Biden drops out, Trump's trading temporarily on hold

The main trading theme last week was still "Trump Trade 2.0", but counterintuitively, the asset performance last week was: the US dollar weakened + US stocks fell.

The catalyst was Trump's speech in an interview with Bloomberg Businessweek, in which several points mentioned corresponded to the reactions of financial market assets last week:

1. USD:

Trump: "Hoping for a weaker US dollar to narrow the trade deficit, the yen and the renminbi are too weak against the US dollar."

Asset Trend: The US dollar index fell below the 104 level on Wednesday. The yen appreciated spontaneously without intervention from the Bank of Japan, triggering short covering stampede, with USD/JPY falling to 156.5 in early trading on Thursday, but slowly recovering the decline on Thursday and Friday.

2. Interest Rates:

Trump: "Supporting Fed Chairman Powell to complete his term until 2026, and warning the Fed not to cut rates before the November election."

Asset Trend: Expectations for a rate cut by the Fed last week slightly retreated, with SOFR 1Y rising by 5bp to 4.83%, and the number of rate cuts expected this year falling to 2.5 times.

3. TWD:

Trump: "Believes that Taiwan has taken away America's chip business, and Taiwan is very wealthy."

Asset Trend: Technology chip stocks plummeted last week, triggering heavy selling of Taiwanese stocks by foreign investors. TSMC fell by 8% in three days, and the Taiwan Weighted Index fell by 3% on Friday, with USD/TWD breaking below 32.7, the weakest level since May 2016.

4. Oil:

Trump: "Plans to lower prices by increasing US oil and natural gas drilling to suppress price increases."

Asset Trend: International oil prices fell sharply on Friday, with WTI crude oil falling by 4.3% to $78.6 per barrel last week. On one hand, this was due to Trump's actions to suppress oil prices; on the other hand, it was also influenced by the risk aversion sentiment triggered by the global stock market downturn.

5. Bitcoin:

Trump: "Supports cryptocurrency, believing that if not, the dominant position of cryptocurrency may be replaced by other countries."

Asset Trend: The strongest performing asset recently is Bitcoin, which once broke through $67,000, as Trump will create a more favorable regulatory environment for cryptocurrencies.

Therefore, the impact of the Trump trade on the foreign exchange market is two-sided, with the "Trump-preferred weak dollar environment + tariff bullish dollar policy" offsetting each other's effects on the US dollar.

Early Monday morning, Biden announced his withdrawal from the race, and Vice President Harris became the Democratic presidential candidate. Real-time polling results show a decline in Trump's support, which may lead to a temporary pause in the Trump trade.

Looking ahead, there are four months left until the general election. With increased market uncertainty, the US dollar may continue to trade in a range-bound manner.

Author: Fang Yuqi, Source: Morning Market, Original Title: "Biden Withdraws, Trump's Trading Pauses"