Joe Biden resignation: ‘Trump Trade’ bets and market volatility expected

US President Joe Biden's withdrawal from the campaign will probably inspire more market volatility until November, as some in Wall Street try anticipating impacts of the 'Trump Trade'. Photo / Getty Images

Joe Biden’s departure from the US presidential election campaign will likely mean volatility in markets for months ahead, ASB economists say.

And news of Biden’s withdrawal prompted fresh speculation about the possible impacts of the so-called “Trump Trade”.

The Wall Street term related to how investors expected a Donald Trump election win to influence markets.

Trump’s plan to impose sweeping tariffs on US imports would likely benefit companies that mostly did business in the US, as opposed to global players, according to investment bankers CBS reported on.

“Investors also think Trump’s return to the White House would mean less regulation, a potential tailwind for heavily regulated sectors such as banking and energy,” CBS Money Watch reported.

“At the same time, economists warn that Trump’s plan to erect stiff new tariffs and deport immigrants would likely cause a flare-up in inflation,” Money Watch added.

Former US President Donald Trump, former first lady Melania Trump, and Republican vice-presidential candidate Senator JD Vance at the Republican National Convention last week. Photo / Getty Images

New Zealand exports and tourism have benefited from a relatively strong US economy in recent months.

Goods trade data from Stats NZ today shows exports to the US were up $91m (12%) last month compared to June 2023.

Wine and beef exports to the United States surged in the year to May, and tourist numbers from the US in May were up compared to a year earlier.

ASB economists said the US election would impact US Treasury bond yields, with the Trump Trade likely to result in higher yields given the impact of proposed tax cuts and tariff hikes on US inflation.

The ASB bank economists said the New Zealand and Australian dollars both opened slightly higher against the US dollar this morning.

“Expect some volatility as the day progresses,” the economists said.

“The Trump Trade gained traction last week after markets interpreted the failed assassination attempt on Trump would raise his chances of winning the November election.”

ASB added: “We still expect markets to remain volatile in the run-up to the US presidential election on November 5.”

Several significant events loomed for the US economy.

The country’s second-quarter GDP data is due on July 25.

A key inflation measure, the Personal Consumption Expenditures Price Index, is due a day later.

And the Federal Open Market Committee’s next meeting is at the end of this month.

The committee will issue its decision on the Federal Funds Rate, which is America’s version of the Official Cash Rate.

ASB said US markets were about 95% priced for a 25 basis point (0.25%) cut from the current 5.25 to 5.50% rate.