with investors increasing their holdings by approximately $540 million, reflecting optimism towards bank stocks.

Cryptocurrencies: The cryptocurrency market is also attracting attention, as Trump's supportive stance towards the crypto industry may benefit cryptocurrencies such as Bitcoin and Solana. Some analysts believe that the more chaotic the U.S. political system appears, the more attractive Bitcoin looks.