The inability to provide a stable economic, and deliver cohesive governance will have long term consequences for the current U.S. administration.
Stock prices across the globe went south for a second day following an exodus of U.S. executives from Donald Trump’s business councils thus dealing a fresh blow to hopes of promised tax reforms.
For a third day in a row there was surge into U.S. & German Treasury bonds as well as gold.
Markets were also battered after Trump’s latest comments on the violence ensnared Charlottesville, Virginia, after a white nationalist protest. His comments have alienated some of his Republican allies and have dashed hope for a hike in infrastructure spending and tax cuts, both of which were key components in his election campaign.
Further weighing down the market is China-backed North Korea’s loud rhetoric.
On Thursday, New York’s equity indexes all took a downward turn and hit their multi-week lows, with the MSCI’s index of Asian shares outside Japan falling by 0.6% on Friday.
MSCI’s world index also slipped by 0.3% to its one week low.
“In a week where we started by worrying about nuclear war, markets have quickly moved on from this, with yesterday’s weak session more of a response to fears that Mr Trump’s strategy for the economy and business is falling apart and later the terrible terrorist attack in Barcelona,” wrote Jim Reid, a strategist at Deutsche Bank, in a note to clients.
In Europe, the pan-European STOXX 600 index opened fell by 0.9% in its opening with the bulk of the losses being felt by travel and leisure related stocks. The attacks in Barcelona led to investors selling shares in AENA, a Spanish airport firm, and airlines including Ryanair and EasyJet.
The download pressure was also visible in forex which pulled down the greenback to its weekly low against the yen. The USD fell by 0.5% and was seen approaching its year low of 108.13 yen.
Analysts at ING Bank foresee USD remaining pinned near current levels, at the expense of the yen.
“Tail risks such as geopolitics, protectionism and the unwind of easy central bank money all provide valid reasons to remain cautious in chasing risk,” said analysts at ING Bank in a note to clients. “Dollar/yen continues to capture this nervousness and could move down towards the 109.00 level.”
The Euro rose by 0.2% against the dollar, but fell to a three-week low of $1.1662 after the minutes of the European Central Bank’s July 20 policy meeting showed its concern over too sharp a rise against the dollar.
Analysts at ING justified the ECB’s euro concerns and expects the central bank to proceed cautiously while unwinding stimulus, which in turn will limit the upside to European bond yields.
European bond yields have fallen in recent days following the ECB comments with the 10-year Bunds hitting its one-week low of 0.41% while its 10-year Treasury bonds hit their one-week lows on Thursday.
The bearish trend however benefited gold, with spot prices rising by 0.4% to touch their two months peak. Gold prices are on track to touch two week highs.