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    Equities, Yields, Oil Slip, Brexit Polls Fuel Dollar

    Global stocks posted their sharpest declines in four months, European bond yields dropped to record lows and the dollar rallied as the risks from a British exit from the European Union grew, promising two weeks of uncertainty and turmoil in worldwide markets.

    Sterling fell steeply, closing at 1.4257 after poll results from The Independant newspaper  showed a 55 percent-to 45 percent margin for  the U.K. leaving the European Union. The British currency had been as low as 1.4179 after opening in Asia at 1.4475. The euro fell with its island counterpart, closing at 1.1251, having opened at 1.1316. 

    The Dow Jones Industrial Average shed 119.85 points, 0.67 percent,  finishing at 17.865.34, partially recovering from earlier losses of more than 170 points. The S&P 500 dropped 19.41 points to 2096.07, a loss of 0.92 percent.  Overseas the  MSCI All-Country World Index lost its gains for the week.

    The U.S. Treasury 10-year yield lost 4 basis points to 1.6404, its weakest finish since the 'flash crash' in Treasury yields on February 11th. Except for that day this is the lowest for this benchmark bond since May 2013 at the height of the Fed's quantative easing programs.  The 2-year bond lost 4 points to 0.7265 percent, its weakest in a month. 

    Yields from England to Japan and Germany fell to all-time lows. The return on the 10-year British Gilt closed at 1.232 percent ,a record low. The German 10-year Bund yield touched 0.010 percent and closed at another record 0.020 percent.

    West Texas Intermediate, the U.S. crude oil standard closed at $49.07, leading commodities down..

    Two events will shape trading  the next week. On Tuesday and Wednesday the FOMC will meet to decide on rate policy. After the dismal May payrolls report virtually no one expects an increase in the Fed Funds rate, even though as recently as two weeks ago Fed governors were actively talking up the prospect. Markets will pay close attention to the FOMC statement and its  depiction of the U.S. economy for clues to policy for  the July meeting.

    More important for market movement will be any information, polls or otherwise, on the British referendum on June 23.  Markets have not yet fully priced in the impact of a British departure on the pound or the largely the unknown risks to the global financial system and economic growth. 

    The Independent poll seems to confirm a swing towards approving the referendum to leave the union.  The more that appears likely, the geater the repositioning, and the more volatile trading. 

    Joseph Trevisani

    Chief Market Strategist


    Charts: Bloomberg





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