Biden exits presidential race: What you need to know

• Markets muted on US political bombshell

• Trump odds of winning election dip at Biden exit

• Vice President Kamala Harris seen as replacement

• Watch out for potential unwinding of “Trump trades”

Another weekend, another bombshell dropped in the US political landscape!

Just one week after the attempted assassination of Donald Trump, President Biden announced on Sunday that he will be exiting the presidential race.

Despite this adding another layer of uncertainty to the U.S. presidential elections, markets have offered a muted response…

The lowdown…

For weeks, Joe Biden resisted calls to drop out of the presidential race in favour of a younger candidate with the appeals growing stronger following his disastrous debate with Trump.

The bigger picture

With Biden stepping down, Democrats will need to pick a new replacement.

Although Biden has endorsed Vice President Kamala Harris, this does not necessarily mean that she is the party’s new nominee. Still, many Democrats have quickly backed her to run as the party’s presidential nominee against Donald Trump.

What does this mean?

If Kamala Harris becomes the new candidate, she could give Trump a run for his money in this presidential race. She has already raised $50 million less than a day after Biden’s endorsement, with prediction markets showing that Trump’s victory odds declined slightly.

Why are markets muted?

This could be based on market expectations over Trump still winning the US elections in November.

However, the next few months promise to be eventful especially if the new Democrat presidential nominee builds enough momentum to threaten Trump's path to the White House.

Watch out for “Trump trades”

There could be an unwinding of the “Trump trade” if expectations fall over Trump winning a second term as POTUS. Just to be clear this is still early days, but it could mean more volatility for Bitcoin, Dollar, Mexican Peso, and equity markets.

In the meantime…

The US political drama adds to the cocktail of key themes that continue to influence global markets.

As highlighted in our week ahead report last Friday, corporate earnings are in full swing with big tech in focus.

All eyes will also be on the US June PCE report on Friday which may reinforce bets around the Fed cutting interest rates in September. This report could impact gold which hit an all-time high at $2483.80 last week and US equity markets that are up this afternoon thanks to a bounce in tech shares.