Neil DennisEuropean and Asian equity markets followed Wall Street lower as the turmoil surrounding the Trump presidency in the US continued to grip global markets.
Reports of Donald Trump sharing sensitive secrets with Russia and his alleged interference with the federal investigation that followed have put the Presidency under scrutiny in recent weeks, and on Wednesday Wall Street vented its concerns by selling risk assets.
Donald Trump: Markets hit by uncertainty surrounding the Trump presidency - source: Gage SkidmoreTrump slump
After both the Dow Jones Industrial Average and the S&P 500 lost 1.8% overnight, Asian markets followed suit with a 1.3% loss on Tokyo's Nikkei 225, while Hong Kong's Hang Seng index fell 0.7%.
European markets were a little softer too, with typical losses of 0.2% for indexes in France and Germany.
Dollar takes a breather
The dollar, however, recovered a little poise having fallen 1.5% during the first three days of the week. The dollar index, a measure of the US currency's relative strength against a basket of its major rivals, climbed 0.1% to 97.67. The euro fell 0.2% to $1.1139, while the pound edged 0.1% lower to $1.2958.
Lukman Otunuga, research analyst at FXTM said: "Although Dollar bullish bets have been an investor’s popular choice since Trump’s victory in November, the rapidly diminishing optimism over the implementation of the proposed fiscal policies may trigger a shift in sentiment."
He added: "The thick layer of uncertainty surrounding Trump should encourage short term dollar bears to look beyond the US rate hike expectations with the Greenback poised to edge lower."
Risk aversion buoys bonds
Investors' exiting riskier positions helped contribute to the second biggest rally of the year on US bond markets.
Yields, which move inversely to prices, fell. The yield on the 10-year Treasury note fell 11 basis points to 2.21% on Wednesday, but had recovered 2 bps on Thursday to 2.23%. The 10-year German Bund yield fell a further 1 bp to 0.36% on Thursday, having fallen 6 bps on Wednesday.
Basra gold market: Gold edges lower after rising 2.5% this week - source: David StanleyGold rally stalls
Gold, another asset that tends to benefit from risk aversion, edged 0.2% lower, having gained 2.5% over the previous three trading sessions.
"The brewing political instability in Washington has raised questions about Donald Trump’s ability to deliver his pro-growth policies, with a growing sense of uncertainty hastening the flight to safety," added Otunuga at FXTM.