Markets aren’t feeling too peachy about impeachment. Calls for President Trump to be impeached are growing louder and that has created a long overdue sense of fear in markets. The so-called fear gauge, the VIX index spiked 10%, the Dow Jones tanked triple digits when it opened and haven demand for US treasuries spiked. Particularly with political risk in Europe seemingly in the rear-view mirror, financial markets are starting to react to the volatile situation in Washington.

The concern centres around a memo from recently-fired FBI Director James Comey. According to the memo, President Donald Trump told Comey “I hope you can let this go” with regard to the investigation of former National Security Adviser Michael Flynn. If the memo is anything more than ‘fake news’ then it could be interpreted as an obstruction of justice, which is an impeachable offense.

The President of the United States can’t be impeached because of a memo but if his focus is on clearing his name, it isn’t on his agenda of tax cuts, infrastructure spending and deregulation. Trump getting any market-friendly legislation passed anytime soon seems pretty remote.

The FTSE, Lloyds and Lib Dems
As far as global markets go, the FTSE 100 was a relative haven from the latest Trump storm, thanks in part to optimism about the upcoming general election. The launch of the Liberal Democrats party manifesto which includes a pledge for a new Brexit referendum was largely ignored by markets. Britain’s two party system means Lib Dem polices will likely never make it to light of day. That said, markets will be watching the polls for whether Remain voters show signs of switching party loyalty.

Lloyds banking Group getting free of government ownership for first time since the financial crisis saw its shares rise to the top of the UK benchmark. Lloyds being fully private again distances the trauma of the bailout and removes a big seller that was capping possible share price gains. It makes Lloyds a much more attractive proposition all around.

The dollar’s demise
Compressed stock market volatility has seen investors react to US policy uncertainty via currency markets. The US dollar is now at its lowest level since the surprise election victory of Donald Trump last November. The dollar-yen currency pair (USDJPY), which typically has a good correlation with the US stock market, tanked 1.5% on Wednesday. That’s a big move by forex market standards.

The dollar upset has been compounded by optimism on the other side of the pond. The British pound strengthened after data showed UK unemployment at 4.6%, its lowest in 42 years. The euro was in demand again, stretching its recent run of gains since the French election after data showed consumer price inflation remained steady at 1.9% y/y in April.