Market Confusion Sets In

It looks like investors have once again fallen for another false hope on ending the trade war. President Trump now claims that there is no timeline to sign an agreement and that he may want to wait until after the November 2020 elections are final. This is in direct conflict with recent statements that have suggested that a deal will be signed this month. I continue to believe that a deal will not be signed anytime soon, and that investors will continue to fall for false hopes and make trades based on rhetoric. The good side to this is that it has driven stock prices significantly lower today, which has provided mortgage bonds the strength to break back above their 25, 50 and 100 day moving averages. Overall, this is highly irrational behavior for both the stock and bond markets. The whipsaw effect is in full force and could come back to bite us if President Trump once again changes his rhetoric to support an end to the trade war.

Mortgage bonds are back to the top of the trading channel that they have been stuck within for weeks. If stock prices continue to fall, we could see bond prices break out of this channel, which would allow mortgage interest rates to take a step lower. Since a stock pull-back is long overdue, let’s hope we see rates benefit.

Until mortgage bonds are able to break above the current ceiling, we will suggest a locking bias. However, if bond prices do break higher, we will switch to a floating stance, as we could see all time low rates if that occurs.