(FinancialPress) — The US dollar and global stocks dropped on Wednesday after one of the strongest advocates for free trade in the Trump Administration resigned from his post in the White House. This started fanning fears that US president Donald Trump will continue with his protectionist efforts, which range from tariffs to a potential trade war.
Gary Cohn the former public servant in question, was considered a line of defense against the protectionist efforts of other members of the Trump Administration. On Tuesday, he announced he is leaving the cabinet — which set off a global domino effect of asset sales of all kinds.
MSCI’s world equity index, a benchmark for stocks in 47 countries, lost 0.2% of its value. Before that, Asian markets had seen some positive movement after South and North Korea announced they would hold their first meeting in over a decade.
The US Benchmark Standard & Poor’s 500 Index opened 0.7% below its previous closing value while Dow Jones futures lost 1% itself.
The CBOE volatility index, colloquially known as Wall Street‘s “fear index”, rose a worrying 8%.
European car-makers took some of the hardest hits from the wave of fear that started spreading. As a whole, the sector dropped 0.5%. European markets recovered from early-trading losses to close their sessions at -0.1%.
Neil Wilson, analyst for ETX Capital chimed in on the issue: “The implication is that without the restraining influence of Cohn on Trump, the president will now have a free hand to press ahead with further tariffs and generally up the ante on trade. “
“This in itself does not bode well for risk despite that small boost we saw on news that North Korea could consider de-nuking.”
The foreign exchange and commodity markets felt the effects of Cohn‘s departure. The U.S. dollar lost 0.4% vs. the Japanese yen. The Asian currency is often seen as a safe haven during times of uncertainty.
ANZ analysts said that “the worst outcome for financial markets, in terms of potential to create volatility, would be a confirmation of rising trade friction and benign neglect of the dollar in the short term”.