U.S. Futures, Europe, Asia Stocks Extend Losses on Political Concerns

Stocks in Europe and Asia extended losses Thursday as growing nervousness about the White House and sharp moves in the dollar jarred financial markets.

The Stoxx Europe 600 fell 0.6% amid declines in banks and auto companies, while London's export-heavy FTSE 100 index shed 1% as the British pound climbed 0.5% to $1.3032 on retail sales data. Markets in Asia ended lower after Wall Street's biggest selloff since September interrupted a period of calm.

Recent political developments have put U.S. President Donald Trump's administration on the defensive and investors world-wide are more worried about his ability to push through proposals on tax cuts, deregulation and infrastructure spending. News that former FBI Director Robert Mueller will serve as special counsel to oversee a federal investigation into alleged Russian interference in the 2016 presidential election did little to calm investors.

"Everything happening in Washington is likely to if not derail, at least delay what the market expectation has been about significant tax reform and tax reduction," said David Lafferty, chief market strategist at Natixis Global Asset Management.

Futures pointed to a flat opening for the S&P 500 on Thursday, but Asian equity markets were broadly lower, echoing the selloff in the U.S. on Wednesday Japan's Nikkei Stock Average fell 1.3% as a global flight to haven assets boosted the value of the yen on Wednesday, weighing on the country's exporters, particularly in the auto sector. Japanese life insurers, which are large holders of U.S. government bonds, were hit by earlier declines in Treasury yields.

Declines in Japanese shares came despite economic data released Thursday that showed first-quarter gross domestic product expanded 2.2% from a year earlier.

Australia's S&P/ASX 200 fell 0.8%, while stocks in Shanghai dropped 0.5% even as expectations for more infrastructure spending boosted construction and property stocks. Hong Kong's Hang Seng Index was 0.6% lower but Tencent shares hit record highs after the Chinese tech giant's first-quarter net profit rose 58% on the year, beating estimates.

Some investors were concerned about the general stability of the White House and the remote but growing chance of U.S. political risk knocking shares off record highs later this year.

"Two weeks ago, we were talking about policy, and now we're talking about all of the political firestorm swirling around the White House," said Brett Wander, CIO for fixed income at Charles Schwab Investment Management.

Still, the dollar showed signs of recovering Thursday from its worst session since March as investors assessed the longer term implications for financial markets. The WSJ Dollar Index was up 0.2% on Thursday after erasing its postelection gains.

10-year U.S. Treasury yields steadied around 2.219% Thursday from 2.216%, following their biggest daily decline since the week of the U.K. referendum in June. The spread between the two-year and 10-year Treasury yields closed at less than 100 basis points for the first time since the November election on Wednesday.

Some investors said the recent developments were unlikely to detail a buoyant economy and solid corporate earnings. The first quarter earnings season was the best in six or seven years, with double-digit growth seen in all the main regions, according to Emmanuel Cau, global equity strategist at J.P. Morgan. Japan recorded the highest earnings per share growth, followed by Europe and the U.S., the bank said.

That also means the Federal Reserve should remain on course to raise rates, with investors still pricing a roughly 65% chance of a rate rise in June, according to CME Group data.

"From a fundamental investor perspective, I'm not seeing anything that shakes my view that the U.S. economy is ticking along just fine," said James Athey, a manager at Aberdeen Asset Management, which manages $385.2 billion in assets.

David Winning, John Wu and Joanne Chiu contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at kenan.machado@wsj.com