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Markets shift focus to the Fed

Published Wednesday, June 15th, 2016

Today’s conclusion of the Fed’s two-day policy meeting brings a welcome distraction from the Brexit debate which yet again prompted investors to shun riskier assets in favour of highly-rated sovereign bonds. The ongoing rush to safety sent the yield on 10-year German Bunds below zero for the first time yesterday and pushed the spread over equivalent Spanish and Irish bonds to the widest since February. UK 10-year Gilts also touched a fresh low with Britain seemingly edging closer to Brexit and prompted the country’s pro-EU finance minister to threaten that new austerity measures would be introduced to deal with the fallout.

Yesterday’s downbeat session across global stock markets came in spite of some encouraging economic reports from both sides of the Atlantic. Forecast-beating figures revealed that eurozone industrial production rebounded 1.1% in April and more than reversed the 0.7% fall seen in the previous month. US retail sales also came in ahead of estimates, rising by a solid 0.5% in May though down from April’s blistering pace.

Overnight, Asian equities rediscovered some poise with broad-based gains as markets brushed off the decision by MSCI to delay the inclusion of Chinese mainland shares in its Emerging Market Index. The steadier tone is expected to be mirrored elsewhere today with the spotlight turning the Fed which is expected to leave rates on hold given heightened levels of anxiety ahead of the EU referendum. Though there will be no policy tightening, rattled investors will be hoping to take heart from the Fed’s updated economic projections and Janet Yellen’s post-meeting comments.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.