Financial markets are set to end the week on the back foot as US political turmoil takes centre stage with many of Trump’s business counsellors resigning. Wall Street suffered its worst sell-off since May with the Dow Jones Industrial Average falling 1.24% to 21,750 points. The S&P 500 was down 1.54%, while the tech-heavy Nasdaq tumbled 1.94%. The sell-off spreads to European stocks on Friday after a terrorists attack in the streets of Barcelona. The Eurostoxx 50 gave up 0.90%, the Dax was down 0.75%, while the CAC 40 slid 1%.
Against this backdrop, investors have switched to risk-off mode, sending equity indices through the floor and piling into safe haven assets. The yellow metal reversed early week losses and returned to $1,290 an ounce, rising more than 2% since Tuesday. The broad debasement of risky assets sees a strengthening of demand for Treasuries. 10-year German Bund yields dipped to 0.40%, while the 2-year slid to -0.71% amid rising bonds’ price.
In the FX market, the yields hungry investors piled into higher yielding currencies such as the Aussie and the Kiwie. AUD/USD rose 0.45% to 0.7920 while NZD/USD was up 0.50% to 0.7315. The single currency was also edging higher - despite the risk-off move - treading water at around 1.1735. The Japanese yen was up 0.40% with USD/JPY trading at around 109.15.
Overall, today’s risk-off move is amplified by the fact that investors are always reluctant to hold risky position over the week-end. Indeed Trump’s political mess creates a substantial risk for markets overreacting on Monday should the situation worsens when markets are closed.
By Arnaud Masset