The trade war with China is heating up, as China continues to devalue its currency to offset the additional taxes the tariffs have created. For example, if China were to devalue its currency by 10%, it could essentially negate the additional tariffs that are set to hit in about one month. A devalued Yuan will make it less expensive for a US consumer to purchase Chinese goods. So even after the impact of the tariffs, the US consumer doesn’t pay more for the product. On the flip side, it will make exports out of the US and into China more expensive, which will hurt US businesses that send products to China. Although this helps to pressure mortgage interest rates lower, it is not a good thing for the US economy. If this battle isn’t resolved soon, the odds of a recession will continue to climb.
The US stock market continues to fall, with prices breaking hard beneath the 100-day moving average already this morning. With the 200 DMA a ways beneath current levels, it is possible that stocks will continue to move lower. The current bull-market for stocks is now the longest running in history, which should be more concerning to people than it seems to be. At some point, the market will turn. Is this the beginning? There is no way to say for sure. Stocks have fallen sharply like this multiple times in recent history, only to come back and set new all-time high records. I believe that a solution to the trade war is the best things we can hope for.
Mortgage bonds are now just beneath a critical duel ceiling of resistance. I believe we will see a stall at current mortgage bond prices and likely even see pricing increase in the short term. I see a greater risk in floating that in locking on loans that need to close soon. However, I still believe that longer term rates will be lower.