Clarksville, TN – U.S. financial markets spent most of the week pricing in a greater likelihood that the United Kingdom would vote to remain in the European Union.
Oops. The surprise “leave” victory in the U.K. referendum sent markets reeling. Global stock markets fell sharply. The pound plunged (to a 30-year low). Bond yields sank, reflecting a flight to safety.
Still, this wasn’t a Lehman-type event. Market participants were simply caught leaning the wrong way. Prime Minister Cameron resigned, effective October, leaving his predecessor a lengthy negotiation with the EU on exit terms.
The EU exit will have a negative impact on economic growth in the U.K., and there’s a good chance of a recession. However, financial markets should begin to settle down soon.In her semiannual monetary policy testimony to Congress, Fed Chair Yellen indicated that the central bank will maintain a cautious approach to raising short-term interest rates. Yellen’s comments and the various economic reports were overshadowed by the Brexit vote.
Next week, the economic calendar is relatively quiet. First quarter growth is expected to be revised higher in the third estimate of 1Q16 GDP (note annual benchmark revisions are due, along with the advance estimate for 2Q16, on July 29). Personal income and spending figures will help fill in the consumer picture for the second quarter.
The ISM Manufacturing Index would normally get the most attention, but it shows up on Friday, when many market participants are likely to be out ahead of the three-day weekend. Markets will close early on Friday.
Indices
Last | Last Week | YTD return % | |
DJIA | 18011.07 | 17733.10 | 3.36% |
NASDAQ | 4910.04 | 4844.91 | -1.94% |
S&P 500 | 2113.32 | 2077.99 | 3.39% |
MSCI EAFE | 1687.04 | 1568.83 | -1.70% |
Russell 2000 | 1172.22 | 1148.19 | 3.20% |
Consumer Money Rates
Last | 1 year ago | |
Prime Rate | 3.50 | 3.25 |
Fed Funds | 0.40 | 0.13 |
30-year mortgage | 3.60 | 4.02 |
Currencies
Last | 1 year ago | |
Dollars per British Pound | 1.488 | 1.571 |
Dollars per Euro | 1.139 | 1.121 |
Japanese Yen per Dollar | 106.16 | 123.85 |
Canadian Dollars per Dollar | 1.275 | 1.238 |
Mexican Peso per Dollar | 18.227 | 15.499 |
Commodities
Last | 1 year ago | |
Crude Oil | 50.11 | 60.27 |
Gold | 1263.10 | 1172.90 |
Bond Rates
Last | 1 month ago | |
2-year treasury | 0.60 | 0.88 |
10-year treasury | 1.54 | 1.83 |
10-year municipal (TEY) | 2.35 | 2.51 |
Treasury Yield Curve – 06/24/2016
As of close of business 06/23/2016
Economic Calendar
June 27 | — | Trade Balance in Goods (May) |
June 28 | — | Real GDP (1Q16, third estimate) Consumer Confidence (June) |
June 29 | — | Personal Income and Spending (May) Pending Home Sales Index (May) |
June 30 | — | Jobless Claims (week ending June 25) Chicago Purchasing Managers Index (June) |
July 1 | — | ISM Manufacturing Index (June) |
July 4 | — | Independence Day Holiday (markets closed) |
Important Disclosures
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
Material prepared by Raymond James for use by its financial advisors.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business June 23rd, 2016.