Thursday, 18 May 2017

Markets fall on Trump turmoil

Markets fell sharply on Wednesday.

The MSCI All-Country World Index fell 1.2 percent as the S&P 500 tumbled 1.8 percent, the Nasdaq Composite plunged 2.6 percent and the STOXX Europe 600 fell 1.2 percent.

The US 10-year Treasury yield fell 11 basis points to 2.22 percent. Benchmark yields in France and Germany fell six basis points to 0.83 percent and 0.378 percent respectively.

Analysts attributed the declines to political turmoil in the US centred on President Donald Trump.

“If he’s preoccupied defending himself and if it goes a lot further, then any hope of his legislative agenda coming to the fore is going to be reduced,” John Stopford, head of fixed-income at Investec Asset Management Ltd in London, said.

“What has been setting in over the course of the day is that political uncertainty is something that’s likely going to be with us for a significant amount of time,” said Dennis Debusschere, Evercore ISI’s head of portfolio strategy and quant.

However, some technical analysts think that further declines will be limited.

Katie Stockton, chief technical strategist at BTIG, said that the S&P 500 has an initial support level of 2,340 but thinks that “a decline of that magnitude will be avoided”.

“For the most part we really do see this contained,” said Sameer Samana, global quantitative strategist at Wells Fargo Investment Institute.

On the other hand, Ilya Feygin, managing director and senior strategist at WallachBeth Capital, thinks that if Trump's proposed tax reforms, deregulation and infrastructure spending are cancelled, “this market is going to go down so hard that we haven't seen anything like it in the last few years”.

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