Dow falls 300 points, bonds rally on Trump turmoil

The Dow Jones Industrial Average tumbled more than 300 points, Treasuries rallied the most since Brexit and volatility spiked higher as the turmoil surrounding the Trump administration roiled financial markets around the globe.

Major U.S. stock indexes headed for the steepest losses since September, while the CBOE Volatility index jumped more than 30 percent, shattering the calm that gripped markets in the past month as the crisis threatened to derail the policy agenda that helped push equities to records as recently as Monday.

The 10-year Treasury yield sank toward 2.20 percent in its steepest decline since the day after the Brexit vote. The spread between 10-year and two-year yields narrowed to the flattest since before Trump's election. The dollar weakened to a level last seen in November. Emerging-market equities halted a seven-day rally.

"What has been setting in over the course of the day is that political uncertainty is something that's likely going to be with us for a significant amount of time," said Dennis Debusschere, Evercore ISI's head of portfolio strategy and quant. "We may be looking at a higher volatility backdrop with a trending lower market for the next couple of months."

After a protracted period of dormancy, financial markets are beginning to react to developments in Washington in a more unified manner. With stock and bond volatility muted, investors have looked for a clearer reaction to the political din in currency markets. The U.S. currency now sits at its lowest level since the day of Trump's shock win, a retracement some blame on perceptions his legislative agenda faces deeper challenges.

"If he's 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, said in an interview with Bloomberg TV. "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 dollar to sell off."

Here are some key events coming up:

  • OPEC's internal Economic Commission Board meets in Vienna to discuss the market in preparation for the group's formal meeting on May 25.
  • Data from Japan on Thursday will likely show the economy accelerated in the first three months of the year, posting a fifth straight quarter of expansion. That would be the longest consecutive period of growth since 2005-2006.

Here are the main moves in markets:

  • The S&P 500 index fell 1.5 percent to 2,365.67 at 3:35 p.m. in New York. The measure touched an all-time high Tuesday.
  • Bank shares led the retreat with a 3.2 percent slide. Real-estate, utilities and consumer staples were the only of 11 groups in the S&P 500 to advance.
  • The Stoxx Europe 600 index fell 1.2 percent, after ending little changed in the previous session.
  • The MSCI All-Country World index lost 0.8 percent from a record, with banks having the biggest impact across all regions.
  • A volatility gauge on the S&P 500 climbed 28 percent after jumping 2.2 percent on Tuesday.
  • The Bloomberg Dollar Spot Index dropped 0.5 percent, trading at the lowest level since Nov. 8. The yen rose 1.9 percent to 111.06 per dollar, after climbing 0.6 percent on Tuesday.
  • The euro added 0.6 percent to $1.1152, extending Tuesday's 1 percent surge and heading for the highest since Nov. 4.
  • The yield on 10-year Treasuries dropped 10 basis points to 2.22 percent after losing two basis points Tuesday.
  • Benchmark yields in France lost six basis points to 0.83 percent, while those in Germany declined six basis points to 0.378 percent.
  • Gold futures rose 1.8 percent to $1,258.80 an ounce, extending gains to a fifth day.
  • Crude futures added 1.25 percent, reversing an earlier 1.3 percent loss, with gains accelerating after the release of U.S. government data on inventories.
  • Japan's Nikkei 225 Stock Average slid 0.5 percent, a day after the equities benchmark came within 2 points of topping 20,000.
  • Australia's S&P/ASX 200 Index lost 1.1 percent, and Chinese shares traded in Hong Kong fell 0.5 percent.

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