Most Asian markets retreated yesterday after two days of gains with confidence hit by fresh revelations regarding Donald Trump’s Russia links.
The sell-off overshadowed a pick-up in energy firms, which tracked a second successive jump in oil prices.
Crude, which has seen wild swings in recent months, has bounced back from last week’s losses with gains of more than 1% Tuesday on bets that US stockpiles had fallen last week.
Comments from the Opec group that its output cuts with Russia were bearing fruit were also welcomed and yesterday Asian traders extended the oil rally, boosting energy companies in Hong Kong, Tokyo and Sydney.
However, the ongoing crisis surrounding Trump stepped up on Tuesday when his son Donald Jr released e-mails showing he had embraced Russia’s efforts to support the tycoon’s presidential campaign against Hillary Clinton.
The news is the latest blow to the White House, which has been battered by accusations over Russian collusion and accusations of cover-ups — fuelling worries about the president’s ability to push through his market-friendly economic agenda.
“Today’s revelation...has sent US political risk to another level,” said Stephen Innes, a senior trader at OANDA.
“Investors are once again questioning President’s Trump’s administration ability to pass through a pro-business agenda/attitude/stance to further stimulate the US economy.”
Tokyo ended 0.5% lower as investors grow averse to risky assets and opt for safer bets such as the yen, which hurts Japanese exporters. Shanghai shed 0.2%, Sydney tumbled 1% and Singapore was down 0.4%. Seoul was 0.2% lower and Wellington gave up 0.6%. But Hong Kong, supported by the energy rally, climbed 0.6% to end near its highest finish since mid-2015.
On currency markets the dollar stepped back from recent gains after Federal Reserve governor Lael Brainard indicated the central bank should take it easy on future interest rate hikes.
Her remarks came ahead of Fed boss Janet Yellen’s two-day congressional testimony, which will be pored over for clues about its monetary policy.
The dollar, which has for years been supported by a move towards US tightening as the economy picks up, has begun to falter of late as other global central banks prepare to shift away from the easy money policies put in place after the financial crisis.
“It’s not just the US central bank that is looking for rate hikes in the future.
There is a solid chance that the Bank of Canada will increase rates tomorrow, and the Bank of England might follow in August,” said AxiTrader market analyst Milan Cutkovic.
The greenback was down against both the yen and euro, although it was up against the pound.
“A unified eurozone versus a US administration looking a little pained and discombobulated after yet another vexing Russia headline was the catalyst to send the euro soaring,” OANDA’s Innes added.
In early European trade London rose 0.5%, while Frankfurt and Paris each added 0.3%.
In Tokyo, the Nikkei 225 closed down 0.5% at 20,098.38 points; Hong Kong — Hang Seng rose 0.6% at 26,043.64 points and Shanghai — Composite fell 0.2% at 3,197.54 points yesterday.
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