European and Asia stocks track Wall St sell-off

Thursday 10:45 BST

What you need to know
● Europe and Asia bourses soft after Wall Street sell-off
● Futures signal more losses for Wall Street
● Dollar finds its footing but pound jumps above $1.30
● Yen, gold and Treasuries firm as traders again seek havens
● Brent crude slips back towards $52 a barrel
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Hot topic

US equity futures are weaker while haven assets are again in demand, as the wave of investor risk aversion sparked by political turmoil in Washington continues to impact markets.

Traders were badly rattled on Wednesday as increasing controversy enveloped the Trump administration, shattering the calm that had seen Wall Street stocks this week hit record levels.

The S&P 500 dropped 1.8 per cent, causing the CBOE Vix index, a measure of implied volatility known as Wall Street’s fear gauge, to surge 46 per cent — though, granted its close at 15.6 was still below its historic average of about 20.

The US dollar index slid to its lowest level since Donald Trump was elected US president in November, and investors sought perceived safety, pushing benchmark Treasury yields down 11 basis points, while propelling the Japanese yen and gold both 2 per cent higher.

“The news out of Washington is alerting markets to the rising implementation risk associated with the pro-growth policies that have already been priced into markets. The more this occurs, the greater the downward pressure on stocks, the dollar and government bond yields,” Mohamed El-Erian, chief economic adviser to Allianz, told the FT.

The tone on Thursday remains negative, though the action is less febrile as traders reassess the sell-off and note the appointment of former FBI director Robert Mueller as Special Counsel to lead the investigation of Russian meddling in Mr Trump’s election victory.

“This may lead to a slowdown in market reaction, as Special Counsels take months/years to conclude their investigations, although it certainly does mark a higher stage of escalation and potential risk for the administration,” said analysts at Citi.

“We may see some stabilisation [in markets], but it will stabilise in uncertainty, so to speak.”

The new session sees S&P 500 futures indicating the benchmark index will lose 0.2 per cent to 2,353. The dollar index is barely changed at 97.56 and 10-year Treasury yields, which move opposite to the bond price, are slipping another 2bp to 2.20 per cent.

The yen is 0.4 per cent stronger at ¥110.37 per dollar and gold is up 0.1 per cent to $1,261 an ounce.

Equities

Other bourses are still playing catch-up with Wall Street’s accelerating losses into the close on Wednesday.

The pan-European Stoxx 600, which shed 1.2 per cent in the previous session, is off another 1 per cent. London’s FTSE 100 is off 1.3 per cent as foreign currency earners balk at a stronger pound.

In Tokyo the Topix index fell 1.3 per cent, little helped by a Q1 GDP reading that outperformed expectations.

Sydney’s S&P/ASX 200 lost 0.8 per cent, Hong Kong’s Hang Seng retreated 0.6 per cent and mainland China’s Shanghai Composite was 0.45 per cent lower.

Forex and fixed income

With the dollar regaining its poise, many of its peers are under pressure.

The euro is retreating from its best level since November, down 0.4 per cent to $1.1109. German 10-year Bund yields — which represents the prime European fixed income haven — are off 6bp to 0.32 per cent.

Emerging market currencies, which tend to be highly sensitive to shifts in market risk appetite, remain under severe pressure. The Turkish lira is down 1.9 per cent, the Mexican peso is off 2.1 per cent and the South African rand is slipping 2.8 per cent.

However, sterling is up 0.5 per cent to a seven-month high of $1.3032 and 10-year gilt yields are down just 2bp at 1.04 per cent after UK retail sales data came in much stronger than expected.

The Australian dollar is stronger too, up 0.2 per cent at $0.7453 after employment data came in much stronger than expected.

Commodities

Oil is pulling back from Wednesday gains, which were spurred by news that US inventories had fallen for the sixth consecutive week.

Brent crude, the international benchmark, is down 0.9 per cent to $51.74 a barrel after closing the previous session 1.1 per cent higher.

West Texas Intermediate, the main US contract, is slipping 1.7 per cent to $48.26 a barrel.

Additional reporting by Hudson Lockett in Hong Kong

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Via FT