Post-Debate Analysis: Impact on Chinese Equities and the Yuan

Post-Debate Analysis: Impact on Chinese Equities and the Yuan

Macro 5 minutes to read
Redmond Wong

Chief China Strategist

Key points:

  • Trump outperformed Biden in the first presidential debate.
  • Key swing states and Congressional election outcomes are crucial for the political landscape.
  • Expectations of a Trump presidency tend to push up bond yields, equities, and the dollar.
  • Trump tariffs are a potential risk for Chinese equities and the yuan.

Trump outperformed Biden in the CNN presidential debate

The first presidential debate between former President Donald Trump and incumbent President Joe Biden has set the stage for a highly contentious and closely watched 2024 U.S. election. A post-debate CNN flash poll surveyed 565 registered U.S. voters who watched the debate. The results revealed that 67% believed Trump performed better, a significant increase from the 55% before the debate. Biden underdelivered, failing to meet even the relatively low expectations, often appearing lost during the debate.

As both candidates poll neck-and-neck, financial markets are bracing for potential volatility, with investors keenly observing shifts in economic and political landscapes. As the debate proceeded, U.S. Treasury yields ticked up modestly, with the 10-year yield rising by as many as four basis points to 4.32%. Trump's campaign pledge to extend parts of the 2017 tax cuts, funded by higher domestic economic growth and increased tariffs, is generally viewed by investors as worsening the fiscal deficit and potentially raising inflation. According to estimates by the Congressional Budget Office, extending the 2017 Tax Cuts and Jobs Act’s cuts to individual income tax would increase primary deficits over the 2025-2034 period by $3.3 trillion.

S&P 500 eMini futures ticked up slightly as Trump outperformed Biden in the debate. Investors generally expect corporate America to benefit from lower taxes and fewer regulations under a second Trump term compared to a Biden administration. Meanwhile, China’s equity benchmark CSI300 and Hong Kong’s bellwether Hang Seng Index opened lower but reversed all losses into gains, as neither Trump nor Biden mentioned China significantly. Investors had feared that the two presidential candidates would engage in competitive China-bashing and threaten more hostile policies beyond the much-discussed tariffs.

Predictably, following the first presidential debate, investors are likely to increasingly price in the possibility of a Trump presidency 2.0.

Electoral Landscape and Key Dates

The 2024 election calendar features pivotal events that could significantly sway market sentiment. The CNN presidential debate marks the beginning of a series of high-stakes political showdowns. Upcoming milestones include the Republican National Convention from July 15-18 and the Democratic National Convention from August 19-22. Except for delegates from 14 states, those from other states have some leeway not to cast their votes for the pledged candidate of their party. Hypothetically, though unlikely, they may be able to replace their party’s presumptive candidate for the presidential election. Election Day on November 5 will be followed by the Electoral College officially casting votes for President on December 17, with the inauguration set for January 20, 2025.

Current national polling indicates a tight race. However, the election outcome hinges on key swing states, including Michigan, Wisconsin, Pennsylvania, Arizona, Georgia, and Nevada. Current polls suggest a tight race nationally, with Trump holding a slight edge in these critical battlegrounds. Voter turnout and preferences in these regions will be crucial in determining the next president and, by extension, the direction of economic policy.

Beyond the presidential race, the 2024 ballot includes several crucial contests that could reshape the political landscape. All 435 House seats are up for election, with Republicans currently holding a slim majority. The Cook Political Report rates more than 20 seats as toss-ups, indicating a highly competitive race for control of the House. The current Republican majority may flip, and Trump, if he wins in November and returns to the White House, may not have a Republican House to his aid.

In the Senate, Democrats face a challenging map, defending 23 of the 34 seats up for grabs. This presents Republicans with an opportunity to gain a majority and potentially alter the legislative landscape for the next administration.

At the commencement of the next Congress, lawmakers will need to address the expiration of the revised debt limit suspension on January 1, 2025. While the Treasury has room to maneuver to avoid a default for several months, Congress will need to resolve the issue before a deadlock causes investor anxiety and market volatility in both bonds and stock markets.

Economic and Policy Impacts

Trade policy remains a critical area of focus for investors. Both Trump and Biden have signaled preference for more restrictions, which could exacerbate global supply chain pressures and increase costs for imported goods. Trump favors imposing more tariffs, including a 10% levy across the board on goods from all countries and a punitive 60% tariff on Chinese goods. In contrast, Biden is more inclined toward specific trade restrictions targeting particular industries, technologies, and supply chain chokepoints.

As we argued in a previous article, both Trump and Biden will adopt a hardline stance on trade and economic relationships with China, increasingly viewing these issues through the lens of national security. Nonetheless, the plausibility of a 60% punitive tariff on China suggests that an increasingly likely Trump presidency 2.0 could negatively impact the Chinese equity market and the Chinese yuan. The prospect of persistently escalating fiscal deficits and rising fiscal indebtedness in the U.S. may keep U.S. interest rates high, as discussed in this recent Saxo article. While neither Trump nor Biden seems to have a solution for deficits and debts, bond investors tend to be more worried about a Trump presidency due to his propensity to cut taxes.

