The last time US equities fell after the Fed came out as overly dovish was in January, when the Fed modestly relented on its “tightening” plan. It was immediately dubbed as “policy error” and led to the February market swoon as a result of Yuan-induced market volatility. But if January was bad for the Fed, yesterday was even worse, with stocks proceeding to stumble and close at the lows after a rambling, disjointed press conference by Yellen failed to convince anyone that the Fed has any idea what it is doing anymore and that the “rate hike cycle may have left the building” as Jeff Gundlach put it. Even Steve Liesman admitted that “the Fed is as close to capitulation as I’ve ever seen them.”

“The very dovish comments from Janet Yellen didn’t bring much support,” said Guillermo Hernandez Sampere, the head of trading at MPPM EK in Eppstein, Germany. “The market took a breather yesterday but there was nothing more to it. There aren’t enough buyers out there to prevent the downside. The more people are talking about a possible Brexit the more it creates fear among investors.”

The odds of the Fed raising key borrowing costs this year are now below 50 percent. About 28 percent of economists in a Bloomberg survey had forecast additional easing at this BOJ meeting, with 55 percent looking to the next gathering in July. The Bank of England will announce its policy decision at noon in London.

Then the BOJ added insult to injury after Kuroda confirmed the BOJ is likewise trapped and did nothing to ease the pain in either the soaring Yen which is back to October 2014 highs, or the Nikkei, when proceeded to tumble another 3% and is now down over a quarter from its summer of 2015 highs.

The pain was not confined just to Japan however, and stocks slid virtually in every corner of the globe, as the MSCI with commodities after central banks in the U.S and Japan signaled increased concern about the global economic outlook.  Indeed, the selloff that erased $2.4 trillion from global equities in the past week resumed as central bank policy reviews exacerbated investor anxiety at a time when volatility in global markets is surging before the U.K. vote on a Brexit. The BOJ’s decision to leave its record monetary stimulus unchanged came less than 12 hours after the Fed reined in its projection for interest-rate increases over the next two years, with Yellen saying some of the economic forces holding down U.S. borrowing costs may be long-lasting.

And then there is of course the rising fear of Brexit made even worse with the latest Ipsos-Mori poll, which showed a rising percentage of supporters for the Leave camp:

• U.K. POLL ON EU SHOWS 47% REMAIN, 53% LEAVE: IPSOS-MORI

As a result of all of the above, futures on the S&P 500 slipped 0.3%, as U.S. equities are on track to extend losses for a sixth day.  Europe’s Stoxx 600 fell to a four-month low, sliding 1% for its sixth decline in seven days, and U.S. crude retreated for a sixth day in the longest losing streak since February. Bond yields sank to records in Germany, Australia after Japan as Federal Reserve Chair Janet Yellen said next week’s U.K. vote on European Union membership was a factor in the decision to hold interest rates steady. The Yen surged more than 2% as the Bank of Japan refrained from adding any new stimulus, as a result Japan’s Nikkei tumbled 3.0%. The MSCI Emerging Markets Index slid 1% to a three-week low.

Investors will look to data Thursday on initial jobless claims, business sentiment and inflation for further indication of the health of the world’s biggest economy and the trajectory of interest rates.

Market Snapshot

• S&P 500 futures down 0.3% to 2057
• Stoxx 600 down 0.9% to 321
• FTSE 100 down 0.6% to 5930
• DAX down 0.7% to 9542
• S&P GSCI Index down 0.9% to 372.9
• MSCI Asia Pacific down 1.2% to 126
• Nikkei 225 down 3% to 15434
• Hang Seng down 2.1% to 20038
• Shanghai Composite down 0.5% to 2873
•  S&P/ASX 200 down less than 0.1% to 5146
• US 10-yr yield down 1bp to 1.56%
• German 10Yr yield down less than 1bp to -0.02%
• Italian 10Yr yield up 5bps to 1.55%
• Spanish 10Yr yield up 4bps to 1.6%
• Dollar Index down 0.1% to 94.52
• WTI Crude futures down 1.4% to $47.33
• Brent Futures down 1.4% to $48.26
• Gold spot up 1.2% to $1,307
• Silver spot up 1.3% to $17.75

