REPORT
By Ovunc Kutlu & Gulbin Yildirim
U.S. Finance, Economy and Energy Letter

For the week beginning June 20

 What happened last week?

The most important development of last week was the Federal Reserve’s June meeting, in which the Fed kept its benchmark interest rate unchanged as expected.

The Federal Open Market Committee (FOMC) said in an official statement last Wednesday that "only gradual increases" in the interest rate will appear if economic conditions evolve, depending on incoming data that favors domestic growth.

"Although the unemployment rate has declined, job gains have diminished," the FOMC said, noting the additional 38,000 new jobs in May -- its fewest since September 2010.

While analysts said that the Fed’s dodge of a rate hike again in June was a wait-and-see approach towards Great Britain’s possible exit from the EU (Brexit), Fed Chair Janet Yellen said in her speech after FOMC’s statement that the “Brexit could have an impact on the U.S. economy.”

The U.S. stock market recorded weekly losses amid fears over a Brexit. The Dow Jones fell 1.1 percent while the Nasdaq had 1.9 percent loss. The S&P 500 had a 1.2 percent decline – its worst weekly performance since April.

 

What to expect this week?

The market has now focused on this Thursday’s Brexit vote.

Despite losses last week, Wall Street opened with gains on Monday as investors perceive less risk over Brexit. Analysts highlighted that investors' fears have subsided since the latest polls showed that it is more likely that voters will choose to stay with the Union in the upcoming vote.

However, analysts also argued that if the U.K. leaves the EU, there could be strong headwinds in the U.S. stock market, while the extent and magnitude of losses in stocks are unclear.

The market will also watch Yellen’s semi-annual testimony to be given in the U.S. Congress this Tuesday and Wednesday. In her last Congressional speech last February, the Fed Chair had said financial conditions are less supportive for U.S. economic growth, and stated that a stronger dollar restrained the country's net exports and gross domestic product growth, while stressing that turmoil in the global economy could have a negative impact on the U.S. financial markets.

The market will also watch other macroeconomic data closely this week, such as existing home sales for May, weekly crude oil stocks this Wednesday, initial jobless claims and new home sales this Thursday, and durable goods orders and Michigan’s consumer sentiment index on Friday.

 

21 Jun,2016

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