Markets Misled By Trade Deal

Skepticism over the trade deal proved to be justified, as the final terms of the initial agreement were announced. While most expected to see a $25B cut in tariffs, there was only $9B in the final agreement. This does little more than stop additional tariffs that were on track to take hold yesterday. This opens the path for President Trump to continue the tariff rhetoric that has led to stock prices shooting higher with each positive statement. I don’t anticipate the tariff issues to be resolved until after the elections. Since President Trump gauges much of his presidential success on the strength is the stock market, I believe there is little incentive for him to finalize a tariff agreement.

On Friday, the markets will get an update on consumer inflation via the Personal Consumptions Expenditures (PCE) report. Given that this is the Fed’s favorite gauge of inflation, the markets will be anxiously awaiting the news. If it shows that inflation on the consumer level remains stagnant, the bond market will like the news.

Mortgage bonds remain under significant pressure. We will maintain a locking bias.