“Brexit” Driving Markets

Last week’s no-action Fed meeting and subsequent comments from the Chair regarding international events highlighted the markets focus on Thursday’s “Brexit” vote. Treasury yields dropped to 4 year lows last week (flight to quality) as predictions leaned towards a “yes” vote for Britain to leave the EU. Over the weekend, expectations turned towards a no vote. Equity markets rallied on Monday and Treasury yields jumped up to 1.68%, the highest since June 9. Central banks worldwide seem to be in a wait and see mode, watching the vote and subsequent market reaction. If the vote is no, watch for the Fed to go back to “data watching” mode: whereby a no vote and a strong employment report release in early July may lead to a July rate increase (unexpected but possible). There is a feeling that today’s ultra-low Treasury rates are “out of synch” with US economic fundamentals and that yields are being “pulled down” by negative rates in Germany, Japan, etc and general global growth concerns. stay tuned

David R. Pascale, Jr.