US election uncertainty surges and Biden withdraws

President Biden has withdrawn from the US presidential election this November, endorsing VP Kamala Harris to replace him. It remains to be seen how the Democratic Party will nominate a new candidate before their convention on 19 August as such a situation is unprecedented. Harris has already been endorsed by other senior Democrats, including the Clintons and Elizabeth Warren, as well as some potential competitors for the nomination, including Gretchen Whitmer (Michigan), Josh Shapiro (Pennsylvania) and Gavin Newsom (California) according to Bloomberg reports. The US dollar weakened, while treasuries and gold rose in early Asian trade this morning.

The PBOC lowered its 7-day reverse repo rate for the first time in a year, and Chinese banks cut their one- and five-year loan prime rates following the release of the Third Plenum “Decisions”, which continued to focus on innovation and industrial policy in China. The PBOC cut the 7-day repo rate by 10bp to 1.7% on Monday and prime rates fell by the same amount to 3.85% (five-year loans) and 3.35% (one year loans).

UK retail sales were softer than expected in June, declining -1.2% m/m and -0.2% y/y. The decline was steeper excluding petrol, at -1.5% m/m. The June figures offset a better-than-expected May for retailers, and was attributed to cold weather, election uncertainty and low footfall, with department stores seeing the biggest m/m decline across all categories at -3.4% m/m. Consumer spending is expected to rebound as real wages rise, but there is little sign of this in last month’s retail sales data.

Kuwait’s GDP contracted -2.7% y/y in Q1 2024, although this was largely to lower oil and gas GDP on an annual basis. Non-oil sector growth accelerated to 4.7% y/y in Q1 after contracting -2.9% last year. Manufacturing saw the fastest growth in Q1 at 20.3% y/y, while hospitality grew 7.7% y/y. Utilities GDP rose 5.5% y/y in Q1, education 4.1% y/y and other services 6.9% y/y. We expect non-oil GDP to rebound to 2% in 2024.

The focus this week - aside from US politics - will be on preliminary July PMI data in the major economies. The Bank of Canada is expected to cut its benchmark rate by 25bp to 4.5% on Wednesday, while the Central Bank of Turkey is likely to keep rates on hold tomorrow. The first estimate of US Q2 GDP will be released on Thursday; analysts expect growth to have accelerated to 1.9% annualized in Q2 from 1.4% in Q1. US personal income and spending data, as well as the Fed’s preferred PCE inflation measure, for June will also be closely watched on Friday.

No key Economic Data today

Fixed Income

• Friday’s global IT outage affected bond trading in the US at the end of last week. 2y treasury yields rose +4bp on Friday and were up +6bp over the week. The 10y benchmark yield was also up around +4bp on Friday, but relatively unchanged since the start of last week.
• European bonds had a mixed week, with UK, France, Italy, Portugal and Spain seeing 10y yields rise by around 2bp over the week, while Northern European yields were largely unchanged w/w.

FX

• The US dollar index strengthened 0.3% w/w against a basket of major currencies. EUR and GBP weakened -0.2% w/w and 0.6% w/w respectively against the dollar, while JPY and CHF appreciated last week.
• The commodity currencies also weakened against USD with AUD losing almost -1.5% w/w and NZD -1.8% weaker w/w. ZAR fell -1.7% against the dollar last week.

Equities

• US equities sold off on Friday as the global software issues weighed on tech stocks, in particular Crowdstrike and Microsoft. The Nasdaq100 fell -0.9% on Friday bringing its total loss for the week to almost -4%. The S&P500 declined -2% w/w, the steepest weekly drop since April. Only the DJIA bucked the trend, up 0.7% w/w despite closing lower on Friday.
• There was a similar story evident across other global equity markets, with the EuroStoxx50 down -4.3% w/w and the Nikkei225 down -5.1% w/w. The UK’s FTSE100 fell -1.2% w/w. The Shanghai composite eked out a 0.4% gain last week.
• Local equity markets fared better, with the DFMGI up 1.9% w/w and the ADXGI rising 1.1% w/w. The Tadawul ASI gained 2.6% w/w.

Commodities

• Both Brent and WTI closed lower on Friday, with Brent down -2.9% and WTI down -3.3% in Friday’s session as the global IT outage severely disrupted the transport sector. This offset gains earlier last week, and on a w/w basis, Brent fell -2.8% while WTI declined -2.5%.
• Gold prices also lost ground last week, down -0.4% w/w to USD 2400/oz on Friday.