Daily Market Color

Brexit Concerns Overshadow Robust US Economic Data

US stocks are extending their losing streak while Treasurys trade mixed as ongoing Brexit concerns overshadow stronger-than-expected US economic data.  Four new polls released last night showed the “leave” campaign leading the “remain” camp ahead of the June 23rd Brexit referendum, and The Sun, Britain’s best-selling newspaper, came out in favor of a Brexit.  Today’s front page stated “The Sun urges everyone to vote Leave.  We must set ourselves free from dictatorial Brussels”.  Despite the recent momentum towards a Leave vote, most major betting polls still show a 60% chance or better of the UK averting a Brexit.  Betting polls notwithstanding, the British Pound sank to a two-month low against the dollar and the yield of the 10-year German bund fell below zero for the first time as investors erred on the side of caution/safety.
In terms of US economic data, a report showed retail sales rose a solid 0.5% last month after surging by [an unrevised] 1.3% in April.  The data suggests the US consumer remains confident despite the recently reported slowdown in payroll growth.  Strong retail sales should provide a much needed boost to second-quarter GDP, which economists are currently estimating grew at a 2.5% annual pace.  Retail sales showed broad-based strength, with nine of 13 major categories showing increases in demand in May.  Separate data showed import prices recorded their biggest increase in over four years last month, pointing to a potential build-up of inflation.  May’s soft employment report all but eliminated any expectation of a rate hike announcement when the FOMC meeting concludes tomorrow, but today’s strong data could influence the language used in the June statement the Fed issues, which could help prepare markets for a July rate move. 

All three major US stock indexes are currently down close to 0.50%, while Treasury yields and swap rates are trading in a modest 1-2 bp flattening pattern, with short rates up slightly and long rates down slightly.  Both WTI and Brent crude are currently trading down over 1%.

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