Asian markets down on fears Trump crisis could hit economic plans

Andrew Cummings
May 20, 2017

Investors were shelving rosy hopes for USA tax reform and rethinking strategies premised o Trump's economic growth promises on Wednesday, as the President faced his loudest criticism yet over possible collusion between his election campaign and Russian Federation.

The dollar fell in Asia on Wednesday, with the chaotic USA political situation weighing on expectations for economic policies favoring tax cuts and higher spending and as key lawmakers call for a memo reportedly written by former FBI director James Comey on Trump discussing an active investigation to be released.

Meanwhile, most Asian equities sank Thursday while the dollar held losses on fears the intensifying crisis surrounding Donald Trump could lead to his impeachment and shatter any chances of his economy-boosting agenda being implemented.

The dollar wallowed near six-month lows against a basket of major currencies on Thursday as the USA political crisis appeared to deepen, and likely to delay any efforts by President Donald Trump to carry out his economic stimulus plans.

The Australian dollar decreased to 0.7425 USA dollar from 0.7434 US dollar.

The U.S. Dollar Index, which measures the value of the American dollar against British pound, euro, Japanese yen, Canadian dollar, Swedish krona and Swiss franc, fell 0.72 percent to 97.42. Elsewhere in Europe, thin trading and the murky USA political outlook dragged down stocks, with the Paris CAC shedding 0.5 percent and Frankfurt's DAX down 0.4 percent.

Concerns among global investors got worse on Tuesday when reports emerged that Mr. Trump asked James Comey, who he subsequently fired as the head of the Federal Bureau of Administration, to back off the investigation of former national security adviser Michael Flynn. "We haven't been dollar bulls for a while and even if we see some more recovery this does just look like the tail-end of the dollar's run (higher)". The Shanghai Composite Index edged 0.2 percent lower to 3,104.44.

The developments could distract Trump from pursuing his proposed policies such as tax cuts and simpler bank regulations, which have underpinned a record-setting rally on Wall Street.

Hong Kong shed 0.6 percent in the afternoon, Sydney shed 0.8 percent, Seoul was 0.3 percent off and Singapore also gave up 0.3 percent.

United States equities, which have been the main beneficiary of the Trump rally, had their biggest one-day drop yesterday since last June's Brexit referendum.

In morning trading, the FTSE 100 was 1.32% lower at 7,404 points.

Dow Jones closed down by 1.76 percent, S&P 500 down 1.80 percent, Nasdaq finished the day down by 2.56 percent.

Optimism over pro-growth economic policies under Trump helped drive a sharp rally in US stocks after the November 8 USA election.

The 10-year yield declined further today, falling to a 4-week low of 2.181%.

In commodities, oil prices were little changed after settling at a two-week high overnight after USA crude inventories declined for the sixth straight week. Spot gold rose for a fifth day and was up 1.8 percent at $1,258.38 an ounce.

US crude CLc1 rose 0.2 percent to $49.46 a barrel, and was poised to end the week 3.4 percent higher. "While the market is fishing for a base this morning, momentum does suggest there is the potential for a deeper US dollar sell-off", OANDA's Innes said.

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