Europe Bracing for Brexit Vote – the bond market is giving signals that investors are pivoting to safety ahead of the June 23 “Brexit” referendum. This week, the German 10-year bunds crossed into negative territory for the first time ever, and hit zero as demand drove prices up and yields down. Strong demand for bunds is likely a symptom of large institutions playing the cautious trade in the event that the “Brexit” vote wreaks temporary havoc on the markets. Similar activity was noted in the UK Gilt market, as yields on the 10-year dropped below 1.18% for the first time early in the week.
Around the Horn of Central Bank Decisions – several central bank decisions were handed down this week, but no surprises were delivered. The Fed, still hyper-nervous regarding unconvincing wage growth and global growth uncertainties, kept rates unchanged in spite of indicating several times that they were on course for a rate hike. The Bank of Japan also kept its rate unchanged at the zero bound, and not surprisingly they lowered their inflation forecast (again) either flat or slightly negative. The Bank of England also held rates steady at 0.5%, in a move likely meant to keep the peace ahead of the Brexit vote on June 23. A “Leave” decision may result in some short-term volatility in global equities markets, with perhaps more shaky ground for the FTSE (Financial Times Stock Exchange, aka the “Footsie”) as many companies have to rethink their labor and trade policies. Time will tell.
And the World’s 6th Largest Economy Goes to…California? Indeed, the land of Google, Apple and seemingly unlimited capital for tech companies has been crowned the world’s 6th largest economy. California grew 4.1% in 2015, which means that its annual GDP is greater than the entire country of France or even Brazil. It has a GDP of some $2.5 trillion and, if technology’s rapid resurgence is any indication, California is set to keep climbing that ladder.
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