Market wrap: Trump and May made the day - Westpac
Analysts at Westpav offered a market wrap.
Key Quotes:
"The USD sank across the board overnight, GBP leading the charge. President-elect Trump said the USD was “too strong” in an interview transcript released earlier by the Wall Street Journal, noting, “our companies can’t compete with them (China) because our currency is too strong. And it’s killing us.” President-elect Trump also criticised a key-plank of the House Republicans’ corporate-tax plan - a border tax designed to boost exports and cut imports - calling it too complicated. That triggered a bigger re-think of expectations for stimulus and tax reform under a Trump administration, hitting all the key Trump “reflation trades”– the USD, US yields and US equities all fell. The S&P500 trimmed losses to be down 0.2% on the day, a volatile session for crude oil saw it finish up 1% at $52.91/bbl.
UK PM May delivered her long awaited Brexit speech too. GBP soared from around 1.2150 to highs just above 1.2380, its largest single-day gain since 2008. PM May said that the UK will not pursue membership of the Single Market or EU Free Trade Area, will not allow free movement of labour and that the UK will not be subject to the EU Court of Justice. May also promised that both Houses of Parliament will debate and vote on the final deal proposals. Going into the speech many felt that the Government did not have a coherent plan or vision for Brexit Britain. Markets had begun to price in a further sense of uncertainty, taking GBP towards post-Brexit vote lows. The standout result from today’s keenly awaited speech is that some uncertainty has been dispelled. May outlined the principles of her Government’s strategy towards Brexit negotiations and while lacking in genuine detail her statesman-like delivery provided the necessary clarity,soothing market concerns and assuring the electorate of the Government’s steady hand.
Interest rates: US interest fell, the 10yr slipping 5bp to 2.347% as Trump stimulus and tax reform hopes took a hit.
Currencies: GBP strength and broad USD weakness was the main theme for the day, the USD falling against all of its G10 counterparts. GBP led the way, after PM May delivered a “confidence building” speech on her Government’s Brexit strategy. EUR/USD rose to three week highs, from the low 1.06s to a high of 1.0720. AUD hit its highest levels in a month, rising above 0.7500 to highs around 0.7563. The GDT auction saw a subdued result for dairy prices, whole-millk powder prices fell 0.1% while the GDT index rose 0.6%, but that did not deter NZD, broad USD weakness helping NZD vault to one-month highs just above 0.7200."