Global Markets React to Comments from President-Elect Trump and UK PM May

US stocks cheapened with the dollar while Treasurys rallied across the curve off the back of comments from both US President-elect Trump and UK Prime Minister Theresa May.  US equities and the dollar have been trading higher in lockstep in recent weeks off the back of growth and fiscal policy optimism post-election, but both assets experienced a pullback after Trump told the Wall Street Journal that the US currency was “too strong”.  Trump also criticized the House Republican’s corporate tax plan for being too complicated, causing financial stocks and other post-election gainers to pullback over fear that the much talked about tax cuts are far from a done deal. 

Investors also paid close attention to a speech from UK Prime Minister May, where she outlined a 12-point plan for UK’s future economic and political relationship with the EU.  May’s plan is being characterized as a “hard” Brexit, where she made clear that Britain won’t seek membership in the single market after leaving the EU.  “Instead, we seek the greatest possible access to it through a new comprehensive, bold, and ambitious free trade agreement”, according to May.  Britain is also aiming to establish its own free trade deals with countries outside of Europe, while imposing its own immigration limits from the continent.  The pound strengthened against all major currencies, including a 3% gain versus the dollar.

Minimal fresh economic data was released today, but the calendar picks up tomorrow headlined by the latest reading of consumer inflation in the US.  In terms of Fed Speak, NY Fed President Dudley expressed confidence that economic expansion will continue over the next few years even though it is “long in the tooth” by historical standards.  He also said that while economic shocks are difficult to forecast, the Fed is unlikely to “snuff out” expansion any time soon because inflation remains in check.
 
Treasury yields and swap rates are down between 4 and 8 bps across all major maturities (with the biggest move in the belly of the curve), while the three major US equity indices closed down between 0.3% and 0.6% on the day.