China Makes a Strategic Threat

Mortgage bonds once again failed to break above the top of their trading range, so now we can expect them to fall down to the bottom.  We had a similar situation in the stock market.  However, that was in reverse.  Stocks on Friday fell down to their 200 day moving average and once again bounced higher off this critical level.  Stocks have tested this no less than 7 times in the most recent three weeks, with each time leading to a nice run higher.  As expected, stocks are now well ahead for the day, with the Dow up over 300 points in early market trading.

The Whitehouse has seemed to soften their stance regarding tariffs at the moment, as China threatened to devalue their YAUN.  This is a smart move by China, as it would essentially reduce the cost of American’s buying Chinese products as a way of whipping out the impact of tariffs.  A lower currency rate in China would hurt the US far more than any benefit the tariffs will bring.  Would the US then be forced to devalue the dollar to compete?  This does not seem to me to be a game we should be playing.

With bonds still unable to muster the strength to break above the ceiling of resistance, we will maintain our locking bias.