July 22, 2024

“Biden’s decision to pull out of his re-election campaign is the biggest news to break this morning, but markets appear to have seen this coming. There is a flood of data this week, particularly in the US, and the focus is on the growth picture in the US and Europe.”

Tim Hallinan – Trading Director

Main Headlines

After weeks of mounting pressure, US President Joe Biden has exited the race for the US presidential election in November and endorsed Vice President Kamala Harris to replace him as nominee. A series of gaffes and rising concerns about the 81-year old’s mental acuity since the first debate last month even had some of his closest Democratic allies turn against him as it became increasingly clear that he would struggle to beat Donald Trump.

The number of companies in ‘significant financial distress’ in the UK surged by 37% in Q2 compared to the same period last year as firms face high interest bills and weaker demand, according to a report by Begbies Traynor.

GBP

Sterling gave up some of its strength last week but remains around its highest levels in two years. Politics has been a tailwind this month, but it is primarily the hawkish Bank of England outlook that has transformed it into the G10’s best-performing currency in 2024. That’s why markets will be keeping one eye on next week’s Bank of England decision over the coming days. Current pricing is at only a 50/50 chance of first rate cut, down from a near certainty only last month, after a series of hot services inflation prints and some caution from policymakers in the few speeches we’ve heard since the lifting of the pre-election blackout. We do get some important data, though, and Wednesday’s PMIs are expected to recover slightly from a dip in the index in June.

EUR

The euro was caught in some up-and-down trading last week but ended flat against the dollar overall, as markets held on to expectations for another rate cut at the ECB’s September meeting. While Thursday’s decision deliberately offered no clues on the future, several policymakers have endorsed the market’s pricing of the rate trajectory since, with the likes of Villeroy and Simkus arguing that two more cuts this year is a reasonable bet and that the disinflationary trend remains intact. The data focus for the euro this week is the activity outlook, after wobbles in both the services and manufacturing sectors in last month’s PMIs sparked some debate about the downside growth risks in the eurozone. Activity has picked up this year but this has been from a low base, and the manufacturing sector has not lifted out of contractionary territory since mid-2022. We also get a consumer confidence figure tomorrow and the German ifo business climate survey.

USD

Biden’s withdrawal from the US election in November has not set off any fireworks in the markets this morning. A trim to Donald Trump’s chances has the dollar down slightly this morning, but the lack of reaction overall makes it relatively clear that the US President’s exit was largely expected, and the key now will be if Harris – or someone else – can turn the polls around. However, the focus will quickly turn to the Fed this week, and the US economy is getting a comprehensive health check with a raft of data that includes the flash PMIs, new home sales, Q2 GDP growth, durable goods orders, and core PCE inflation. The consensus for growth last quarter is for a rise to 1.9%, although the Atlanta Fed’s 2.7% forecast highlights the potential upside risks for the release. On Friday, a consensus 0.2% figure for Fed-favoured core PCE release should keep the September rate cut on track.

Markets

An MSCI index of global equities took its biggest hit since April last week, as concerns mounted about US-China trade relations and a global IT outage saw jittery traders trim their risk. Earnings will be front and centre this week, particularly with the first releases from the Magnificent 7, who collectively lost more than $1tn in a five-day period.

Main Economic Events (All Times CET)

3:00am: China Loan Prime Rates

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