Cape Town - The turmoil engulfing President Donald Trump’s administration spilled over into financial markets, as US stocks fell the most since March and Treasuries rallied with gold.
The S&P 500 Index slumped to a three-week low and the CBOE Volatility Index spiked the most since January as the deepest crisis of Trump’s presidency threatened to derail the policy agenda that helped push equities to records as recently as Monday.
The dollar added to a retreat aided by a report that he shared terrorism intelligence with Russian officials. Treasury 10-year yields tumbled to 2.25%, while emerging-market equities halted a seven-day rally.
“If he’s preoccupied defending himself and if it goes a lot further, then any hope of his legislative agenda coming to the fore is going to be reduced,” John Stopford, the London-based head of fixed-income at Investec Asset Management, said in an interview with Bloomberg TV.
“Clearly at the margin it’s a negative. At the moment there’s a classic environment for yields to rally a bit further and for the dollar to sell off.”
After a protracted period of dormancy, financial markets are beginning to react to developments in Washington in a more unified manner. With stock and bond volatility muted, investors have looked for a clearer reaction to the political din in currency markets.
The US currency now sits at its lowest level since the day of Trump’s shock win, a retracement some blame on perceptions his legislative agenda faces deeper challenges.
Even here, though, traders have been divided on what is moving the US currency, with some seeing catalysts beyond politics.
One explanation for the retreat might be weaker-than-expected readings on US inflation and economic growth in the past month, data that have coincided with easing perceptions of political and economic risks in Europe. While traders continue to price in two interest rate increases by the Federal Reserve this year, speculation is rising that European counterparts are preparing to withdraw their own stimulus measures.
“The only political calibration the Fed has is how much Trumponomics we were going to get that they can’t see yet,” Neil Dwane, global strategist at Allianz Global Investors, said in an interview with Bloomberg TV. Even so, US policymakers “are in the mindset to raise as long as the markets are prepared for it,” he said.
Here are some key events coming up:
OPEC’s internal Economic Commission Board meets in Vienna to discuss the market in preparation for the group’s formal meeting on May 25. The US Energy Information Administration is projected to report that crude stockpiles declined by 2.67 million barrels in the week ended May 12, according to a Bloomberg survey of analysts.
Data from Japan on Thursday will likely show the economy accelerated in the first three months of the year, posting a fifth straight quarter of expansion. That would be the longest consecutive period of growth since 2005 to 2006.
Here are the main moves in markets:
Stocks
The S&P 500 fell 0.8% to 2 381.22 at 14:31. The measure touched an all-time high Tuesday. Bank shares led the retreat with a 1.5% slide. The Stoxx Europe 600 Index fell 0.7%, after ending little changed in the previous session.
The MSCI All-Country World Index fell 0.6% from a record, with banks having the biggest impact across all regions. A volatility gauge on the S&P 500 climbed 10% after jumping 2.2% on Tuesday.
Currencies
The Bloomberg Dollar Spot Index dropped 0.2% as of 13:28, trading at the lowest level since November 8. The yen rose 0.9% to 112.21 per dollar, after climbing 0.6% on Tuesday. The euro added 0.3% to $1.1117, extending Tuesday’s 1% surge and heading for the highest since November 4.
Bonds
The yield on 10-year Treasuries slipped five basis points to 2.28% after dropping two basis points on Tuesday. Benchmark yields in France lost two basis points to 0.87%, while those in Germany declined two basis points to 0.42%.
Commodities
Gold rose 1% to $1 249.07 an ounce, extending gains to a fifth day. Crude futures added 0.3% in New York, reversing an earlier 1.3% loss, before the release of US government data on oil inventories and Iraq, together with non-OPEC nation South Sudan, backed the extension of supply cuts to balance the market.
Asia
Japan’s Nikkei 225 Stock Average slid 0.5%, a day after the equities benchmark came within 2 points of topping 20 000. Australia’s S&P/ASX 200 Index lost 1.1%, and Chinese shares traded in Hong Kong fell 0.5%.
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