It's not uncommon for stock markets to Starr sliding in the middle of May after news flow from Q1 earnings subsides. Since this year's seasonally strong period recieved an additional boost from a big Presidential honeymoon trade, the question had been what it would take to knock a teetering bull market over the edge.
Growing political uncertainty in the US combined with election results showing fears of political instability in Europe were overblown has sparked a major re-evaluation of political risk around the world. Capital has been leaving risk markets like stocks and the US dollar with some heading back to Europe, boosting EUR and GBP and some fleeing for defensive havens sending gold soaring.
Continuing on from yesterday's selloff in North America, overseas markets have been plunging overnight with the Nikkei and FTSE falling 1.3% and the Dax dropping 0.9%. US index futures continue to fall dropping another 0.5% this morning.
Talk of impeachment in the past has been terrible for markets. The Watergate scandal that led to the resignation of President Nixon coincided with the 1973-74 Grandaddy Bear Market. Also, the 1998 mini bear market that saw the S&P lose 15% in three weeks occurred in the middle of the Lewinsky scandal and attempt to impeach President Clinton.
It remains to be seen how long the Russia investigation may continue as a big story. President Trump is heading out on the road to Saudi Arabia, Israel and Italy plus a G7 summit which may shift focus elsewhere. On the other hand, Comey has been invited to testify to Congress next week. Even if this somehow manages to blow over, it's still a prelude to the big budget battle looming for September that could lead to a government shutdown.
With a potentially volatile summer looming ahead, markets remain active, creating trading opportunities. A strong UK retail sales report, Falling US dollar and more polls giving Conservatives a huge lead with their party manifesto now out has ignited a big rally in GBP today, sending cable back above $1.3000. JPY and gold continue to climb, while EUR has dropped back slightly after a rally.
CAD continues to struggle, still underperforming the weak greenback. A 1.8% drop in oil prices is dragging on the loonie. The possibility that President Trump could try to score a win in trade talks against Canada and Mexico to distract from his problems at home may also be having a negative impact on CAD.
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