Investors Refocus on Brexit Vote Following Conclusion of Central Bank Meetings

US stocks are paring early losses while Treasury yields are fluctuating as investors digest the outcomes of several central bank meetings ahead of next week’s UK referendum.  As expected, the FOMC left the fed funds target unchanged, but the policy statement and updated interest rate forecast were more dovish than expected.  There was also no hawkish dissent at the June meeting, compared with one in March.  The median forecast in the Fed’s updated dot plot still calls for two rate hikes this year, but the consensus seems shakier with a growing number of central bankers now expecting only one hike.  Six participants now forecast only one compared with one participant back in March.  In the accompanying press conference, Fed Chair Yellen acknowledged that next week’s UK referendum was a factor in opting to leave interest rates unchanged.  Several central banks have since expressed similar sentiment, with the Bank of Japan, Swiss National Bank, and Bank of England all opting to stand pat ahead of the vote. 

Today’s new US data releases showed consumer prices moderated in May, while the number of Americans filing for unemployment benefits increased last week.  The Labor Department’s Consumer Price Index rose 0.2% last month, down from April’s 0.4% advance, but still showed positive momentum in the housing and healthcare sectors.  Shelter costs, which climbed 0.4%, experienced their biggest gain since February 2007.  Core CPI, which strips out the volatile food and energy components, rose a healthy 0.2%, matching its gain in April, and bringing the YoY pace up to 2.2%.  The jobless claims data revealed an unexpected increase from 264,000 to 277,000 last week, but the number remained below the 300,000 threshold associated with a healthy labor market for the 67th consecutive week.  

Both the Dow and S&P 500 are currently trading unchanged versus yesterday’s close, while the NASDAQ is down close to 0.25%.  Treasury yields and swap rates are trading in a bull flattening pattern, with yields 1-2 bps higher in the front end and belly of the curve, and 1-3 bps lower in the long end.