World stocks at two-week low amid calls to impeach Donald Trump

London — World stocks fell to a two-week low and risk assets dipped lower on Wednesday after US law makers called for an impeachment inquiry into President Donald Trump, increasing the prospects of prolonged political uncertainty.

The move by Democrats in the US House of Representatives exacerbated market anxieties running high over global recession risks as well as the US-China trade dispute. Trump delivered a stinging rebuke to China’s trade practices in a speech on Tuesday, adding to the pressure after more conciliatory tones in recent days.

Adding to geopolitical tensions is uncertainty over the outlook for Britain’s Brexit chaos after the UK supreme court ruled Prime Minister Boris Johnson had unlawfully suspended parliament.

MSCI’s global stock index dropped 0.4% in a fourth straight day in the red — the longest losing streak since the end of July rout.

European shares suffered broadly with the pan-European Stoxx 600 dropping 1.4% as technology stocks lead the losses. France’s CAC 40 tumbled 1.6% with export-reliant Germany falling 1.3%.

“It is hard to imagine how long the truce with China can remain on trade and that is adding to the general cautious environment for stocks,” said Neil Mellor at BNY Mellon in London. “As soon as markets start worrying about trade, they look at central banks for help but there is increasing pushback from them too.”

The downturn in Europe followed declines in Asia where Tokyo’s Nikkei suffered its largest loss in three weeks while China and Hong Kong dropped 1% or more. Risk assets elsewhere also took a beating with China’s offshore yuan fell, while oil futures extended declines.

“Chinese shares were already exposed to downside risks. Trump’s comments likely increased those risks,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management in Tokyo. “There are worries about US consumer sentiment. There are also concerns that China’s economic slowdown hasn’t stopped.”

The downturn looked to continue in the US, with US stock futures indicating a 0.1% decline at open. The impeachment inquiry push and disappointing US economic data had knocked Wall Street on Tuesday, sending the S&P 500 0.84% lower, its biggest daily decline in a month.

The House of Representatives will launch a formal impeachment inquiry over whether Trump sought help from the Ukraine to smear former vice-president Joe Biden, a front-runner for the 2020 Democrat presidential nomination.

It is unlikely that the impeachment inquiry would lead to Trump’s removal from office. Even if the Democrat-controlled House voted to impeach Trump, the Republican-majority Senate would have to take the next step of removing him from office after a trial.

Pretty remarkable

Markets have already been roiled by political disquiet in Hong Kong to Britain to Italy and the Middle East.

“Although nothing seems that abnormal these days, yesterday was pretty remarkable as two of the most powerful leaders in the world faced serious misconduct/legal charges and accusations,” said Deutsche Bank’s Jim Reid.

The dollar index, measuring the greenback against a basket of six major currencies, nudged 0.2% higher. Sterling dropped 0.4% to $1.2445, reversing most of its gains from Tuesday. Johnson has vowed that Britain would leave the EU by an October 31 deadline, come what may, but is facing re-invigorated opposition to his plans after the UK supreme court ruled he had unlawfully suspended parliament. Britain’s FTSE 100 index dropped 0.8%.

“Predicting the ultimate outcome of Brexit remains difficult,” said Mark Haefele, chief investment officer, UBS Global Wealth Management. “As a result, the longer-term risk-return outlook for UK equities looks uncertain. We still advise being nimble on sterling.”

Forex markets elsewhere were also in a risk risk-off mood, with the Australian dollar and most emerging-market currencies lower.

The move safe haven assets also saw eurozone government bond yields edge lower, with 10-year benchmark eurozone government bond yields down one to two basis points on the day.

The yield on benchmark 10-year US treasury notes rose to 1.6387%, while the two-year yield stood at 1.6076%.

US crude dipped to $56.51 a barrel while Brent crude eased to $62.12 a barrel — both down nearly $1.

Reuters