Markets fall in reaction to Trump turmoil

European and Asian equity markets slumped in the wake of the worst day in eight months for U.S. stocks as the political crisis engulfing U.S. President Donald J. Trump’s administration drove investors to the safety of bonds.

Shares across Europe extended declines following new revelations about undisclosed contacts between Trump’s campaign and the Kremlin. The Justice Department Wednesday appointed a special counsel to probe Russia’s role in the 2016 election, deepening a crisis fueled by reports Trump asked FBI Director James Comey in February to halt an investigation before firing him last week. Treasury yields dropped to the lowest in a month, while crude slumped the most in two weeks. The dollar benefited from weakness in emerging-market currencies as political turmoil in Brazil added to the chaos in Washington.

As the confusion surrounding Trump threatens to derail the policy agenda that helped push global equities to records as recently as Tuesday, a gauge of U.S. stock volatility surged the most since the U.K. voted to leave the European Union last June. Many of the trades sparked by the president’s November election have now reversed, with the dollar all but erasing its post-election rally.

“The market will revert to much higher volatility and this could be the start of it,” said Richard Haworth, chief investment officer of 36 South Capital Advisors, a London-based hedge fund which bets on rising price swings. “The sharp move this week reflects how short volatility the market was — how complacent.”

What’s ahead for investors:

Federal Reserve Bank of Cleveland President Loretta Mester speaks on the economy and monetary policy in the U.S. Odds of a June Fed rate hike settled around 60 percent, while full pricing of a next hike shifted to November from September, per Fed-dated OIS rates. U.S. Treasury Secretary Steven Mnuchin offers his first congressional testimony since taking office, appearing before the Senate Banking Committee on issues ranging from the rollback of Dodd-Frank financial regulations to his decision not to name China a currency manipulator. And ECB minutes of the April 27 meeting, after which Mario Draghi pointed to a broad-based economic upswing, will give more clues on its internal debate about tapering.

Here are the major moves in the markets:

Stocks

The Stoxx Europe 600 Index declined 0.9 percent, heading for the lowest since May 1, as of 8:40 a.m. in New York, after tumbling 1.2 percent on Wednesday for the biggest drop since September. Futures on the S&P 500 fell 0.3 percent after the benchmark gauge slumped 1.8 percent on Wednesday, its worst day since Sept. 9. A Japan-traded ETF tracking Brazil’s Ibovespa Index tumbled 7.5 percent, the most since November, as political crisis returned to the country after last year’s impeachment process.

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Currencies

The Bloomberg Dollar Spot Index increased 0.3 percent, after dropping 0.5 percent on Wednesday to the lowest level since Nov. 8. Brazil’s real led declines among emerging-market currencies, slumping 5.1 percent. South Africa’s rand weakened 2.3 percent. The euro fell 0.3 percent to $1.1123, after four straight days of gains. The British pound jumped 0.4 percent to $1.3018 after data showed retail sales rose more than expected in April.

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Bonds

The yield on 10-year Treasuries dropped three basis points to 2.2 percent, heading for the lowest since April 18. Benchmark yields in France and Germany fell five basis points. Bonds of state-controlled energy company Petroleo Brasileiro SA dropped by the most in six months amid a political crisis in Brazil. The company’s 800 million euros of notes due in January 2025 led the slump, falling 4.5 cents on the euro to 102 cents, the biggest decline since November.

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Commodities

Gold was little changed at $1,260.71 an ounce, erasing a decline of as much as 0.6% Zinc led a retreat in industrial metals, dropping 3.4, as political turmoil in the U.S. threatened the outlook for the world’s biggest economy. Copper slumped 2 percent. West Texas crude dropped 1.4 percent to $48.41 a barrel, after jumping 0.8 percent in the previous session.

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Asia

The MSCI Asia Pacific Index slid 0.8 percent, the most since April 6. Japan’s Topix slumped 1.3 percent while a volatility measure on the Nikkei 225 Stock Average jumped to the highest this month. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong retreated 1.1 percent.