Upcoming FOMC Meeting and Brexit Referendum Weigh on Risk Sentiment

US stocks and commodities are both trading under pressure while Treasurys remain well bid as investors take chips off the table ahead of the upcoming FOMC meeting and UK Brexit referendum.  Markets have priced to a 0% probability of a rate hike next week, but the pending June statement, updated FOMC rate forecasts, and Yellen’s post-FOMC meeting press conference all have the potential to drive up volatility.  The upcoming Brexit vote on June 23rd also continues to cause anxiety for investors.   Former European Central Bank President Jean-Claude Trichet said if the U.K. votes to leave the European Union, it would be an economic “catastrophe”.  He went so far as to say voting to leave “puts even into question the integrity of the U.K.”  Trichet joined the Bank of England and International Monetary Fund as recent voices that have warned against voting to leave. 

The US economic data calendar was light today, with the University of Michigan’s Consumer Sentiment index the only notable release.  The index hit 94.3 in June, slightly better than the 94 reading economists were expecting, but down from 94.7 in May.  Consumers assessed their current financial situation with the highest rating since 2007 off the back of a rise in wages, but the index was negatively impacted by a decline in consumers’ view of the health of the economy generally.  Data releases picks back up next week with retail sales on Tuesday, industrial production on Wednesday, CPI on Thursday, and housing starts on Friday, in addition to the conclusion of the FOMC, BoJ, and BoE meetings.
 
All three major US stock indexes are currently down close to 1%, while Treasury yields and swap rates are 3-5 bps lower across all major maturities.  WTI and Brent crude are down over 2.5% and 2%, respectively.