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Cailianshe News, July 22 (Editor: Huang Junzhi)Under the constant pressure from all sides to withdraw from the election, US President Biden finally couldn't bear it: in the early hours of Monday morning Beijing time, he suddenly announced that he would not accept the Democratic nomination, officially withdrew from the 2024 US presidential election, and supported the nomination of Vice President Harris as the Democratic presidential candidate.

Therefore, at the beginning of this week, investors have a new question: what impact will Biden's decision have on Trump's chances of winning? Will it increase or decrease? Should we stick to the "Trump deal"? Trump himself is extremely confident. Shortly after Biden announced his withdrawal from the election, he publicly stated that Harris was "easier to beat" than Biden.

"The first and foremost impact of this announcement should be more uncertainty," said Zachary Griffiths, head of U.S. investment grade and macro strategy at CreditSights.This typically sends markets into risk-off mode - stocks sell off and investors rush into quality stocks.”

Financial markets have downgraded the odds of Mr. Biden, 81, succeeding since a disastrous debate stoked concerns about his reelection. They have generally favored deals that would benefit from Mr. Trump’s push for loose fiscal policy, higher trade tariffs and less regulation: The dollar has gained support, Treasury yields have risen, and bank, healthcare and energy stocks, as well as bitcoin, have rallied.

But the question for investors now is whether they want to stick with such a trade now that Biden has given up his reelection bid. The market could be volatile becauseTraders are waiting to see whether Harris can secure the party’s nomination and weigh whether she can gather enough momentum to challenge Trump’s lead in the polls.

Dave Mazza, CEO of Roundhill Financial, said:Investors should expect volatility to rise significantly.If Vice President Harris is able to mobilize quickly and deliver a substantial blow to Trump, then we should expect volatility to continue. However, if Trump continues to lead in the polls and investors view his victory as inevitable, then the ‘Trump trade’ will take hold and volatility will decline.”

How this event unfolds is almost unpredictable: there is little historical data to interpret how markets will react, and the last time a sitting president did not seek re-election was Lyndon Johnson in 1968.

Grace Fan, managing director of global policy research at GlobalData, said the Democratic Party's replacement candidate means "Trump trades will swing as the market realigns the odds." However, she said those bets are "unlikely to change much" if Harris ends up being the nominee.

Bonds and currencies

If Trump looks more likely to be re-elected as president, the dollar is widely expected to get a boost. Trump's preferred combination of low taxes and high tariffs is seen as stimulating inflation and interest rates, increasing the dollar's appeal. And because of its safe-haven status, the dollar will also be in higher demand during uncertain times.

However, the dollar fell against the Chinese yuan and the Japanese yen last week after Trump said in an interview in June that a strong dollar hurt U.S. competitiveness, a point his running mate James Vance has also made in the past.

“We do not believe this is the right trade,” Barclays strategists said in a note on Sunday. “We believe a second Trump term would mean further USD strength and the recent decline provides a good level to re-enter our recommended longs such as USD/CNY.”

Trump’s conclusion that he will cause inflation has also permeated the world’s largest bond market, where traders have begun making bets that buy shorter-dated bonds and sell longer-dated ones, a so-called steepening trade.

"As Harris's odds rise, so do the Democrats' odds of winning the House," said Steven Englander, a strategist at Standard Chartered Bank in New York. "If that plays out, then concerns about further fiscal stimulus could abate, taking pressure off rates and the dollar. However, it's still early and this race could look very different than what was expected two weeks ago."

The spread between U.S. high-yield bonds and euro high-yield bonds has also strengthened over the past week, with a surge in inflows into global junk funds, which are positioned to benefit from a potential Trump victory.

Energy, prison stocks

The possibility of a Republican victory boosted some markets that were expected to be supported by Trump's deregulation or views on oil and immigration.

In June, Trump told Senate Republicans that if elected he would allow oil and gas drilling in the U.S. National Arctic Wildlife Refuge in Alaska, reversing an earlier move by the Biden administration.

Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote in a note last month that a Republican-controlled Congress “would likely impact” the renewable energy and consumer discretionary sectors if Trump wins the presidency.

Private prison stocks such as GEO Group Inc. and CoreCivic Inc. have been rising due to Trump’s tough stance on immigration.