The Fed + China = Low Rates

Mortgage bonds are climbing higher today, as investors digest the news of the day combined with yesterday’s Federal Reserve interest rate cut. Stocks, on the other hand, started the day climbing higher only to be pushed down sharply after President Trump announced additional tariffs of 10% on the remaining imports from China, which is set to take place at the end of next month. Since the stock market was hoping for a ½% rate cut, stock investors are already feeling the pain of disappointment. So, to once again have the trade war with China lacking progress, this is not good news for the stock market. It was just a few weeks ago that the Trump Administration implied we are close to a deal with China. I again wonder if the good to bad back to good news regarding China is just a part of the negotiation strategy. Regardless, the just following the back and forth news is exhausting.

Tomorrow is another big day for mortgage interest rates, with the bureau of Labor Statistics (BLS) set to release their estimate of new hires in the month of July. Since we had a strong report in June, it seems likely to me that the number will be near expectations or below. I don’t expect to see another surprisingly strong report. However, this is only my opinion. It could be proven wrong for sure. Regardless, there is great risk in floating into tomorrow’s report.

With mortgage bonds still trapped within the trading range that has held for several weeks, the safe play is to lock ahead of tomorrow’s report. Keep in mind that I see rates continuing to fall, so we haven’t yet seen the lows I believe we will see.