07 Jan Locking seems prudent
The wild ride in global stock markets continues today, with the Chinese market again stopping trading due to losses exceeding allowed limits. In fact, overnight their market was closed after just 29 minutes of trading when the 7% limit was reached! It is reasonable to assume that the losses would have been much greater had the markets not been forced to close early. Therefore, the fear is that the next trading session will resume the path lower. This is truly a nightmare for global economics. The meltdown in the Chinese economy will have implications for us here in the US. In fact, the Chinese government has issued a cap of $50,000 per person on money flowing out of China and into other countries. We all know the amount of real estate purchased by Chinese citizens here in the US. With that now no longer able to continue, this could be a major setback for our local real estate market.
Bond prices hit up against their 25 day moving average yesterday and were forced lower. They now are trapped well between their 25 and 50 day moving averages. Tomorrow’s Bureau of Labor Statistic’s Job’s Report could provide a catalyst in either direction. Given that the market is only anticipating 190,000 new jobs, it seems reasonable that the final release could be significantly higher than planned. Given the degree of new hires in the service industries during the Christmas shopping peak, a number of 250,000 or more is certainly possible. With good economic news likely to increase fears of further Fed tightening, that could spook the stock market which would help improve bond pricing. However, we will have to wait until tomorrow to see what actually happens.
With bonds trapped beneath a duel layer of resistance, we will maintain our locking bias for now. If bond prices are able to make a break higher, we will certainly float. However, until that happens, locking seems prudent.