U.S. equity markets are facing headwinds as geopolitical influences last week gave rise to some volatility and boosted trading volume.

Traders reported that the upcoming ‘Brexit’ vote on June 23, where the U.K. will decide whether or not it will remain part of the European Union, weighed on activity. Actual results of the vote will be made available on June 24, and Friday potentially will be the highest volume trading day of this year as it is not only the day after the UK vote but also the date of the annual rebalancing of the FTSE Russell indices.

Also of note last week was the Federal Reserve standing pat on interest rates — as expected — and signaling dovishness in terms of the timing of future rate increases.

On a more micro level, the U.S. Securities and Exchange Commission recommended the approval of buy-side sponsored dark pool IEX’s application to become a full-fledged public stock market. As of midafternoon Friday, no formal announcement was made, but many traders and pundits expected the application to be approved.

A few traders said to expect very quiet trading volume from across the pond, at least through Thursday. “Our international desk said that many accounts have told them not to expect much in the way of trading – other than light position squaring – ahead of the vote,” said a U.S trader.

Another trader said that there was the theory, originally touted in the global news media, that the U.K could exit the European Union but choose to remain economically linked, which could ease pressure on the trading markets and limit any severe market moves. Regardless, any formal exit from the European Union could take years and traders would be able to systematically wind down positions in an measured fashion.

“After what could be a knee-jerk response to the outcome of the vote, we expect orderly trade to resume as the market fully digests the vote’s outcome,” he said.

This theory was mentioned by ITG in its latest market structure commentary where the firm wrote that in the event of a Brexit vote, the UK may still remain part of the European Economic Area (EEA = EU + Norway, Iceland, Lichtenstein) in order to be able to access the common market. MiFID applies to EEA and allows cross-border financial services sales.

“Even if the UK were to stay outside of the EEA, financial firms in the UK would still want to sell into the EU and legislation similar to MiFID would be required to allow this under the ‘third-country access’ provisions,” ITG wrote. “With this in mind it is unlikely that very much of MiFID II would be repealed in the event of a Brexit.”

The U.S. –based Securities Industry and Financial Management Association said it expected Britain to remain in the European Union.  None of the industry trade group’s economists surveyed expect Britons to vote to leave the EU in the upcoming referendum.

Weakness in the Chinese markets was also cited by a few traders, as bulge bracket firm Morgan Stanley opted not to include representative stocks from the country in its MSCi index. The exclusion of the country led to a mild selloff and vote of no confidence in its equities. Some buying of U.S. stocks were seen by traders helping to buoy the market here.

Average daily trading volume as measured by Bats Global Markets was about 7.06 billion shares for the week ended June 17, up from the 6.52 billion shares for the week ended June 10.

And then there’s still the Fed. Despite the other notable happenings in the capital markets, equity traders continue to ponder the timing of the Fed’s expected rate hike. While no one is certain now when it will come, many believe it still is a foregone conclusion.

“The Fed will raise rates but the question is when – and that keeps the market from moving too far out of its current range or malaise,” said one floor trader. “And with the summer month’s closing in and vacation season beginning in earnest, the market could be range-bound for some time.”

Many observers expect two separate interest rate hikes this year – both for 25 basis points. But as a prop trader reminded, the Fed doesn’t want to appear political so the likelihood of any rate increase in the fall before the U.S. Presidential election is “a longshot.”

“I’m looking for 25 basis points in July and then a second hike in September,” the trader added. “After that, it will take some type of major jolt in either the economy or so other extraneous event to prompt the fed to move.”

In a recent report, Sifma said 2/3 of its economic advisory roundtable participants expected the Fed not to move until the third quarter. The remaining 1/3 said a move would occur in the fourth quarter.  The roundtable was mum on the size of the actual move.

This Week’s Major U.S. Economic Indicators of Interest:

Monday
Tuesday	Janet Yellen Speaks Redbook Retail Sales
Wednesday	Janet Yellen Speaks Mortgage Bankers Applications Index Existing Homes Sales
Thursday	Weekly Jobless Claims Chicago Fed Business Index New Home SalesLeading Economic Indicators
Friday	Durable Goods Consumer Sentiment

Previous Trading The Weeks:

• TRADING THE WEEK: FOMC Outlook, ‘Quad Witch’ Ahead
• TRADING THE WEEK: Stocks Move on Weak Jobs Report and Fed Uncertainty
• TRADING THE WEEK: Markets Sanguine Ahead of Potential Rate Hike