Stocks are down sharply this morning, as fears of a trade war with China are once again ignited. China announced plans to add tariffs to 128 U.S. products as a retaliatory response to President Trump’s tariffs of on steel entering the United States. This move by China is not good for the overall US economy, as it will add upward pressure to consumer prices. The type of inflationary pressure can hurt bond prices and cause mortgage interest rates to move higher. Further, it can cause a headwind to stocks on companies that will be adversely impacted by the tariffs. As with most political decisions, there will be winners losers. The US steel companies and the 90,000 Americans who work for such companies will win. However, an even greater amount will likely lose.
It’s a quiet news day, but a busy news week overall. On Wednesday we will get an estimate of new job hires from ADP, and on Friday we will have the Bureau of Labor Statistics (BLS) estimate released. Given that last month’s report from the BLS was a blockbuster figure of 313,000, it seems strange that this report is estimated to only come in at 167,000. This is a very low target to achieve and could be the source of upward pressure on mortgage interest rates.
With stocks now beneath their 200 day moving average, mortgage bond pricing should be better than they are currently reflecting. So far, the 50 day moving average has capped improvements to mortgage interest rates. If stocks continue to fall, we could see this important level be broken. If so, a nice improvement to mortgage interest rates would likely follow.
If you are able to closely watch the bond markets, there is no reason to immediately rush to lock. However, know that volatility is high and we could see a reversal happen. With prices below their 50 DMA, the safe play remains to maintain a locking bias.