Bond prices failed to break above the ceiling of resistance once again, which is holding back mortgage interest rates from making further improvements. At this point, it seems likely we will see bond prices travel down to the bottom of the trading channel, which fortunately isn’t too far beneath current levels. Given how tight the trading channel is, bonds will eventually be squeezed and forced to decide;
although with the light economic calendar today, it isn’t likely to be immediate. We do have potential market moving reports as the week progresses; most importantly, the Personal Consumption Expenditure (PCE) report on Thursday.
U.S. stock markets are again setting new all-time high records this morning, as investors cheer a potential trade agreement made between the U.S. and Mexico. This is adding a strong headwind to the bond market, and likely will continue to do so throughout the day.
Those who think the 10-year anniversary of the 2008 financial crisis will be a quiet one, could be in for a surprise. Although it’s just a guess, I feel that the ride of the U.S. stock market could get bumpy as we approach this significant milestone in history. With the trade war progressing, the legal troubles of President Trump deepening and the U.S. economy wearing from what has already been the longest running bull market in history, I feel that stock investors will move quickly once signs of a recession are more evident. We will have to see what happens, but a cautious approach to the stock market seems prudent.
Given the bond market’s failure to break above resistance, we will move back to a locking bias.