The dollar slipped and Asian stocks fell after Joe Biden ended his re-election campaign and endorsed US Vice President Kamala Harris. China’s central bank cut a key short-term interest rate.

A Bloomberg gauge of the US currency’s strength shed 0.1% on Monday, after the US president bowed to pressure from the Democrats, with the yen and the Swiss franc edging up. The Mexican peso also climbed. US stock futures gained, while 10-year Treasury yields slid in Asia.

Stocks dropped from Japan to South Korea and Australia. Futures for Hong Kong equities pointed to a steady open. The People’s Bank of China (PBOC) slashed the borrowing cost for a popular money market loan for the first time in almost a year, stepping up support for growth while shifting towards a new policy benchmark.

Investors have mulled for weeks a greater prospect that Donald Trump will win the November election following Biden’s weak debate performance, only for bets on a Trump win to accelerate last week following an assassination attempt on the Republican candidate a week ago. The question for investors is whether to stick with such trades now that Biden has dropped his bid for re-election.

“Facing bombshell surprises for the second week in a row, the Asian market will be under intense scrutiny,” said Hebe Chen, an analyst at IG Markets. “The accelerated wave of risk aversion could hit Asian stocks harder than the previous week, as investors digest the unfamiliar political context. The foreign exchange market will also feel the heightened pressure.” 

In commodities, oil and gold rose in early trading on Monday.

The S&P 500 dropped 0.7% last Friday to cap its worst week since April. Tech shares fell ahead of earnings reports this week, while CrowdStrike Holdings Inc, the firm behind a massive information technology failure that grounded flights and disrupted corporations around the world, slumped as much as 15% before paring losses. 

Tesla Inc and Alphabet Inc will be the first of the “Magnificent Seven” to report earnings on Tuesday. Analysts will likely press Elon Musk’s electric-vehicle giant on the progress of its plans for robotaxis. And investors will delve into the details of Google’s parent revenue boost from artificial intelligence. 

Instead, President Xi Jinping at the weekend unveiled sweeping plans to bolster the finances of China’s indebted local governments as the ruling Communist Party announced its long-term blueprint for the world’s second-largest economy. Those are centred around shifting more revenue from the central to local coffers, such as by allowing regional governments to receive a larger share of consumption tax.

“Like most documents of this kind, it did not say how Chinese leaders intended to reach those goals, many of which would require policies that are contradictory in nature,” said Bob Savage, the head of markets strategy and insights at BNY Mellon. “The contradiction of China growth versus stability are hanging over Asia-Pacific markets and flows, still leaving Chinese yuan and commodities a key focus.”

Investors will watch whether China’s one- and five-year loan prime rates will also move lower later on Monday, after the PBOC’s decision to reduce the money market rate. 

Elsewhere this week, traders will be focused on economic activity data in Europe, US second-quarter growth and a slew of corporate earnings. The Bank of Canada will give a rate decision, while the Federal Reserve’s preferred measure of inflation is also due.  

  - Bloomberg