All Eyes on Yellen Speech as Fed Enters Blackout Period Ahead of June FOMC

US stocks are opening the week higher with oil while Treasurys are trading under pressure as markets react to the latest comments from Fed Chair Yellen.  Friday’s disappointing payrolls release reshaped market expectations for a rate hike this summer, but Yellen’s comments largely echoed what she said during her last public appearance on May 27th.  Yellen reiterated that the US remains on track for more interest rate hikes if the economy continues to improve as she expects.  Yellen acknowledged that the May job report raises new questions about the outlook, but also said “the overall labor market situation has been quite positive”, and pointed out a silver lining in the report from the 2.5% increase in average hourly wages in the past 12 months.  She listed four potential risks to the US economy – slower demand, slower productivity, inflation and overseas instability, but downplayed them by saying the positives of the outlook outweigh the negatives.  Yellen gave no updated timeframe on future rate hikes and appeared to leave all options on the table.  Yellen is the final Fed official scheduled to speak publicly before the quiet period begins leading up to the June 14-15 meeting.  Three other Fed officials have commented since Friday’s jobs report, including Brainard and Rosengren, who are both voters, and Lockhart, who is a non-voter. 

The UK referendum vote is quickly approaching (06/23), and several new polls released over the weekend show more Britons now favor leaving the EU ahead of the vote on June 23rd.  Despite all of the attention the referendum has garnered, the BBC reported that pro-remain Ministers of Parliament could use their majority to keep Britain in the E.U. even if the polls show more voters prefer to leave.  Some of the world’s largest investment banks plan to staff traders overnight as the polls get set to close to the 23rd in order to manage heightened volatility, primarily in foreign exchange.  The pound has been hit hard leading up to the referendum, and is currently trading at a three-week low against the US dollar.  Late last week Jamie Dimon held a town hall meeting with London-based JPM employees letting them know that a Brexit would almost certainly lead the bank to need to reduce its UK-based staff.
 
All three major US stock indexes are currently rallying between 0.25% and 0.50%, while Treasury yields and swap rates are 2-4 bps higher across all major maturities.  WTI and Brent crude are both up over 1%, while the dollar is up vs. the Pound and Yen, flat vs. the Euro.