【MACRO Insight】Biden's Withdrawal and Endorsement of Harris as Candidate Trigger Dual Political and Economic Shocks!

U. S. President Joe Biden announced on Sunday that he will no longer seek the Democratic nomination, stating that stepping down from the re-election campaign is in the best interest of the Democratic Party and the nation. Biden supports his running mate, Vice President Kamala Harris, to take over his position. This decision immediately triggered a broad market response, especially in the cryptocurrency and gold markets.

Although the price of Bitcoin briefly fell after Biden announced his withdrawal from the re-election campaign, the market sentiment remains high. The market reacted to the possibility of a Trump vs. Harris showdown, but Bitcoin recovered from its earlier losses, hovering around $68,000. Tony Sycamore, a market analyst at IG Australia Pty, said, “The rise in Bitcoin reflects that in the eyes of the market, Democrats under Harris's leadership cannot surpass Trump in the White House election, and under the leadership of a pro-cryptocurrency U.S. president, Bitcoin is seeing a new dawn.”

Benjamin Celermajer, Co-Chief Investment Officer of Magnet Capital, even publicly stated, “Under the leadership of the Trump administration, the investability of the market will be greatly increased.” He expects tokens with “real value drivers” to perform well, citing tokens related to Maker, Aave, and Lido protocols as examples. Trump has clearly shifted his stance to support cryptocurrencies in recent months, and he will deliver a speech at an important Bitcoin conference in Nashville on July 27. The Republican presidential candidate will also host a fundraising event after the conference, with potential attendees required to donate $844,600 for each seat. In contrast, the market knows little about Harris's stance on cryptocurrency issues; she has neither shown much support nor expressed much opposition to the industry.

Meanwhile, the spot gold market has also been affected by Biden's withdrawal. On Monday (July 22) morning, spot gold continued to rise, breaking through $2,410 per ounce by press time, up 0.41% for the day. The uncertainty of the U.S. election has intensified, and gold and silver have benefited from the sentiment of risk aversion. Before Biden announced his withdrawal from the 2024 presidential election, he fully supported the nomination of Vice President Harris as the Democratic presidential candidate, and Trump said that the latter is easier to defeat than Biden. The dollar fell at the opening of the market on Monday, which also supported gold, and traders may be inclined to the view that if Trump wins the election, he will push the dollar to weaken.

Market observers said that Biden's historic move is less than four months away from the November election, and political chaos may exacerbate Wall Street's turmoil, at least in the short term. The so-called “Trump trade suggestions” (beneficial to energy companies, banks, and Bitcoin, and unfavorable to electric vehicles and renewable energy) may be turbulent after gaining momentum after Biden's disastrous presidential debate.

It is foreseeable that the market will be very turbulent before the Democratic nominee is announced. Analysis suggests that this may be reflected in the dollar, causing fluctuations in fixed income and stocks. Olga Yangol, Head of Emerging Market Research and Strategy at Credit Agricole, said, “People's first reaction is that this is negative for the dollar, but it is too early to conclude. This largely depends on Harris's first appearance, the choice of the running mate, and the reaction of the polls in swing states.”

Rhona O'Connell, Head of Market Analysis at Stonex, said, “My instinctive reaction to Biden's withdrawal is that everything is up in the air in the short term, especially the issue of the Democratic nomination. But it is likely to put the brakes on the 'Trump trade.' From a risk aversion point of view, purely from this perspective, gold's tailwinds are stronger than headwinds. Biden's withdrawal at least means that it has brought a stronger opponent to the Republicans.”Investors will also face a question, whether to continue with the “Trump trade.” “Obviously, volatility may soar,” said Dave Mazza, CEO of Roundhill Financial, before the news was announced on Sunday, “If Harris can give Trump a substantial impact, then we should expect the volatility to continue. However, if Trump continues to lead in the polls and investors believe his victory is inevitable, then the 'Trump trade' will take the upper hand, and volatility will decrease.”After Biden withdrew, the Democrats still need to formally nominate the presidential candidate at the National Convention starting on August 19. From January to June, in the primaries and caucuses held in various states and territories, Biden obtained 99% of the support from the pledged delegates of the Democratic National Convention. Biden's decision to fully support and endorse Harris will undoubtedly have a significant impact on the Democratic delegates.

Although Harris is the preferred candidate, others can also challenge her. In this case, the process of nominating a candidate will become a so-called contested convention. Any challenger to Harris must announce their intention to run before the formal nomination vote and publicly initiate a challenge. However, Biden's withdrawal and support for Harris have undoubtedly paved the way for Harris's nomination within the Democratic Party. Despite facing competition from other potential challengers, Harris has a significant advantage in campaign resources, policy continuity, and party support. Her policy positions, background, and future possible policy direction will all become important factors for voters to consider.

Investors expect that the Harris administration will defend the economic policies implemented during Biden's term, including subsidies for electric vehicles and green energy projects in the Inflation Reduction Act, increasing IRS funding to investigate wealthy tax evaders, imposing a consumption tax on stock buybacks, and implementing a 15% minimum corporate tax rate for large companies. Isaac Boltansky, Director of Policy Research at BTIG, said, “In essence, Harris's potential presidency will be a continuation of the Biden administration.”

In terms of policy stance, it is likely to continue the economic policies of the Biden administration, including subsidies for electric vehicles and green energy projects, as well as tax policies for large companies. If Harris is elected, she may face a Senate controlled by the Republicans, which will limit her legislative ability, especially on the issue of extending tax cuts. At the same time, she does not have a long-term record in economic policy, but her actions as the Attorney General of California show her as an advocate for consumer rights. She also focuses on the plight of low-income and middle-class renters and has close ties with large technology companies, which may be good news for technology investors. Harris is seen as a staunch opponent of the oil industry, supporting environmental policies.

In general, Biden's withdrawal and support for Harris have undoubtedly brought new uncertainty to the market. The fluctuations in the cryptocurrency and gold markets reflect investors' different expectations for future policy directions. As the election approaches, market volatility may further intensify, and investors need to closely monitor political dynamics and their impact on the market.