Biden’s leadership is in question! The Debate did not go well, and the Trump Republicans are revelling. How will a change in candidate affect the market, and will the Democrats dump Biden, or is it too late? The Fed funds target range remained steady at 5.25%-5.50% for the seventh consecutive meeting. US economic numbers were mixed. Non-farm payrolls increased more than forecast but less than last month. Other numbers suggest the economy is weakening slowly, prompting traders to think the FED may misprice the potential easing in 2024. The Fed anticipates it will only ease once in 2024 and 3 times in 2025. However, this may be a bit of a push if the economy weakens substantially, albeit signs suggest any weakness will be gradual. Inflation data will be released this Thursday to provide valuable insight into the war against inflation. Plus, PPI is due out Friday. In the UK, the Conservatives were dumped with the worst loss in history, whilst the Labour Party gained two-thirds of the seats. This was the second lowest voter turnout in history, with 60% of voters actually casting a vote. As the Labour Party has a ruling majority, much-needed reforms may create a level of optimism that may support the GBP and the equity markets.
But first, let's look at what's happening in the run-off to the US Elections. President Joe Biden's leadership faces significant scrutiny following a poorly received debate performance. This situation has emboldened Trump Republicans, who are revelling in the potential political turmoil. The question now arises: How will a change in the Democratic candidate affect the market, and is it too late for the Democrats to replace Biden? Political uncertainty often leads to market volatility. Investors prefer stability and predictability, and a potential change in the Democratic candidate could introduce significant uncertainty. Markets might react negatively to the perceived instability, leading to increased volatility in stock prices, bond yields, and currency values.
A change in candidate could also raise concerns about policy continuity. President Biden's administration has pursued specific economic policies, including infrastructure spending, green energy initiatives, and regulatory changes. A new candidate might have different priorities, leading to uncertainty about the future direction of these policies.
Different candidates may favour different sectors of the economy. For instance, Biden's administration has supported renewable energy, healthcare, and technology sectors. Depending on their policy preferences, a new candidate might shift focus, potentially benefiting or harming these sectors.
The timing of any potential change in candidacy is crucial. As the primary season approaches, the window for replacing Biden narrows. The Democratic Party must ensure any new candidate can quickly build a campaign infrastructure and gain voter support. Replacing an incumbent president could lead to divisions within the Democratic Party.
If the decision is made to replace Biden, the transition must be managed smoothly. This ensures the new candidate can seamlessly take over campaign operations and maintain momentum. Clear communication with party members and the public would be essential to mitigate any negative perceptions.
As we wait and see what will happen, the markets are hovering at record highs, digesting last week’s weaker employment data and waiting for important inflation data. Thursday’s inflation data is expected to be steady, something the Fed probably does not want to see, and the Friday PPI on both MoM and YoY are forecast to be solid, indicating a less inflationary trend. We remain short waiting for a touch of reality.
What can we expect this week? In the United States, attention will be paid to the release of CPI and PPI data for June, followed by Federal Reserve Chair Powell’s semiannual testimony on monetary policy at the Senate Banking Committee. Additionally, investors will closely follow the Michigan consumer confidence report. Elsewhere, interest rate decisions will be announced in New Zealand, South Korea, and Malaysia, accompanied by inflation data releases in Mexico, China, Brazil, India, and Russia. In the UK, key data points include GDP for May, goods trade balance, industrial production, and the BRC retail sales monitor, thus creating a benchmark from which the new government can work. China will release its inflation rate, PPI, and trade balance data. Australia will report on NAB business confidence and Westpac consumer confidence.
On the position front, we reduced our … position in the S+P (new entry price …). We are … at … in the ASX SPI; at a daily close above …, we will review the position; we are still … USD/JPY at …, having added at … We are currently … the AUD/USD (US…) after adding at … and AUS/CHF (…), which is now showing a small profit. The … position in wheat at … shows a small gain, like Gold (…) and Silver (…), both new positions.
Trade Focus:
Fundamentals:
A few reports ago we talked about the AUD/USD, and the fact that the RBA may have missed out on the easing cycle. We had been waiting for the currency to pop to the topside. This has occurred, and as we backfill with news, it's good to re-look as to why we continue to like it…
Technical Analysis:
The technical picture for the AUD/USD also looks great. Breaking out of the hourly, then daily, suggests that we have more momentum that should send it higher. When investors look at the weekly chart, there is a sense that this is the start of a good trend…
Support …
Resistance …
Momentum …
