NEW YORK (Reuters) - U.S. stocks fell sharply and Treasury prices rose after ABC news reported that former U.S. National Security Advisor Michael Flynn is prepared to testify that President Donald Trump directed him to make contact with Russians when he was a presidential candidate.
Separately, federal prosecutors said Flynn pled guilty to lying to the Federal Bureau of Investigation and that he admitted to speaking with a top member of the Trump transition team regarding his communications with Russia's ambassador to the United States.
The White House issued a statement saying Flynn's lying to the FBI implicates Flynn alone.
JOHN STOLTZFUS, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER ASSET MANAGEMENT, NEW YORK:
“The news came out on Flynn, and it looks to me like the market is taking a moment to pause. All of a sudden, there are sell orders, and it looks like a good opportunity to take some profits.”
“The S&P 500 is down about 1 percent. Without an overreaction, I think this is probably as close to a low as we hit. It’s an instant reaction that has little to do with the economy.”
WILLIAM DELWICHE, INVESTMENT STRATEGIST, BAIRD, MILWAUKEE:
“It looks like it’s reaction to news that Flynn is prepared to testify against Trump.”
“I think it’s the uncertainty element. It’s a Friday not knowing what is going to come next. The market doesn’t like uncertainty, particularly uncertainty heading into weekends.”
“Beyond that, you step back and look over the move we have had over the last week and a half, you could argue we are due for some sort of pull back or consolidation.”
ART HOGAN, CHIEF MARKET STRATEGIST, WUNDERLICH SECURITIES, NEW YORK:
“We have to point to something that is new and that would be the Flynn announcement. The problem is we don’t know exactly what he’s going to say. That’s the unknown and the market doesn’t like to try to price unknowns. We have an information vacuum.”
OMER ESINER, CHIEF MARKET ANALYST; COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:
"That (ABC) report is definitely what drove the dollar and equities sharply lower initially. To the extent that this headline further ensnares this administration into this investigation or suggests a widening of the Special Counsel’s probe I think that it is certainly a key concern for global investors and that’s why we are seeing the dollar come off."
JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM, NEW JERSEY:
“We finally got that selloff people are waiting for. It is news-driven obviously, or the thought of news, certainly related to Flynn. The market is shooting first and asking questions later. But if it turns out to be true it causes volatility. They read those headlines and immediately you got massive activity coming through - it’s not low volume, it’s high volume. You are seeing gold markets react the other way, you are seeing the safety bets come on.
"When you have a rally that had such a long run, if you get a stimulus, or if you get a point, that is the news item they have been waiting for to sell it off a little bit. Whether it is effective or really means something, who knows. But it is just a reason and the real point is the follow up, let’s see what happens the rest of the day. If they continue to sell them off you have to be a little concerned but if they rally them right back, we’ve seen this story before. Itchy trigger fingers, is what I’m saying.”
BUCKY HELLWIG, SENIOR VICE PRESIDENT, BB&T WEALTH MANAGEMENT, BIRMINGHAM, ALABAMA:
"This is all hearsay at this point, but it looks like Flynn indicated Trump instructed him to contact the Russians. It looks like the high-frequency traders used that as an excuse to start selling stocks. The news is not verified yet, and even if it is, it's not likely to affect the fundamentals of the market. The tax vote is the biggest thing today."
"It's an opportunity for high-frequency traders to sell into the downturn. They trade in microseconds. In my opinion, the selloff is just about done."
STOCKS: U.S. stocks came off their initial lows. The benchmark S&P 500 index <.SPX> traded down 0.74 percent; Dow Jones Industrial Average <.DJI> off 0.64 percent; Nasdaq Composite index <.IXIC> falls 1.14 percent.
BONDS: 10-year U.S. Treasury note up 18/32 of a point in price, pushing yield down to 2.35 percent <US10YT=RR>; 30-year Treasury bond climbed 1.20/32 points in price, pushing yield down to 2.75 percent.FOREX: Euro unchanged at $1.1902 <EUR=>; U.S. dollar falls 0.60 percent to 111.85 Yen.
(Americas Economics and Markets Desk; +1-646 223-6300)