Record 'bull market' despite Trump woes
The US dollar continued its slide on Wednesday morning as political pressure on President Donald Trump increased, and the euro hit a two-week high as investors rushed to cover short positions.
Even so America's bellwether S&P 500 stock market marked its longest ever bull-market run - commonly defined as the period since the index was last within 20pc of its 2009 low.
The S&P bull-market run turned 3,453 days old, making it the longest such streak by commonly-used definitions, and comes a day after it hit a record intraday high.
Markets were softer yesterday, as President Trump suffered twin setbacks on Tuesday with two former advisers facing possible prison sentences - and one of them saying Trump told him to commit a crime - possibly hurting his Republican Party's November midterm election prospects and widening a criminal investigation that has overshadowed his presidency. This dampened investor appetite for riskier investments across asset classes.
Industrial stock also dropped ahead of fraught US-China trade talks.
Some analysts said renewed US political uncertainty could keep the dollar under pressure, although the immediate currency impact was modest.
The dollar index, which fell sharply this week after Trump criticised the US Federal Reserve's interest rate increases, inched 5 basis points lower to 95.16.
"Political pressure on Trump is increasing ... reducing the likelihood that he will have the political capital to continue driving fiscal stimulus in the US economy.
This suggests to many market participants that the era of US outperformance is likely to end," said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments in Toronto.
Easing fears about a currency crisis in Turkey and the Italian budget, as well as short-covering, sent the euro up for the sixth consecutive day.
The euro gained 0.16pc to $1.159, close to the two-week high of $1.162 touched earlier in the session.
That marked a nearly three-cent rebound for the single currency from 14-month lows hit last week on fears of contagion from the Turkish currency crisis and renewed worries about Italian political turbulence.
"The euro is helped by a narrowing BTP/Bund spread, slightly lower US real yields and most of all, short-covering," said Kit Juckes, foreign exchange strategist at Societe Generale, referring to the gap between Italian and German government bonds.
Minutes of the Fed's last meeting, due later on Wednesday, were expected to confirm it is on course to raise rates twice more this year.
"Everybody would be surprised if there is anything to dig up in the minutes.
It looks smooth for the Fed to hike in September and then in December.
There has been no indication that the Fed is hesitating," said Niels Christensen, an analyst at Nordea.
The US-China trade talks were set to begin later on Wednesday in Washington. Expectations were generally low given they do not involve high-level officials.
The dollar moved sideways against the Japanese yen at 110.44 yen. It had weakened to 109.76 overnight, its lowest since late June.
Meanwhile, nine of the 11 major S&P sectors fell, with the trade-sensitive industrial sector down 0.71pc ahead of Sino-US trade talks. Energy stocks got a lift from higher oil prices and retailers gained on Target and Lowe's results.
Former Trump campaign manager Paul Manafort was found guilty of tax and bank fraud charges on Tuesday evening, while Trump's former personal lawyer Michael Cohen pleaded guilty to a range of charges and said he acted at the direction of Trump.
Investors are considering whether the twin setback will hurt the Republican Party's election prospects and widen a criminal probe that has overshadowed Trump's presidency.
"There are some question marks on what the implications of yesterday's news are on markets to the extent where they are slightly lower, but that's not much of a move," said Art Hogan, chief market strategist at B. Riley FBR in New York.
"The biggest driver in the market right now is around policy, and investors are certainly curious about what the minutes of the Fed will look like."
The minutes of the Fed's August policy meeting are expected to reaffirm the central bank's confidence in the economy and its commitment to future rate hikes, which Trump has been critical about.