Stocks and Bonds Both Rally on Dovish BOE Comments

Both US stocks and Treasurys are rallying after the Bank of England hinted at additional stimulus this summer following last week’s Brexit referendum.  BOE Governor Mark Carney declared confidence in the UK’s ability to navigate the current political and financial uncertainty facing the country, but said growth will undoubtedly slow in the coming months and that further interest rate cuts and other measures will be needed.  Carney indicated that the BOE could revive its bond buying program, but he reiterated his opposition to negative rates as a stimulus tool.  Further clouding the political landscape in the UK, former London Mayor, Boris Johnson, unexpectedly withdrew his name from the race for British PM.  Johnson had been the odds-on favorite to succeed David Cameron. 

In terms of new US data releases, a report showed the number of Americans filing for unemployment benefits rose marginally last week, but remained below the 300,000 threshold typically associated with a healthy labor market.  Layoffs stayed low in June, supporting the view that the labor market remains on solid footing despite last month’s disappointing payrolls number.  The June payrolls report will be released on July 8th, and economists are forecasting a gain of 180,000 jobs following last month’s 38,000 dud.  A separate report showed factory activity in the Midwest increased to its highest in nearly 1.5 years in June, the latest signal that the troubled manufacturing sector may have bottomed out.

All three major US stock indexes are currently up close to 1%, while Treasury yields and swap rates are 4-6 bps lower across all major maturities.  Oil snapped its two-day winning streak, with both WTI and Brent crude down close to 3%.