Political turmoil in Washington has prompted yet more money to flow out of American assets, as scandal surrounding President Donald Trump prompts a re-evaluation of the value of US stocks.
Investors pulled money out of US equity funds for the seventh week in the last nine, in the seven days to Wednesday, according to fund flow tracker EPFR.
European assets have been among the main beneficiaries of the turnaround in US equities’ recent misfortunes, with investors moving more money into equity funds focused on the region for the eighth consecutive week.
Bond market funds also saw an inflow of $9.7bn during the week up to 17 May, while near-cash-equivalent money market funds saw $19bn inflows.
Fixed income assets were among the biggest losers from the election of Trump, with more than a trillion US dollars wiped from global bond markets in November in the expectation that inflation would rise.
The dollar surged in tandem to peak against a basket of currencies in December. However, since Trump has taken power the trade-weighted dollar has retraced all of its upward moves as doubts over the viability of the reflationary programme came to the fore.
The Trump administration has been distracted in the last fortnight by chaos surrounding the President’s abrupt firing of Federal Bureau of Investigation (FBI) director James Comey. The FBI was investigating possible Russian attempts to influence the Presidential Election which brought Trump to power.
While some politicians wish to impeach the President, which would almost certainly prompt a massive sell-off of riskier assets, investors are more worried about the implications for the promises of tax cuts and infrastructure spending which prompted the massive movement of money towards US stocks.
The White House’s difficulties in passing major legislation also have implications for the rate of Federal Reserve monetary tightening. Investors predicted an infrastructure spending spree not funded by tax rises would lead to a faster rate of interest rate rises for the central bank.
Political difficulties in raising spending (made manifest by the failure to pass healthcare legislation in March) might therefore imply a slower rate of tightening.