Trade War Continues to Flair

Friday’s announcement of $50 billion in potential tariffs on China was quickly countered by a potential $38 billion tariff against goods being exported from the US into China.  The retaliatory mindset on both sides is once again sparking fears of a trade war.  As a result, US stocks are down sharply this morning.  Ordinarily, this would be of great help to the mortgage bond  market.  However, bonds remain trapped beneath a significant ceiling of resistance provided by the 50 day moving average, which has been a difficult ceiling to remain above since last September.  Therefore, mortgage interest rate improvements will likely be minimal.

The mortgage bond market’s failure to break above its 50 day moving average points to continued weakness that could drive mortgage interest rates higher in the days to come.  The key to lower rates could rest in the hands of a trade war.  As much as I would like to see the US avoid a trade war with China, it seems to be heading in that direction.  That would hurt the US stock market and should help improve mortgage interest rates.  However, that could be many months in the future before we see that level of change.

Given the continued weakness in the bond market, a locking bias is the prudent stance to take.