China Retaliation Coming?

Mortgage bonds are having another great day today, climbing back to the top of the trading channel just as we anticipated in yesterday’s market update. The news of the day was once again out of China, with talk of more retaliation coming our way. This is just more of the same, which at this point is getting absurd. It’s shocking how reactive the market is to both positive and negative news surrounding the trade war. There seems to be some much posturing and crying wolf that strong money investors should see right through this. There is certainly a lot of weak money and day traders that are creating much of the massive movements. Of course, there is big money jumping on the short-term opportunities. However, don’t count of the strong money staying in this volatile game for too long. They will see the writing on the wall. Therefore, I continue to see trouble brewing for the stock market in the long run.

This morning’s Retail Sales report came in showing a gain of 0.7%, which far exceeded the 0.3% the market anticipated. However, this number includes the transportation component, which can greatly skew the numbers because of high priced luxury cars. When you exclude transportation, the number comes in at only a gain of 0.1%. This is truly not a good sign and points to a lack of the average consumer spending. Big money investors watch the Ex-transportation figures. So, as most investors only consider the headline figure, smart money sees a completely different picture.

With bond prices heading to the top of the trading range, we will now switch to a locking bias. If bond prices do break above resistance, mortgage rate pricing could improve. However, watch for a Trump Tweet that could cause stocks to bounce higher, adding upward pressure to mortgage interest rates. Just a guess, but it seems overdue.