June 21, 2016

Stocks closed relatively flat today with the Dow Jones up 24.86 points and the S&P higher by 0.27%. Bond yields for the 5 and 10-year Treasuries are slightly higher with yields of 1.2002% and 1.7094%, respectively. Oil prices are lower with WTI Brent Crude down 1.05% at 48.95 a barrel.

Investors remain focused on the upcoming June 23rd Brexit referendum in which British, Irish, and Commonwealth citizens, among others, will decide whether the UK stays with or leaves the EU. Surveys show that the two sides are neck and neck and no particular outcome is certain at this point.

The “remain” supporters cite the relative strength of staying within the group consisting of 28 member countries. They also applaud the benefits of free travel, free trade, and inward investment amongst the members. The “leave” side maintains that the UK pays billions of pounds for its membership in the EU with little to show in return.

According to British news magazine The Week, “Pro-Europeans think the UK's status as one of the world's biggest financial centres will be diminished if it is no longer seen as a gateway to the EU for the likes of US banks, while Brexit campaigners suggest that, free from EU rules and regulations, Britain could reinvent itself as a Singapore-style supercharged economy.”

While the vote certainly may have significant social, economic, and financial impacts for the UK and the other EU member countries, any predictions as to the result are simple conjecture at this point.

Federal Reserve Chair Janet Yellen commented that she did not “want to overblow the likely impact” of a Brexit vote as she testified before a Senate Banking Committee earlier today.

During her testimony Yellen also addressed monetary policy, stating that interest rates are likely to remain low “for some time” in response to a weak global economy and low productivity in the U.S. According to CNBC, “Yellen outlined how the central bank was thrown off course within weeks of raising rates last December by a slowdown in domestic growth and international events, including concerns over China's economy and a further collapse in oil prices.”

The silver lining in her statement is that the postponement of interest rate increases means that there is one less possible trigger for increased short-term market volatility.


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