US stocks, dollar defensive, bonds rally as Harris harries Trump
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[September 11, 2024] By
Lawrence White
LONDON (Reuters) -U.S. stock futures faltered and the dollar was on the
defensive on Wednesday, while bond prices rallied, as markets reacted to
a U.S. presidential debate in which Vice President Kamala Harris put
Republican Donald Trump on the defensive.
The presidential hopefuls battled over abortion, the economy,
immigration and Trump's legal woes at their combative first debate,
leaving investors skittish ahead of U.S. inflation data that could
influence the Federal Reserve's policy moves next week.
U.S. Treasury and Euro zone government bond yields dipped, as Democrat
candidate Harris's robust showing fuelled expectations of a decline in
interest rates, whereas investors expect higher spending that would
boost rates if Trump wins.
Bond yields move inversely to prices.
Ten-year Treasury yields declined to a session trough of 3.609%, the
lowest since June 2023, while Germany's 10-year yield, the benchmark for
the euro zone bloc, fell 2.5 basis points (bps) to 2.12%, a fresh
one-month low.
Harris' late entry in the presidential race after President Joe Biden's
withdrawal in July has tightened the race, and her strong debate
performance continued a reversal of trades that were put in place on
expectations of a second Trump presidency.
S&P 500 futures eased 0.36% and MSCI's broadest index of Asia-Pacific
shares outside Japan dropped 0.3%.
European shares were the bright spot, with the pan-European STOXX 600
index was edging up 0.07%, boosted by the oil and gas sectors on
concerns that Hurricane Francine would disrupt output in the U.S.
Investors were focusing on fiscal policies and plans for the economy
from the candidates but the presidential debate was light on details,
although betting markets swung in Harris' favor after the event. In a
boost to the Harris campaign, pop megastar Taylor Swift said she would
back Harris in the Nov. 5 election.
"With the dust settling on the Trump vs Harris presidential debate, it's
clear that the market saw this debate going to Kamala Harris," said
Chris Weston, head of research at Pepperstone.
"This debate was never going to be an exercise in digging deep into the
weeds and into the granularity of the respective policies, and we're
certainly not significantly wiser on that front."
The dollar index, which measures the U.S. currency against six peers,
was down 0.3% at 101.39.
"You'd expect if he (Trump) was doing better, that you'd see a strong
dollar coming out of this. So I suppose that's the way the market is
looking at it. It's a slight lean towards Harris," said Rob Carnell,
ING's regional head of research for Asia-Pacific.
The yen strengthened more than 1% to 140.71 per dollar, the highest
since late December, boosted also by comments from Bank of Japan board
member Junko Nakagawa.
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A man stands next to an electronic stock quotation board inside a
building in Tokyo, Japan August 2, 2024. REUTERS/Issei Kato/File
Photo
Nakagawa reiterated in a speech that the central bank would continue
to raise interest rates if the economy and inflation move in line
with its forecasts.
Shares of U.S. cryptocurrency and blockchain-related companies
declined in premarket trading, tracking losses in bitcoin which fell
2%. Speaking at the Bitcoin 2024 convention in Nashville in July,
Trump had positioned himself as the pro-cryptocurrency candidate.
INFLATION WATCH
Investors are now focusing on the U.S. Labor Department's consumer
price index report later on Wednesday for policy clues, although the
Federal Reserve has made it clear employment has taken on a greater
focus than inflation.
The headline CPI is expected to have risen 0.2% on a month-on-month
basis in August, according to a Reuters poll, unchanged from the
previous month.
While the Fed is widely expected to cut interest rates next week,
the size of the rate cut is still up for debate, especially after a
mixed labor report on Friday failed to provide clarity on which way
the central bank could go.
"What we needed to see to spur the Fed into greater action would be
much more obvious evidence of slowdown/recession, and in particular
in the labor market. And I don't think we saw that in the last
payrolls report," said ING's Carnell.
Markets are currently pricing in a 65% chance of the U.S. central
bank cutting rates by 25 basis points, while a 35% chance is
ascribed for a 50 bps cut when the Fed delivers its decision on
Sept. 18, CME FedWatch tool showed.
In commodities, oil prices gained after dropping over 3% in the
previous session, as a drop in U.S. crude inventories and concern
about Hurricane Francine disrupting U.S. output countered concerns
about weak global demand. [O/R]
Brent crude futures rose 1.47% to $70.21 a barrel, and U.S. West
Texas Intermediate (WTI) crude rose 1.73% to $66.88.
(Reporting by Ankur Banerjee and Lawrence White; Editing by Shri
Navaratnam, Jacqueline Wong and Kim Coghill)
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