Here's how markets are reacting to news of the Trump-Comey memo

By Eric Lam and Isobel Finkel

The latest political turmoil in Washington has triggered a bout of risk aversion in financial markets after the extended lull of the past few weeks.

Asian equities retreated overnight, S&P 500 Index futures slipped and haven assets from gold to the yen advanced as the unrelenting pace of developments threatened to derail Trump administration policy prescriptions cheered by Wall Street.

“We have an environment now where we don’t speak about fiscal stimulus any more, we don’t talk about corporate tax cuts any more,” Commerzbank AG cross-asset strategist Max Kettner said in Bloomberg TV interview. The divergence between low volatility in the markets and high volatility in Washington "is unlikely to last very long," he added.

Sure enough, with the White House on the defensive, volatility gauges reflected growing anxiety among equity investors. The CBOE Volatility Index jumped more than 8 percent as of 7:53 a.m. in New York.



U.S. stocks, two days removed from a record close, could be in for a weak Wednesday if index futures are any guide. S&P 500 e-mini futures dropped as much as 0.7 percent overnight before paring the slide to 0.4 percent 90 minutes before the open. That’s still the biggest drop in a month.



Fixated on developments in the world’s largest economy, Asian investors sent equities from Japan to Australia lower, with the MSCI Asia Pacific Index dropping 0.3 percent as energy producers and banks lead losses. MSCI’s Emerging Market Index snapped a seven-day advance.

“A further deterioration in the U.S. political climate may hurt sentiment more broadly,” Citigroup Inc. analysts including Johanna Chua wrote in a note. “Despite a still-supportive fundamental backdrop for emerging markets, investors are likely to be reluctant to add risk to portfolios just yet,” they said, noting that up to now currencies from developing nations have been stable.

The yen, typically a haven currency thanks to Japan’s creditor-nation status, strengthened to its highest level in more than a week:



The euro also caught a bid, spiking higher as the latest Trump-Comey news filtered in late Tuesday in the U.S. That helped the currency rise to its highest against the dollar since before the U.S. presidential election.



Trump has been under fire after dismissing Comey last week, with speculation swirling that he was motivated by displeasure at the FBI’s probe into his electoral campaign’s ties to Russia. Adding to concerns about disarray at the White House: reports Monday that the president had revealed sensitive and highly classified information to two Russian diplomats.

The greenback has taken a hit, with lackluster economic data also weighing it down:



The Bloomberg Dollar Spot Index has fallen for six straight days and is down almost 5 percent this year. Commerzbank’s Kettner said in the London interview that if macroeconomic data turn south, “effect for markets could be quite severe.”

Meanwhile gold, the classic haven, headed for a fifth daily gain in the spot market, climbing 0.7 percent amid the sense of unease:



Whether today’s moves continue to affect markets is another question, as the Republican leadership in Congress assesses how to proceed. “I am not sure of the extent of the Trump news on the dollar,” said Khoon Goh, head of Asia research in Singapore at Australia & New Zealand Banking Group. “The weakness in Asian currencies this morning likely due to some retracement after the strong run recently.”