Concerns over China’s economy slowing appear to be confirmed this morning, as data released since last Friday affirms what many have expected for some time. As the world’s second largest economy, China makes up 1/3 of the global economic growth. With a trade war continuing to heat up between China and the US, this could be an omen that the longest global economic rally in many years may be plateauing. Given the global dependency the world economy has on China, this could spell trouble for many other economies, including the US. Furthermore, with as much as 15% of high end US real estate being purchased by Chinese citizens, China’s weakening currency is making real estate purchases in the US even more expensive. This will impact the US real estate market over time.
This will be a relatively slow week for economic reports. The highlight of the week could be Tuesday and Wednesday’s semi-annual Senate testimony by Fed President Jerome Powell. Markets will be intently listening for clues as to whether the path of higher interest rates will escalate or if concerns over a trade war, as well as a potentially inverting yield curve, will slow the path.
Mortgage bonds remain trapped in a narrow range between their 25 and 100 day moving averages. It seems they could be breaking out of this right channel in the near term. When they do, we anticipate the move to be exaggerated. We also believe it is more likely to be to the downside, which means mortgage interest rates will be pushed higher.
Given the continued weakness in the bond market, we will maintain our locking bias.