Daily Market Color

Brexit Campaign Suspended, but Referendum Continues to Dictate Sentiment

US stocks are selling off while Treasury yields are trading higher across the curve as investors brace for next week’s UK referendum.  During the lead up to the vote, we’ve seen a massive uptick in volatility which has driven down stocks, bond yields, and the British Pound, and supported the dollar, yen, and gold.  Markets are currently predicting lower odds of the “leave” camp prevailing after the murder of Jo Cox, a pro- “Remain” British politician, which led to the suspension of campaigning for the referendum.  The thought process behind lower odds of a “Brexit” is that the incident could rally supporters that wish to remain in the EU, at a time when polls showed the “leave” camp was picking up momentum.  Despite the suspension in formal campaigning, IMF Head Christine Lagarde urged British voters to remain in the EU, reiterating her previous warning on the risks of leaving and making an economic argument to stay.  As of now, the vote is still scheduled to take place next Thursday, June 23rd. 

There are no scheduled Fed speakers today, but there were a few new housing related data releases this morning.  A report from the Commerce Department showed new home construction fell slightly in May following a 4.9% jump in April, but building permits continued to expand, indicating that home building activity will likely remain strong in the next few months.  Although the pace of home building has diminished some after a robust first quarter, housing remains one of the better performing sectors of the economy.  Residential construction added nearly 0.6% to first quarter GDP, its largest contribution in over three years.

All three major US stock indexes are currently down between 0.50% and 1.00%, while Treasury yields and swap rates are 1-4 bps higher across all major maturities.  Oil is finishing the week strong with both WTI and Brent crude up close to 3%.

Have a great weekend.

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