Wall Street sinks on Trump

Traders work on the floor of the New York Stock Exchange. Photo / Getty Images

US Treasuries gained, while Wall Street and the greenback fell, amid concern that the political firestorm surrounding President Donald Trump means he won't be able to deliver on his plans for tax and regulation cuts.

Investors are concerned about reports of a leaked memo by former FBI director James Comey, which suggests Trump tried to obstruct a federal investigation, the most serious in a series of controversies.

"I think the biggest issue right now is what does this mean for the plan that we thought we were on,"Jeremy Bryan portfolio manager at Gradient Investments in Arden Hills, Minnesota, told Reuters. "Is it delayed or is it dead?"

In 1.13pm trading in New York, the Dow Jones Industrial Average dropped 1.3 per cent, while the Nasdaq Composite Index shed 1.7 per cent. In 12.58pm trading, the Standard & Poor's 500 Index retreated 1.1 per cent.

"We have an environment now where we don't speak about fiscal stimulus any more, we don't talk about corporate tax cuts any more," Commerzbank cross-asset strategist Max Kettner told Bloomberg. The divergence between low volatility in the markets and high volatility in Washington "is unlikely to last very long," he added.

The Dow fell, led by slides in shares of Goldman Sachs and those of JPMorgan Chase, recently down 4.3 per cent and 2.7 per cent respectively.

Shares of Apple also declined, trading 2.3 per cent weaker.

Investors piled into US Treasuries, sending yields on the benchmark 10-year note nine basis points lower to 2.24 per cent. Gold also rose, with spot prices trading 1.7 per cent higher.

"If [Trump] is 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, the London-based head of fixed-income at Investec Asset Management, told Bloomberg.

"Clearly at the margin it's a negative. At the moment there's a classic environment for yields to rally a bit further and for the [US] dollar to sell off."

Investors are easing bets on Federal Reserve interest rate increases, too, as a result. The odds that the central bank raises its benchmark rate next month are about 62 per cent, based on the current effective fed funds rate and the forward overnight index swap rate; that's down from 80 per cent a week ago, according to Bloomberg.

In the latest corporate earnings, shares of Target gained after the retailer posted better-than-expected quarterly earnings and offered an upbeat outlook. The stock traded 1.9 per cent higher at US$55.58 as of 1.49pm in New York, after rising as high as US$56.97 earlier in the day.

In Europe the Stoxx 600 Index finished the session with a decline of 1.2 per cent from the previous close. The UK's FTSE 100 Index fell 0.3 per cent, Germany's DAX Index weakened 1.4 per cent, while France's CAC40 Index slumped 1.6 per cent.