5 Things You Need to Know to Start Your Day: Americas

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Markets are delivering a fairly muted reaction after Joe Biden ended his reelection campaign and endorsed Vice President Kamala Harris. The dollar is sliding slightly, havens like Treasuries and the Swiss franc edged higher, while European stocks rebounded from their worst week this year. In the US, futures are pointing toward a higher open. You can keep up to date with the latest developments with our live blog.

Stocks to watch


For investors, who have been wagering on Donald Trump's return to the White House for weeks, the question is what the dramatic news for the election. Specifically, they're considering whether the "Trump Trade" is still on, or whether Biden's exit from the race boosts the odds of a Democrat victory — and how much they must recalibrate their bets. With clarity unlikely for some time, markets may be in for a period of volatility.

China shock


While markets wait for political answers, central banks may be the more pressing issue. The US Federal Reserve and Bank of England are both due to deliver decisions next week, but all the action was in China on Monday, where the central bank increased support for the economy with surprise interest-rate cuts. The moves come after a lack of short-term stimulus from a major Communist Party meeting disappointed investors, but the modest reductions failed to excite markets, and Chinese stocks fell.

Earnings rush


It's also a big week for earnings. Verizon reports Monday, while Tesla and Alphabet tomorrow become the first of the "Magnificent Seven" to report in the latest round of results. Strategists at Morgan Stanley said companies in Europe have made a positive start to the second-quarter reporting season, with 29% beating profit expectations, but the tone was less positive on Monday, with Ryanair plunging after the Irish budget carrier cut its outlook for ticket prices in the crucial summer travel period.

Market reshuffle


As the monetary and political backdrop shifts, big trades that have held sway for years on Wall Street are getting reshuffled. Traders are hastily rushing to the options exchanges, paying up to protect their portfolios, while previously money-minting derivatives bets on tech bastions such as Nvidia are being abandoned with gusto and demand for insurance in the event of a market crash is surging. All in, it's a tentative shake-up of the winners and losers, one that potentially echoes previous turning points for markets and the economy.


And finally, here's what Eddie's interested in this morning


Joe Biden, the sitting president, has dropped out of a US presidential race with four months to spare. And markets largely shrugged.

Politically, of course, this is a veritable earthquake. It's been nearly 60 years since an incumbent, Lyndon Johnson, pulled out of a race, and that with nearly 300 days to spare. The ramifications for the Democrats are huge, who now have to agree on, rally around and build name recognition for a candidate, probably Kamala Harris, in double-quick time. Their convention is scheduled for Aug. 19-22, just a month away.

Given these facts, one might have thought the reaction in markets might be steeper. Gold could've caught a bid. The dollar might've rallied on expectations that someone other than Trump would be less inclined to talk it down. And the Mexican peso might be seen significantly stronger on the outlook for better relations with the US.

Except, of course, that perhaps nothing much changed. While the Democratic faithful clearly think Biden was an electoral liability, it's not clear that anyone would stand a better chance of beating Trump in November. The Republican currently leads Harris in the few head-to-head polls I've seen, and she certainly trails him in name-recognition. It's also hard to imagine that the assassination attempt -- and his reaction to it -- won't have an impact on some swing voters.

In that light, then, a relatively muted market reaction looks warranted. Trump was likely to win yesterday, and Trump is likely to win today. It's hard to see why traders would massively reposition portfolios unless polls start showing a likely Harris victory, or at least a close race.