Top Global Headlines

• BOJ Keeps Policy Unchanged, Shifting Stimulus Focus to July: Kuroda holds off ahead of Japan election, U.K. vote on Brexit; majority of economists see central bank moving at next meeting
• Yellen Says Forces Holding Down Rates May Be Long Lasting: Fed chief discusses the “new normal” that’s holding rates down
• Envision to Merge With AmSurg to Create Health Services Giant: cos. to merge in all-stock deal that will create U.S. provider of physicians and health-care services with combined enterprise value of $15b
• Cavium to Buy QLogic for About $1.36b to Broaden Products: Cavium will pay $15.50/share for QLogic, consisting of $11 in cash and 0.098 of a share of Cavium stock
• ASML to Acquire Taiwan’s Hermes Microvision: ASML is buying Taiwan-based Hermes Microvision for about $3.1b, seeking to add technology for creating smaller chips
• VW Gets More Time to Hammer Out U.S. Diesel-Cheating Accords: judge orders delay due to “highly technical” nature of talks; one-week deferral for settlements with owners and regulators
• Pioneer Expands as Devon Retreats From Top U.S. Oil Field: shale driller Pioneer to expand rig fleet in Permian Basin; Devon says sales mean divestitures plan is ahead of schedule
• Amazon Cuts Shipping Fees in Threat to Alibaba’s U.S. Business: prices drop 67% for small, flat items like USB cords, makeup
• Sumner Redstone Says He No Longer Trusts Viacom CEO or Board: Redstone sends message to Viacom lead director Fred Salerno
• Oil Falls 6th Day as Easing Disruptions Counter U.S. Supply Drop

Looking at regional markets, we start in Asia, where stocks traded mostly lower as the region digested the FOMC meeting which was more dovish than prior, although Fed Chair Yellen reiterated that all meetings were live, while BoJ also disappointed. Nikkei 225 (-3.0%) underperformed after the BoJ kept its policy on hold which saw USD/JPY decline below the 105.00 level and soured sentiment. BoJ said the decision to keep rates unchanged by 7-2 vote, while monetary base decision was by 8-1 vote. BoJ also stated it expects price trends to steadily increase and that will add stimulus if necessary. Elsewhere, Chinese markets (Hang Seng -2.1%, Shanghai Composite -0.5%) were subdued after Aggregate Financing data missed expectations and a lacklustre liquidity injection by the PBoC, while ASX 200 (0.0%) bucked the trend with consumer discretionary and basic material names leading the advances on reports Crown Resorts are to spin-off some of its property assets and after metals were underpinned by a weaker USD post-FOMC. Finally, 10yr JGBs were immediately pressured after the BoJ kept policy on hold, but then staged a late recovery amid the risk-averse tone, with yields across the curve also declining fresh record lows today. BoJ kept monetary policy unchanged with the Annual Rise in Monetary Base at JPY 80trl and Policy Rate kept at -0.10%.

Top Asian News

• Yen Gains Beyond 105 Per Dollar for First Time Since Sept 2014: USD/JPY slides as much as 1.4% to 104.53 after BOJ maintains policy
• China Dumping More Than Treasuries as U.S. Stocks Join Fire Sale: Drop of 38% compares with 9% reduction for all foreigners
• Sun Hung Kai Properties Offers 120% Mortgages in Hong Kong: Home prices have fallen 13% from September as economy slows
• Casino Titan Packer Hives Off Macau Stake From Aussie Assets: Nobu stake, Vegas development site included in spinoff
• Australia Added Jobs in May as Part-Time Employment Climbed: Jobless rate holds at 5.7%; economy adds 17,900 positions
• Australian Bond Yields Drop to Record Below 2% on Brexit Concern: Swaps market shows 71% chance RBA will cut rates by year-end

In Europe, equities and fixed income have both spent the morning reacting to the Fed last night, with risk off sentiment clearly evident. Bunds have reached fresh record highs to trade above 165.50, despite supply today coming in the form of French and Spanish auctions. As such, GE 10Y yields plunged further into negative territory, to reach lows of -0.0355%. Equities have spent the session firmly in the red, with financials underperforming given the diminished expectations of a US rate hike, with Deutsche Bank shares hitting fresh record lows.

Top European News

• SNB Holds Fire as Brexit Blues Pressure Franc at 2016 High: deposit rate held at -0.75% as intervention pledge; Brexit may cause stress in Europe, SNB president has warned
• VW’s Europe Market Share Stuck at Five-Year Low After Scandal: carmaker’s 5-month sales rose 4.9% versus 9.7% market growth
• Carney Hits Back on Brexit Charge as Poll Shows Leave in Lead: Carney says BOE has “a duty” to report its judgments: BBC
• Rate-Cut Expectations Rise as BOE Holds Tight Before Brexit Vote
• U.K. Retail-Sales Surge Boosts Hopes for Second-Quarter Growth: U.K. retail sales climbed more than forecast in May
• Deutsche Bank Chairman Says Brexit Would Be “Disaster” for U.K
• Schneider Would Review London Finance Base in Case of Brexit
• CS, UBS Need Added Going-Concern Capital of ~CHF10b Each: SNB
• Airbus to Review Goal of 50 A350 Deliveries in Late Summer

