Trade War Developing

Mortgage bonds are slightly higher this morning, as many look for what position to hold going into tomorrow’s Bureau of Labor Statistics (BLS) Jobs Report. After ADP showed 235,000 new hires in the month of February, it seems likely that the BLS report will be higher as well. One of the components that goes into the number is the number of new filings for Unemployment Claims during what is referred to as the “sample week.”  Since that week had only 220,000 filings, this part of the computation points to a strong number of job creations.

The market still anticipates about 205,000 to be the number reported by the BLS. However, that could easily be surpassed, which would hurt mortgage interest rates.  Investors will also be closely watching the Average Hourly Earnings number, as that is a forward indicator of consumer inflation. With wage growth pacing above 5% per year, it also seems likely that the Average Hourly Earnings figure will be above the market’s expectations as well.

Mortgage bonds are holding just beneath their 25 day moving average. A lol back on a longer term chart shows that the last time mortgage bonds were convincingly above their 25 DMA was back in September of last year. Since breakouts of a long term trend are the exception and not the rule, it is unlikely that bonds will be able to muster the strength to make it above this critical level. Again, another indicator of higher rates in the near term likely.

China made a strong response to the proposed tariff of steel and aluminum imported into the United States by stating they will retaliate with tariffs of their own. This issue is getting closer to sparking a trade war between the U.S. and other nations. As with any war, this would likely cause harm to the U.S. stock market and help mortgage bonds.

Given the strength of resistance provided by the 25 day moving average, we will suggest locking ahead of tomorrow’s BLS report.