The Trade War Escalates

After a stellar day yesterday, stocks have started the day sharply lower this morning as fear over a trade war escalates.  After the close of the stock market yesterday, China released a statement that it plans to impose a 25% levy on roughly $50 billion worth of U.S. imports into China including soybeans, automobiles, chemicals and aircraft.  This move escalates the tensions between the two economic powerhouses and fuels fears of a long term trade war.  Personally, I don’t see a win for either side if a prolonged trade war were to happen.  It would damage the U.S. economy, while subsequently driving inflation higher as consumers are forced to pay higher prices for goods.  Hopefully it is a successful scare tactic implemented by the Trump Administration to provide leverage for a more favorable trade agreement.  Otherwise, this could backfire.

The U.S. stock market is at a critical juncture as it battles its 200 day moving average.  The good news for stock investors is that there are multiple layers of support just beneath current levels.  That generally indicates a strong likelihood that the losses in the stock market will be limited.  However, if they do fall below support, that would be great news for the mortgage interest rate market which has not been able to find the strength to break above its 50 day moving average.  I wouldn’t count on that happening at this point.

ADP released their estimate of new jobs created in the month of March, and it was WELL above the market’s expectations.  While the market was looking for only 185,000, the release showed an estimated 241,000 new jobs were created.  It’s amazing to me that estimates were set so low.  With the recent trend showing at least an 80% chance of exceeding 200,000, why would they assume the growth to be so low?  It really does not make sense to me.

With stocks looking likely to bounce off the floor of support, we will maintain our locking bias.