In FX, The Bloomberg Dollar Spot Index fell 0.2%, following a 0.3% decline on Wednesday. Fed officials continue to forecast two 25 basis-point rate hikes this year, after leaving the target range for the benchmark interest rate unchanged at 0.25 percent to 0.5 percent. The pound dropped toward a two-month low versus the dollar as traders awaited the BOE’s final policy meeting before the June 23 referendum. Last month, Governor Mark Carney said Brexit could lead to a U.K. recession as the central bank downgraded its growth forecasts. The currency weakened against 11 of its 16 major peers, slipping to a three-year low versus the yen. The Swiss National Bank kept its rates unchanged Thursday. Officials there have said the British vote has the potential to cause “enormous stress” in Europe. The yen jumped 1.6 percent to 104.38 a dollar, strengthening for a fifth day. The currency gained against all 31 major peers. BOJ Governor Haruhiko Kuroda said the authority will be monitoring currency movements closely, indicating a risk of intervention. “The BOJ was facing too much of a headwind in the market,” said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities Co. “Ineffective easing would just question their credibility.” Russia’s ruble and South Africa’s rand both dropped 0.4 percent, the worst performers in emerging markets, as commodities declined.

In Commodities, it was all about gold which jumped to the highest level since January 2015.Bullion for immediate delivery rose over 1% or as high as $1,314 an ounce before the BIS intervened to keep the price lower at the European open. Prices have surged 23% this year as increasing global economic and political risks drive investors to havens.  Silver rose 1.1 percent as assets in exchange-traded funds backed by the precious metal climbed to a record. Nickel and copper led a decline in industrial metals. West Texas Intermediate crude fell 1.2 percent to $47.45 a barrel and Brent dropped 1.2 percent to $48.37, on speculation that easing global supply disruptions will offset a decline in U.S. crude stockpiles. Output in Canada is expected to ramp up this month after wildfires cut production. While U.S. crude inventories dropped for a fourth week to 531.5 million barrels, they remain about 33 percent above the five-year seasonal average, the U.S. Energy Information Administration said Wednesday.

Bulletin Headline Summary from RanSquawk and Bloomberg

• The fall out of the Fed’s slightly dovish meeting and the BoJ’s inaction has seen equities softer across Europe
• GBP trades in range with the Ipsos Mod poll’s 6% lead for the leave camp offset by the strong UK retail sales
• Highlights today include BoE rate decision, US CPI and Philadelphia Fed Business Outlook

• Treasuries rise on the long-end while global equities and oil drop, gold rallies back above $1300/oz on renewed growth concerns, while Fed, SNB and BOJ held policy steady.
• Mark Carney hit back against critics who accused him of supporting the U.K.’s membership in the European Union as a new poll showed the Leave campaign holding its lead ahead of next week’s referendum
• U.K. retail sales climbed 0.9% in May, more than economists forecast, as warm weather spurred demand for summer clothing and department stores offered promotions
• The BOJ refrained from expanding monetary stimulus ahead of the U.K. vote on Brexit next week that could roil global markets, and before a domestic election in which the political opposition has made the bank’s NIRP an issue
• Federal Reserve Chair Janet Yellen seems to be coming around to what her one-time rival, Lawrence Summers, has been arguing for a while: Some of the forces holding down interest rates may be long-lasting and secular
• Indonesia’s central bank cut its benchmark interest rate for the fourth time this year, indicating its willingness to favor economic growth over stability in the face of mounting global risks
• The Swiss National Bank kept interest rates unchanged, conserving ammunition ahead of a British vote on European Union membership that has the potential to complicate monetary policy-making the world over
• The job market is grim on Wall Street. Except in one little corner of the financial world, where managers can’t read resumes fast enough. The turnaround expert is in hot demand

DB’s Jim Reid completes the overnight wrap

The Fed look like helping bond yields stay low in the near-term as their meeting concluded in dovish fashion with July increasingly looking like it’s off the table for the Fed. One stat showing the dovishness is that the number of committee members only seeing one hike in 2016 has gone up from 1 to 6 (out of 17) relative to March’s last round of forecasting. The median forecast is still for two hikes but there are clearly more dovish voices now. Even long standing hawk President George didn’t dissent to the statement which surprised a few. The median expected Fed Funds rate expectation for end 2017 and 2018 were cut 25bps and 62.5bps respectively with the 2018 number now at 2.375%.

Stocks hardly reacted to the statement but fell sharply in the last 30 mins of trading perhaps due to a fall in oil below $47.50 having trading as high as $48.68 just before Europe went home. The S&P 500 closed -0.2% after having been a third to a half percent higher most of the day. Treasuries yields fell after the number with 10 year (1.572%) and 2 year (0.67%) yields 4bps and 5bps lower on the day – most of which occurred post the statement. 10 year yields are another 1.5bps lower in the Asian session.

