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    Week ahead: Brexit referendum ends months of anticipation; Yellen testifies in Congress

    The week ahead will be relatively quiet in terms of economic data, but the eagerly awaited UK referendum on EU membership is expected to unleash major bouts of volatility.  Prior to the referendum that takes place on Thursday, Fed Chair Janet Yellen’s monetary policy testimony on Tuesday and Wednesday will attract the markets’ attention.

    Starting from Japan, the country’s exports and imports as well as trade balance for May are due on Monday and they are expected to show a substantial drop in both imports and exports.  Flash manufacturing PMI for Japan will come out on Thursday.  Otherwise, due to the recent volatility in yen crosses, there might be additional statements coming out of the Ministry of Finance, which could serve the purpose of verbal intervention ahead of potential actual intervention.  It is near certain that the yen will be bought across the board if Brexit does indeed take place and the Japanese authorities almost certainly have a plan in place for such a scenario.  After all, the yen is the year’s best performing currency – to the dismay of Japanese policymakers.

    In the Eurozone, the economic sentiment among investors and analysts will be released by the ZEW institute on Tuesday.  Worries about Brexit led to a sharp fall in May’s index readings and the same concerns could push the index even lower during June.  Eurostat’s consumer confidence for June is expected on Wednesday and Thursday will see a release of flash PMIs for all the Eurozone countries as well as for the single currency area as a whole.  A slight moderation is expected during June compared to May and it will be interesting whether Eurozone businesses are affected by the political uncertainty.  In addition to the sentiment indicators discussed already, the German IFO survey will come out on Friday, although Friday will probably be devoted to interpreting and reacting to the UK referendum outcome.

    The highlight of the week in the United States will be Chair Yellen’s testimony on Capitol Hill on Tuesday and Wednesday.  Given that Yellen gave a press conference right after the FOMC decision on Wednesday and that the policy statement from the latest meeting remains ‘relatively fresh’, it is unlikely that Yellen will have too much to add to what was already said.  In terms of US data, existing and new home sales, durable goods orders and final University of Michigan consumer sentiment will come out but are unlikely to spark much of a reaction – particularly given all the attention on Brexit.

    The UK referendum on EU membership will take place on Thursday, 23 June.  Polls will open at 7am (British Summer Time) and close at 10pm.  The bulk of the results should come in between 3-5am (BST) on the morning of Friday and a definite result should be known by 7am on Friday.  No exit polls have been commissioned by major broadcasters but some financial institutions will conduct their own private polls in order to get some advance indication of the likely result.

    The UK referendum will not be the only piece of political uncertainty in the coming days, as on Sunday June 26th, Spain is also heading into elections.  The outcome there is also uncertain and it could have a big impact on the management of the Eurozone’s fourth largest economy.

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