Britain’s vote to leave the European Union (EU) caught the world by surprise. Since the vote, stock market volatility has increased dramatically—a predictable result because stock markets don’t like uncertainty. Similarly, interest rates have declined—just as dramatically—because investors seek the safe haven of U.S. Treasury bonds during uncertain times. With lower rates at home, spillover effects follow; for example, lower rates have spurred mortgage re-finance activity.
Buckle Up: Markets Poised for More Volatility. Markets have been on a wild ride following Britain’s vote to exit the European Union (EU. The S&P 500 index suffered two of its worst single-day losses of the year immediately after the “Brexit” vote, followed by two of its largest single-day gains. And the ride isn’t likely to end soon. Schwab believes volatility will continue to be a theme for stock markets the rest of the year, for a number of reasons. Click here to read the full article
Three Things to Know about Record-Low U.S. Yields. This week the yield on the 10-year Treasury bond declined to record levels. In addition, the yield curve has continued flattening. Traditionally lower yields and a flatter yield curve in the U.S. are strong signals of an approaching recession. These developments have implications for the economy and policy that can’t be analyzed in the usual way. First, the notable decline in Treasury yields says a lot more about the prospects for another economic slowdown in Europe, and to a lesser extent, Japan, than about the U.S. The aftermath of the U.K. vote to leave the European Union is leading to lower business investment in Britain and more muted consumer confidence, with spillover effects to the rest of Europe Spillover, however, is unlikely to extend to the U.S. Second, the beneficial impact of lower yields on the economy will be limited, and could even by offset by other financial considerations, such as imposing pressure on the banking system by reducing the prospects for earnings and profit. Third, this will further complicate the challenging task facing the Federal Reserve Policymakers. Click here to read the full article
Mortgage refinances jump 21% on near record low rates. The impact of the aftermath of the U.K. vote to leave the European Union is having an impact, with a sharp drop in mortgage interest rates. These rates are “all-time lows”. The longer term trends remain squarely in favor of lower rates, as reported by CNBC. Click here to read the full article
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