Modestly Negative for the Yuan and Chinese Equities

As higher U.S. bond yields could drive up the USD, the Chinese yuan may face more headwinds, compounding those from a turbulent trade environment.

For Chinese equities, some potential negatives from adverse trade policies and higher U.S. bond yields under a Trump presidency may be mitigated by spillover effects from a strong U.S. equity market, with U.S. corporations potentially benefiting from additional tax cuts and regulatory relaxation.

The next significant event for the Chinese equity market is the Third Plenary Session of the 20th Central Committee of the Communist Party of China, or the Third Plenum, scheduled from July 15 to 18. According to a statement from the Politburo meeting on June 27, the Third Plenum will discuss and decide on “issues of further comprehensively deepening reform and advancing modernization with Chinese characteristics.” For a discussion of China’s reforms, you can refer to our previous articles on June 12 and June 3.

Conclusion

The first presidential debate has underscored the intense scrutiny and high stakes surrounding the 2024 U.S. presidential election. As the candidates continue to vie for the presidency, the financial markets are responding to the shifting dynamics. Investors are closely monitoring the political landscape, with key dates and battleground states playing crucial roles in shaping market expectations. Trade policies and economic strategies of the candidates, including those impacting fiscal deficits and regarding China, are pivotal factors influencing market sentiments.

Selective recent articles from this author:

Macro 2024-06-20 US Macro: Is This Time Worse than WWI and WWII?

2024-06-14 China/Hong Kong Market Pulse: EU Targets Chinese BEVs with New Tariffs

2024-06-12 China/Hong Kong Market Pulse: Reforms, Not Stimulus, Drive Growth

2024-06-09 China/Hong Kong Market Pulse: Container Shipping Rides High the Geopolitical Waves and Geoeconomic Tides.

2024-06-03 China/Hong Kong Market Pulse: Symbolism at Play Approaching the Third Plenary Session

2024-05-29 Understanding the Surge in the Japanese Equity Market and Corporate Share Buybacks

2024-05-27 China/Hong Kong Market Pulse: Challenges and Opportunities in China’s Electric Vehicle Industry

2024-05-21 China/Hong Kong Market Pulse: New Approach to Housing Policy and Market Implications

2024-05-13 China/Hong Kong Market Pulse: Barbell Tactical Trades on High Dividend and Technology Names

2024-05-06 China/Hong Kong Market Pulse: Hong Kong Equity Rally Surpasses Global Markets; USDCNH Decline Signals Opportunity

2024-03-19 US Election: Shaking Up Chinese Equities and the Renminbi?

2024-03-06 China/Hong Kong Market Pulse: Two Sessions Spark Divergent Market Reactions in Mainland and Hong Kong

2024-03-04 China/Hong Kong Market Pulse: Decoding Expectations about the Two Sessions

2024-02-06 China/Hong Kong Market Pulse: The Stormy Waters of the Chinese Equity Market

2024-01-15 Taiwan Elections Aftermath: Markets May Find Relief from Another Four Years of DPP Presidency Hampered by a Hung Legislature

2024-01-12 Taiwan's 2024 Elections: Balancing Geopolitical Realities and Economic Pragmatism

2024-01-11 Macro Update: What to Watch as Potential Factors that Could Lead to the End of Quantitative Tightening

2024-01-09 Investing in China: Navigating Q1 amid economic challenges

2023-11-07 China/Hong Kong Market Pulse: Central Financial Work Conference Unveils Near-Term Bullish Signals

2023-10-12 China/Hong Kong Market Pulse: Central Huijin Increases Stakes in the Four Largest SOE Banks

2023-10-09 China/Hong Kong Market Pulse: Evaluating the Potential Rebirth of Pro-Market Reforms

2023-10-05 Understanding the Surge in Bond Yields: Term Premium, not “higher for longer”

2023-10-03 No one's indestructible

2023-09-27 China/Hong Kong Market Pulse: Property Debt Overhang, Recovery Signs, and Policy Outlook

2023-09-20 China/Hong Kong Market Pulse: Stronger Activity Data, Regulatory Easing Amid Shadow Banking and Local Government Debt Risks

2023-09-01 China Update: Implications of the New Policy to Lower Interest Rates on Outstanding Mortgages and Other Related Changes

2023-08-21 Macro Update: Ceasing Interest Payments on Reserve Balances in a Fiscal Dominance Regime

2023-08-08 China Update: Investing in China's High-Quality Development Initiatives

2023-07-25 China Updates: Politburo Focuses on Quality Growth and Industry Policies

2023-07-06 China faces challenges from generative AI amidst the fragmentation game

2023-06-23 Macro update: Contrary to Market Expectations, Data Shows Mitigated Liquidity Impact as US Treasury Refills General Account

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.