The BoJ has followed the Fed’s lead and has maintained policy at current levels overnight. Although only around a quarter of economists expected anything today (and probably even less investors), the Yen has strengthened over 1% and through 105 to the dollar for the first time since September 2014. Asian shares are on the way down for their sixth day with the Nikkei around -1.8% lower. Elsewhere the Hang Seng is down -1.75% but Chinese stocks are broadly flat. Gold is up for a 7th day.

Before the late day US sell-off and Asian weakness, European equities bounced off their lowest levels since late February as the STOXX 600 and the FTSE gained +0.97% and +0.73% respectively on the day. The gains also appeared to be broad-based as all 19 sectors in the STOXX index turned up, led by Basic Resources (+3.65%) and Retail (+1.75%). Financial services were the most actively traded sector ahead of the referendum with volumes touching 166% of the 30 day average volume.

While some of the gains can be attributed to decent economic data out of Europe and the UK (discussed later), Brexit concerns will likely continue to overshadow anything else at the moment. Today we see two crucial polls both expected to be out around 1230 BST. They are both phone polls and are from Ipsos-Mori and Survation/IG. These are credited as being the most accurate pollsters in the Scottish referendum so that and the fact they are phone polls make them key. So far phone polls are where the ‘remain’ campaign still have the upper hand notwithstanding the ICM poll early this week.

Moving onto the latest in the German 10Y yield saga, they continue in negative territory and ended yesterday at -0.010%. This number does however disguise some of the intraday moves that saw yields initially rise back above zero to an intraday high of 0.017%, before rapidly delving back into negative territory.

Now reviewing some of the data out yesterday, we saw the final May CPI numbers out of France surprise on the upside at +0.5% mom (vs. +0.3% expected; +0.3% previous) with much of the gains being driven by food price inflation (+1.0% mom). Prices were up +0.1% YoY (0.0% expected). Over in the UK we saw the labor market remain resilient despite uncertainty ahead of the upcoming referendum, with the unemployment rate for May declining to 5.0% (vs. 5.1% expected; 5.1% previous) – the lowest levels since 2005. Wages growth also ticked up as weekly earnings increased by +2.3% 3m/YoY (vs. +2.0% expected; +2.2% previous).

Heading over to the US, we saw producer prices for May tick up by +0.4% mom (+0.2% previous) and beat estimates (+0.3% expected), primarily driven by the biggest rebound in energy costs since May 2015. However, these headline numbers may be misleading as prices excluding volatile components such as food, energy and trade services actually disappointed by declining for the first time in seven months (-0.1% mom vs. +0.1% expected). Our Chief US Economist Joe Lavorgna also notes that the temporary energy-related spike in prices is likely to reverse in light of a soft growth backdrop in the US and abroad, with is certainly reflected by the mixed bag of data on the manufacturing front. While the NY Fed Empire Manufacturing survey rebounded sharply in June and clocked in well above expectations (6.01 vs. -4.90 expected), the hard industrial production numbers for May disappointed by dropping by -0.4% mom (vs. -0.2% expected). The drop in the latter was largely due to sluggish production of consumer goods (-0.7% mom), which in turn was primarily dragged lower by falling automotive output (-4.4% mom). Capacity utilization for May also fell to 74.9% (vs. 75.2% expected; 75.3% previous), which was consistent with an ongoing slowdown in aggregate demand.

Taking a look at the day ahead, we’ll start off in Europe with the UK May retail sales number which is expected to report a slowdown (expected +0.2% mom; +1.3% previous). Shortly after we will also see the final May CPI report for the Eurozone which is expected to be unchanged from the flash estimate on an annual basis (expected -0.1% YoY) and tick up from the previous month (expected +0.3% vs. 0.0% previous). We then have the BoE rate decision which should come out around midday, where the rate is expected to remain unchanged.

Over in the US the big release will be the May CPI numbers (expected +0.3% mom; +1.1% YoY), which should be closely watched for signs of renewed inflationary pressures following yesterday’s PPI data. However, Joe Lavorgna once again notes that the slack in the industrial sector suggests that recent inflationary pressure is unlikely to be sustained. Any tick up in the CPI figures will likely be due to temporary energy related effects similar to those seen in yesterday’s PPI numbers. Away from the inflation numbers we will also see the weekly initial jobless claims (expected 270k vs. 264k previous) and continuing jobless claims (expected 2140k vs. 2095k previous) numbers that should also be monitored given some of the mixed signals regarding US labor market resilience. The Philadelphia Fed Business Outlook survey for June is also due and is expected to head back into positive territory (expected +1.0 vs. -1.8 previous) and should also be closely watched after the mixed bag of industrial sector data so far. We should also get the reading of the NAHB Housing Market index which expected to largely hold stable at 59 (vs. 58 prior).

The two lunchtime Brexit phone polls already mentioned could be the key highlight today though.