The strategic tension between the United States and China seems likely to intensify, as ongoing sanction threats take the two powerhouse countries closer to a trade war. China has threatened to respond in-kind to any sanctions levied against goods ships out of China into the United States. This is not positive for either of the two economies. However, China is now focusing on a self-reliant system that will thrive without money from the west. That vision could help soften the blow for China, as they turn their focus onto economic growth from within. However, consumers in the US will certainly be the losers, as it is cheaper for many US retailers to purchase goods from China. An escalating trade war could eventually take its toll on the US stock market, which could help improve mortgage interest rates.
This morning’s ADP report showed that there were 177,000 new hires in the month of June. Although very close, this fell short of the 190,000 new hires the market anticipated. The more important report will come tomorrow when the Bureau of Labor Statistics (BLS) releases their estimate. It could provide the catalyst needed to force bonds to make a break out of the tight trading channel in one direction or the other. If the number is stronger than the market anticipates, rates could move higher. If the report is well below estimates, we could see bonds break above their 100 day moving average, which hasn’t been decisively penetrated since September of last year.
Given the risks associated with tomorrow’s report, we will maintain a locking bias.