Daily Market Color June 21, 2016Yellen Testimony and Brexit Speculation Dictate Market Sentiment US stocks are mixed trading very close to flat, while Treasurys are selling off slightly as investors digest Yellen’s senate testimony and prepare for Thursday’s UK referendum. Yellen’s comments largely reiterated the message from last week’s FOMC meeting, but there were a few notable differences. The biggest change is Yellen said the Fed is on watch for “whether”, not when, the US economy begins to grow at a more moderate pace, indicating Fed officials have some real concerns about the growth outlook. Yellen said that despite her longer-run optimism, “we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future”. In the near term, Yellen reiterated that she expects second quarter growth to rebound from a weak first quarter, and said she continues to expect “gradual” rate increases to be appropriate, without providing a sense of timing. Trading in fed funds futures currently indicates only an 8% chance of a rate hike at the July FOMC meeting, down from a 40% probability priced in at the beginning of June. With no significant US data releases for a second straight day, Brexit speculation also continued to be a primary driver of market direction. Two new polls were released Monday night, both of which indicate the race remains very close, but that the “Remain” camp has picked up momentum and now holds a significant edge. The British pound has rebounded versus the dollar to its highest level since the referendum was announced, and betting markets currently suggest only a 25% chance of a Brexit, expressing the belief that the ‘status quo effect’ will play out. This afternoon there was a $34 billion five-year note auction following Yellen’s testimony, which was met with mediocre demand. Both the Dow and S&P 500 are currently trading up 0.1%, while the Nasdaq is down a similar amount. Treasury yields and swap rates are flat to up 1 basis point across the curve, while crude is breaking its two-day winning streak, with both WTI and Brent down 1.5% and 1%, respectively.