Trump’s controversies, disappointing U.S. economic data hits the dollar
Houston Mirror - Thursday 18th May, 2017
Details about Trump-Comey conversations lead to questions about charges of obstruction of justice against the President
Trump’s week of turmoil started with firing Comey and discussions classified information with Russian diplomats
Broadly upbeat global growth has underpinned risky assets
WASHINGTON, U.S. - Donald Trump’s extended week of turmoil, that started with firing FBI Director James Comey has spilt over the financial world leaving global stocks dented.
The increasing concerns regarding the U.S. President has indicated that his reform agenda could be facing a slow down hitting the dollar and spurring a pullback in richly valued stock.
Further, following Comey’s ouster and reports that Trump discussed sensitive national security information about the Islamic State militant group (ISIS) with Russian diplomats - Trump is likely to be facing the threat of impeachment and possible obstruction of justice charges.
Added to this, the disappointing U.S. economic data on Wednesday weighed heavy on the dollar and broadly upbeat global growth underpinned risky assets and supported the multi-year lows in measures of market volatility.
The retreat in the dollar has now given up all the gains it made following Trump's presidential election win in November last year.
A pull-back from record highs for world stocks underscores investor unease about this week's headlines from the U.S.
According to Hans Peterson, global head of asset allocation, at SEB Investments, “The Trump issue seems to come in waves, and now we have another wave. I have been asked if he is going to be impeached. I think that is the type of discussion some (investors) are having.”
Peterson noted that institutional clients are turning cautious.
While they were still close to record highs, U.S. stock futures ESc1 were off 0.5 percent.
Strategists at Morgan Stanley wrote in a note to clients, “It is the ambitiously valued U.S. equity market which needs watching in respect of the long-term risk outlook.”
According to Thomson Reuters data, at nearly 18 times forward earnings, the S&P 500 trades at a significant premium to its long-term average valuations of 15 times.
Further, attractively valued European stocks slipped slightly, although the region's brighter economic outlook and better-than-expected corporate profits continues to draw investors.
A report in Reuters explained, “Upbeat growth prospects and signs of stronger regional integration also spurred flows into regional bond markets, narrowing the gap between U.S. and German government borrowing costs to its tightest level in over six months. This has started to partly reverse a trend that began during the euro zone debt crisis of 2011/2012, where the single currency bloc and the United States' economic paths appeared to diverge.”
It said that the reversal was also evident in currency markets, with the euro climbing to its highest since November 7 - just before the U.S. presidential election - against the dollar.
Concerns about the strength of consumer sentiment too were high following recent U.S. data that includes softer-than-expected retail sales and inflation.
BBH currency strategists wrote in a note to clients, "The political morass that has engulfed the Trump Administration is a major distraction,” adding that investors were already concerned about the momentum of the U.S. economy.
Starting the year with robust growth that outstripped that of the United States, the euro zone economy has set the stage for a strong 2017.
ING's senior rates strategist Martin van Vliet was quoted as saying, “At the moment everyone is focusing on the political relief in Europe and the political unrest in the U.S."
Meanwhile, in commodity markets, safe-haven gold hit a two-week high, climbing 0.6 percent to $1,243.31 - rising for five straight days.
Concerns about oversupply, despite efforts by top producers to extend output cuts once again weighed as data showing an increase in U.S. crude investors hit oil prices.
Brent crude fell 0.3 percent to $51.53 a barrel while U.S. West Texas Intermediate (WTI) crude slipped 0.6 percent.
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