Europe midday: Shares sag as political controversy on Capitol Hill heats up

Stocks are holding lower come midday as reports that the US president may have tried to influence decisions by Federal Bureau of Investigation chief James Comey stoked the flames of political controversy on Capitol Hill.

At 1143 BST the benchmark Stoxx 600 was down by 0.30% to 394.72, albeit off its worst levels of the session, alongside a drop of 0.74% in the FTSE Mibtel to 21,627.21 and a 0.45% fall in the Cac-40 to 5,381.64. Germany's Dax was down by 0.38% to 5,390.15.

In parallel, the single currency was up by 0.23% to 1.1108, having hit an intraday high of 1.1123. Meanwhile, the news from across the Pond appeared to finally trigger some volatility, with some traders daring to mention the possibility of a presidential impeachment somewhere down the line.

The Chicago Board of Options Exchange's VIX volatility index was jumping 9.39% to 11.65 in overnight trading. An equivalent gauge in Europe, the VStoxx volatility index for the EuroStoxx 50 was ahead by 2.60% at 13.89.

According to a memo seen by CNN, and attributed to the FBI boss, Donald Trump asked Comey to "let go" of the investigation into his former national security adviser, Michael Flynn.

Trump's political woes added to market pessimism about the prospects for aggressive fiscal stimulus in the US, highlighting the "deep divides" with the US Republican party, said Jane Foley and Piotr Matys at Rabobank.

According to the two FX strategists, that had contributed to the recent drop in the US dollar, but positive political news out of France and Germany had also played a role.

Nonetheless, they were squeamish about raising their year-end 1.10 forecast for the euro/dollar or their 1.12 12-month projection for the pair.

"The approaching Italian election suggests that the EUR reprieve from political apprehensions could be short-lived. Meanwhile there is a strong likelihood that the debate regarding a reduction in the Fed’s balance sheet will receive an airing in the coming months. Any reduction in the balance sheet should be a bullish USD factor," they said.

Total construction output in the Eurozone fell by 1.1% month-on-month, according to Eurostat, following a rise of 5.5% in the month before.

Euro area CPI for April was confirmed at up by 0.4% month-on-month and 1.9% year-on-year.

Volkswagen was on the backfoot after announcing that its joint-venture in China FAW-Volkswagen Automobile Co Ltd will recall nearly 600,000 Golf and Sagitar cars.

Air France-KLM dismissed the possibility that it might step in to save the near-bankrupt carrier.