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Markets: European markets wobble; dollar steadies

● Europe and Asia bourses soft after Wall Street sell-off
● But futures suggest S&P 500 will recover some ground
● Dollar finds its footing and Treasury yields move higher
● Yen and gold shed some gains as havens lose lustre
● Brent crude slips back towards $52 a barrel

US equity futures are firmer and the dollar is steadier, while havens assets are softer, as the wave of investor risk aversion sparked by political turmoil in Washington somewhat fades.

Traders were badly rattled on Wednesday as increasing controversy enveloped the Trump administration, shattering the calm that had seen Wall Street stocks this week hit record levels.

The S&P 500 dropped 1.8 per cent, causing the CBOE Vix index, a measure of stock volatility climbed — though its close at 15.6 was still below its historic average of about 20.

The US dollar index slid to its lowest level since Donald Trump was elected US president in November, and investors sought perceived safety, pushing benchmark Treasury yields down 11 basis points, while propelling the Japanese yen and gold both 2 per cent higher.

“The news out of Washington is alerting markets to the rising implementation risk associated with the pro-growth policies that have already been priced into markets. The more this occurs, the greater the downward pressure on stocks, the dollar and government bond yields,” Mohamed El-Erian, chief economic adviser to Allianz, told the FT.

But Thursday brings a calmer tone, as traders re-assess the sell-off and note the appointment of former FBI director Robert Mueller as Special Counsel to lead the investigation of Russian meddling in Donald Trump’s election victory.

“This may lead to a slowdown in market reaction, as Special Counsels take months/years to conclude their investigations, although it certainly does mark a higher stage of escalation and potential risk for the administration,” said analysts at Citi.

“We may see some stabilization [in markets], but it will stabilize in uncertainty, so to speak.”

The new session sees S&P 500 futures indicating the benchmark index will gain 0.5 per cent to 2,368. The dollar index is up fractionally to 97.61 and 10-year Treasury yields, which move opposite to the bond price, are gaining 3bp to 2.25 per cent.

The yen is 0.5 per cent weaker at ¥111.38 per dollar and gold is down 0.3 per cent to $1,257 an ounce.

Commodities
Oil is pulling back from Wednesday gains, which were spurred by news that US inventories had fallen for the sixth consecutive week.

Brent crude, the international benchmark, is down 0.3 per cent to $52.05 a barrel after closing the previous session 1.1 per cent higher.

West Texas Intermediate, the main US contract, is slipping 0.3 per cent to $48.94 a barrel.