The next few weeks will be very busy for investors, with elections in France, the U.K., and Iran, as well as the debate between President Joe Biden and Republican Donald Trump on Thursday.
Smart people say that it all points to what could be a very exciting time, especially for the global bond market and the currency market that is open all the time. Thierry Wizman, global FX and rates strategist at Macquarie, said on Monday, “We are entering a politically charged three-week period for markets.” The three weeks will end with the Republican National Convention from July 15–18.
Even though there weren’t any major market events happening that day, the financial markets were pretty calm. This is in contrast to how the upcoming political events might affect them. The DJIA SPX COMP and other major U.S. stock indexes mostly went down at the end of the day, but the Dow Jones Industrial Average went up 260.88 points, or 0.7%. Yields on two-year and 30-year Treasurys BX:TMUBMUSD02Y also didn’t change much.
Investors will be watching the U.S. presidential debate between Biden and Trump in Atlanta starting on Thursday for clues about how they plan to handle taxes and tariffs, which “are likely to have a considerable effect on the economy” and “could sway the markets” on their own, say Jason Pride, chief of investment strategy and research, and Michael Reynolds, vice president of investment strategy, at Glenmede, which is in charge of about $45 billion in assets.
Thursday’s debate is the first one of the 2024 presidential race. Right now, national polls show that the Democratic president has a slight edge over the Republican candidate.
Meanwhile, Ian Lyngen and Vail Hartman, strategists at BMO Capital Markets, say that the French political process could still lead to a flight-to-liquidity trade in the bond market as the first of two election dates approaches on Sunday. President Emmanuel Macron shocked the French political world when he called for early elections on July 7 and Sunday. Now, a new poll shows that the far-right party is ahead of him in the race. BMO strategists wrote in a note on Monday that the “political upheaval in Paris” is making it more likely that people will need cash.
In the UK, Prime Minister Rishi Sunak has called for an election for July 4, which he is now likely to lose. The U.K. gilt, or government-bond, market has been “indifferent” to whether Sunak’s Conservative Party or the Labour Party wins. However, a team at TD Securities says that a Labour Party win would likely be seen as good for the British pound GBPUSD, -0.01% in the currency market.
Francesco Pesole, an FX strategist at ING, boils down some of his views on events outside the U.S. like this:
- With regard to this Sunday’s first round of the French election, “the latest polls show Marine Le Pen’s far-right RN party remains in the lead (35%) … followed by the left-wing NPF party (29%) and President Emmanuel Macron’s centrist coalition (19%). Barring a change in these poll figures before the weekend, political uncertainty may well keep a lid on the euro EURUSD, -0.02% in the coming days.”
- The U.K. election on July 4 is expected to produce a landslide win by the Labour party and “we could also see some negative spillover on GBP [British pound],” a view which contrasts with that of the one held at TD Securities.
- “Another event to watch this week is the Iranian presidential election on Friday, although reports suggest a run-off (on July 5) is likely, with three candidates seen as major contenders: one reformist and two conservatives.”
