European stocks slid yesterday after US Democrats launched a formal impeachment inquiry against Donald Trump and the US president renewed trade war fears.
The pound meanwhile dropped as British MPs returned to parliament one day after a momentous Supreme Court ruling that Prime Minister Boris Johnson’s decision to suspend parliament ahead of Brexit was unlawful.
“Markets have taken a bit of tumble on fears US president Trump could be impeached, while the (UK) drama...is just as intoxicating as the Brexit drama rumbles on,” noted Neil Wilson, chief market analyst at trading group Markets.com.
Wall Street, which closed Tuesday with sizeable losses ahead of Democratic leader Nancy Pelosi’s widely expected announcement of a formal impeachment inquiry, pushed higher yesterday.
Democrats accuse Trump of abuse of power in a reported attempt to pressure the newly-installed president of Ukraine to open a corruption investigation into his lead challenger for the White House, Joe Biden, and Biden’s son Hunter.
Focus in Europe meanwhile was on the UK parliament after Tuesday’s Supreme Court judgement dented Johnson’s authority, prompting calls for his resignation and casting further doubt on his promise to pull Britain out of the European Union on October 31, come what may. Concerns over US and British political turmoil added to worries over international trade after Trump ripped into China at the UN, declaring that the time of Beijing’s “abuses” of the system was “over”.
Touting what he argued were the benefits of his tariff war with China, Trump reiterated his hope that a trade agreement “beneficial to both countries” could be struck.
“But as I said very clearly, I will not accept a bad deal for the American people,” he said.
London’s blue-chip FTSE 100 index finished the day down less than 0.1% at 7,289.99, while Frankfurt shed 0.6% to 12,234.18 and Paris lost 0.8% to 5,583.80 points at yesterday’s close.
“With political storms brewing both sides of the Atlantic, investors found little appetite for riskier assets such as shares,” said market analyst Fiona Cincotta at CityIndex.
Oil prices took their own hit, also after data indicated a build-up in US crude inventories.
“Oil markets continue to sell as risk sentiment remains sour after Trump accused China of currency manipulation, theft of intellectual property and product dumping,” said Stephen Innes, Asia Pacific market strategist at AxiTrader.
“Mind you, this is nothing shockingly new but coming on the cusp of trade negotiations, it doesn’t exactly suggest he’s laying down the welcome mat for the Chinese delegation.”
Meanwhile, the pound dropped more than 1% yesterday versus the dollar, ceding gains made the previous day after the Supreme Court’s ruling against Prime Minister Boris Johnson, as investors priced in many more months of Brexit and general election risk.
The fall put sterling on course for its biggest daily decline in two months.
Johnson was dealt a blow by the UK top court, which ruled on Tuesday he had unlawfully suspended parliament, sending the pound half a percent higher.
While the ruling reinforced belief that Britain was unlikely to leave the European Union without a deal by Oct. 31, other risks remain, including a split parliament and an early general election.
“Yesterday there was some misplaced optimism that Johnson would be removed and no-deal would be further away. But what we see today is that the status quo in terms of Brexit has not altered at all,” Rabobank strategist Jane Foley said.
“But we still have Johnson in place, the opposition still doesn’t want a general election and we are still cornered with respect to Brexit, it’s taken a day for that to sink in.”
Sterling’s weakness was in part also down to a firmer dollar, which has been lifted by bellicose trade war rhetoric from US President Donald Trump. Against the greenback, the pound fell 1.1% to $1.2356, a two-week low. It also weakened to a six-day low of 88.17 pence against the euro.
The pound had strengthened to $1.2504 on Tuesday, not far from a 2-1/2 month high of $1.2582.