RECAP: For the week ending June 17th

June 20, 2016

The Tech heavy nasdaq led the major benchmarks in losses this week, dragged down by heavily weighted Apple at the end of the week. The smaller-cap indexes, which are typically more volatile, fell more than large-cap shares. Speculation about the upcoming “Brexit” vote in the UK drove much of the sentiment on Wall Street. Polls early in the week showing an increase in support for the UK leaving the European Union (EU) were followed by the murder of a pro-EU member of parliament on Thursday which appeared to heighten the prospects for the “remain” vote. This may have pushed stocks up to overcome some of their losses on Thursday afternoon. Although the Fed’s June policy meeting had been the subject of much investor speculation earlier in the year, it did not appear to have much of an impact when results came out as expected on Wednesday afternoon. The Fed kept rates steady, and policymakers’ forecasts released alongside the rate announcement suggested a slower pace of rate increases than earlier anticipated. The Fed’s meeting announcement did help to drive another decline in the benchmark 10-year Treasury yield, providing an overall boost to bond prices. Municipal bonds continued to post positive returns this week, as a smaller issuance calendar and continued strong demand benefit the sector. As the yield continues to flatten some investors used the opportunity to offload some of their longer-term bond exposure. The high yield market retraced most of its month-to-date gain amid volatility abroad. Brexit fears unsettled the investment-grade corporate bond market, with the banking sector underperforming. The Fed’s decision wound up having  muted market impact.
In Europe, the week was dominated by concerns about ramifications that could follow the upcoming UK referendum. Equity markets, especially banking shares, were volatile, and investors targeted regional bond markets as safe havens. The pan-European benchmark Stoxx Europe 600 declined for much of the week but recouped some losses toward the end of the week as “Brexit” anxiety eased somewhat.

Nigeria’s central bank announced that it would allow its currency, the naira, to float against the U.S. dollar beginning June 20, 2016. Nigeria’s economy depends on oil exports, so in February 2015, it pegged the value of the naira to the dollar to stop it from falling. However, the artificially high price of the naira has created a shortage of foreign currency and a lack of cash to buy imported goods. By allowing the naira to float against the dollar, Nigeria also hopes to stimulate its economy by making domestically produced goods cheaper than imported products.

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