According to President Donald Trump, relations between the United States and Russia have never been as bad as they are right now, and this includes the Cold War. President Trump went to Twitter to warm Russia to get ready for a U.S. missile strike on Syria over a suspected chemical weapon attack. His message received a quick response from Russia that they will shoot down any missile we fire. They went on to warn that if any Russian assets are hurt, they will respond with a counter attack on the United States.
According to a Mideast analyst at the Russian Institute of Studies, which councils the Kremlin, the risk of military conflict between Russia and The United States in Syria is very high. This is clearly not a positive development for our country and would take a toll on the financial markets. Although not down too far this morning, stocks are showing signs of concern. This is helping the bond market to maintain its current position as investors move money into the safe assets such as mortgage bonds.
This morning’s Consumer Price Index (CPI) report confirms that consumer inflation is advancing as anticipated. On a year over year basis, Headline inflation moved from 2.2% up to 2.4%. When stripping out food and energy prices, it increased from 1.8% up to 2.1%. With both figures now over the psychological 2% level, this move is significant. If it continues to climb higher, the Federal Reserve could decide to raise rates at a more rapid rate.
After closing out the day yesterday beneath their 25 day moving average, this morning’s geopolitical concerns have helped push bonds above this critical level once more. Bonds are trading in a tight channel. We will maintain our locking bias.