Stocks are climbing higher this morning, following the announcement that the United States has formalized a trade agreement with Canada and Mexico. The new agreement will replace NAFTA, and will be called, “The United States- Mexico- Canada Agreement (USMCA). Now that this agreement is formally in place, this will end the concerns over future tariffs being levied against either Mexico or Canada.
The stock market was set for a higher run following stock prices hitting the bottom of a very strong trading channel. The long-term momentum in the stock market is very strong, with the trading channel holding firmly in place. We can now expect stocks to hit the top of the trading channel before settling back down.
Today is a quiet news day, so markets will trade heavily based on the technical picture. This is not good news for mortgage bonds, as we have a head and shoulders pattern forming that could spell trouble ahead. With this being “Jobs Week,” market volatility will likely increase. The important news will come on Friday, when the Bureau of Labor Statistics (BLS) announces their estimate of new hires in the month of September. The market is currently expecting to see about 180,000 new jobs. A stronger than anticipated figure could cause rates to move higher, so we need to be careful going into this report.
Given the strength in the stock market and continued weakness in the bond market, we will maintain our locking bias.