On the first day of the new week, investors will be busy determining whether U.S. President Biden's decision to withdraw from the re-election campaign and instead support Vice President Harris will increase or decrease the chances of Trump returning to power.

At the beginning of the Monday Asian session, the global market has revolved around this topic, causing an initial market movement: the typical 'Trump trade' represented by long dollar and betting on the steepening of the U.S. bond yield curve showed signs of cooling in the morning. At the same time, U.S. stock futures were slightly up after opening and gold rose in the safe-haven atmosphere of growing uncertainty in American politics.

U.S. President Biden announced on Sunday that he will not seek re-election as President of the United States. For weeks, the Democrats have been pressuring the 81-year-old to withdraw from the race in hopes of increasing the chances of defeating Trump. In the end, Biden announced this decision on Sunday and supported Vice President Harris, 59, as the Democratic presidential candidate. And now, with just a few weeks left until the official nomination convention in mid-August, for the Democratic Party.

Biden said in a statement on the social media platform X, "While I have always planned to seek re-election, I believe that passing the baton now is in the best interest of our party and our country, and I will be fully focused on fulfilling my duties as president for the remainder of my term."

"It's time to come together and defeat Trump, let's do it," Biden wrote in a subsequent post.

Recent polling numbers show Trump's lead has continued to grow over the past few weeks, especially after the last failed assassination attempt. Democrats hope Harris can reinvigorate their campaign in November: some polls in the market show that she could perform better against Trump than Biden.

After Biden announced his withdrawal on Sunday, some betting market odds did show a slight drop in the probability of Trump winning the November election. Nevertheless, his chances of winning are still over 60%, far ahead of Harris, who is currently the most likely Democratic nominee.

Of course, the major impact of Biden's early withdrawal of the baton is that market participants are no longer as certain that Republicans will be able to sweep to total victory in November's election. The U.S. Congress is currently split, with the Republicans holding a narrow majority in the House of Representatives and the Democrats controlling the Senate.

Investors generally believe that a divided Congress is more favourable to the market, as it makes it more difficult for either party to push through radical policy changes, and there may be some balancing effect, which may be one of the reasons why U.S. stock futures rose slightly in the early session.

In U.S. history, there have not been many cases of incumbent presidents voluntarily deciding not to run for re-election, with the most recent example dating back to Lyndon B. Johnson in 1968. As we introduced last week, on Sunday, March 31, 1968, Johnson announced that he was dropping out of the 1968 election; the next day, the S&P 500 index soared by 2.5%.

However, it may be unlikely that U.S. stocks will rise that much this time around. The focus of the market in the early part of this week is likely to be more on the success or failure of some 'Trump trades'.

From the performance after the opening session, the spot USD index fell 0.2% in early Monday trading, while non-U.S. currencies such as the Mexican peso, which have been under heavy pressure due to concerns over Trump's tariff policies, rose. This seems to suggest that many market traders believe that with the probable change of a competitor, from Biden to Harris, it will be more difficult for Trump to win, although Trump himself is extremely confident and has publicly stated that Harris is 'more likely to win' than Biden.

Lga Yangol, director of emerging market research and strategy at Credit Agricole, said: "The knee-jerk reaction is that this is bad for the dollar, but it is too early to conclude that. This depends largely on Harris' initial performance, the choice of her running mate, and the results of polls in swing states."

In addition, the U.S. bond market is also experiencing suppression of 'Trump trades'. The drop in long-term U.S. bond yields in early trading was significantly greater than that of short-term yields, indicating a slight reversal of the steepening trade of the yield curve associated with a Trump win.

Of course, regardless of how the US political scene is tumultuous, gold with hedging properties is still considered one of the best investment options by some investors. Spot gold rose 0.5% in early Asian trading as the uncertainty of the US election intensified and the safe-haven sentiment benefited gold.

Gold prices hit record highs last week. Since the beginning of this year, gold prices have been supported by the market's increasing bet on the Federal Reserve's shift towards loose monetary policy. Lower interest rates are usually beneficial for interest-free asset gold.

Editor/Somer