After the failed assassination attempt on former president Trump changed sentiment that his next presidency is probable, the newly appointed VP may have the opposite effect instead. J.D. Vance's previous criticism of Trump in 2016 is seen as hypocritical, despite his current reversion to supporting Trump. The market's reaction to Trump's increased likelihood of re-election and his VP pick has been mixed. Investors are particularly focused on potential changes in international trade relations, especially with countries like Taiwan and China, which could significantly impact global supply chains and technology sectors. This was based on isolationist or protectionist stance under the old Trump administration that may repeat if he is re-elected.
EQUITY
Taiwan and China stocks crashed after Trump's comments on Taiwan paying for U.S.-provided defence. Wall Street's strong performance limited broader losses, with the Dow jumping 1.85% to record close with rumours that investors are shifting from tech to economically sensitive (small-cap) sectors over valuations and interest rate cuts. Key chipmakers like TSMC fell ahead of crucial earnings reports, while the banking index climbed 3% after good results from banking giants, namely Goldman Sachs, Blackrock, and Morgan Stanley.
GOLD
Gold prices closed above the all-time high on Tuesday and continued to test a higher trendline before retreating slightly. Soft inflation data and dovish Fed signals, along with a high chance of a Trump presidency, drove these gains, as fear is nigh towards the Chinese market. Fed Chair Powell's comments on easing inflation have also boosted rate cut bets, and lower rates make gold more attractive by reducing opportunity costs. Gold to the euro, however, has not reached an all-time high, an antithesis to continued gold strength that is already at excessive buying levels.
OIL
Oil prices dipped on Tuesday but are recovering in London session. The drop stems mainly from China's weakening demand and weaker retail sales in June, along with a 3.7% drop in refinery output year-on-year. The IEA points out that China's lacklustre consumption is dragging down global oil demand growth. Incoming crude oil inventories data on the other hand, will tell whether domestic demand will stay in a drawdown.
CURRENCY
The yen may have been through another round of intervention that saw the price go to 156 yen per dollar. Sterling hit a one-year high after UK inflation data exceeded expectations. The dollar weakened as markets anticipated a September Fed rate cut. New Zealand's inflation remained high, but rate cuts are still expected. The Taiwan dollar and Chinese yuan were particularly hurt by Trump's remarks about Taiwan's defence payments. The market is looking forward to the ECB interest rate decision for Thursday.
