Here's what the latest Trump-Comey news is doing to markets

HONG KONG (BLOOMBERG) - Financial markets are stirring after the extended lull of the past few weeks, with deepening political tensions in Washington triggering a bout of risk aversion.

The latest developments in the saga of President Donald Trump and ousted FBI director James Comey is weighing on a number of assets. S&P 500 Index futures flagged early concerns among investors, which were reinforced by declines in Asian equities. And the US dollar has all but erased its Trump-trade rally as expectations for policy stimulus fade.

Volatility gauges are starting to tick higher, with uncertainty over how the latest developments will play out sending investors to gold.

US stocks could be in for a weak Wednesday if index futures are any guide, with S&P 500 e-mini futures down 0.6 per cent as of 12:46pm Tokyo time.

Taking their cue from the US, stocks from Japan to Australia are in retreat, with the MSCI Asia Pacific Index dropping 0.4 per cent as energy producers and banks lead losses. MSCI's Emerging Market Index snapped a seven-day advance.

"A further deterioration in the US political climate may hurt sentiment more broadly," Citigroup Inc. analysts including Johanna Chua wrote in a note. "Despite a still-supportive fundamental backdrop for emerging markets, investors are likely to be reluctant to add risk to portfolios just yet," they said, noting that up to now currencies from developing nations have been stable.

Reports that Trump asked Comey to drop an investigation into his former national security adviser started to filter in at the end of the US trading day, meaning the fallout is mostly being felt in Asian trading.

The yen, typically a haven currency thanks to Japan's creditor-nation status, strengthened to its highest level in more than a week: Trump has been under fire after dismissing Comey last week, with speculation swirling that he was motivated by displeasure at the FBI's probe into his electoral campaign's ties to Russia. Adding to concerns about disarray at the White House: reports on Monday that the president had revealed sensitive and highly classified information to two Russian diplomats.

The US dollar has taken a hit, with lackluster economic data also weighing on the currency: The Bloomberg Dollar Spot Index has fallen for six straight days and is down almost 5 per cent this year. The euro also caught a bid, spiking higher as the latest Trump-Comey news filtered in late Tuesday in the US.

"The bias is clearly to trade the US dollar from the short side here," said Chris Weston, chief market strategist at IG Markets in Melbourne.

It's become a popular parlour game of late among investors to speculate at what's behind the lack of swings in global markets. But on Wednesday, volatility indexes showed some life, with Japan's Nikkei Stock Average Volatility Index headed for its highest close in more than three weeks.

Meanwhile gold, the classic haven, headed for a fifth daily gain in the spot market, climbing 0.5 per cent amid the sense of unease: Whether today's moves continue to affect markets is another question, with the Republican leadership in Congress yet to call, for example, for a senior prosecutor to investigate the Trump team's Russia ties.

"I am not sure of the extent of the Trump news on the dollar," said Khoon Goh, head of Asia research in Singapore at Australia & New Zealand Banking Group. "The weakness in Asian currencies this morning likely due to some retracement after the strong run recently."