15 Jun Trade War Concerns Flair Up Again
Mortgage bonds are performing just as we anticipated, making short term improvements. However, they are now nearly up against their 50 day moving average, which has been a very difficult moving average to cross. I anticipate that bonds will hit this level and be pushed back down. However, if bonds do possess the strength to break above this critical level (which I don’t believe they will), we will see rates improve. The odds of a break through are low, so I wouldn’t take the chance of floating.
President Trump announced a new 25% tariff against China on $50 billion of Chinese Goods. This is once again creating fear of a trade war, which would contribute to additional weakness within the US stock market. If China retaliates, as I expect they will, we will see the situation escalate. In the end, China will likely be forced to comply with President Trump’s terms, or at least be forced to meet somewhere in the middle. A trade war isn’t healthy for either of the two powerhouse economies, so we will have to watch this story closely as news develops.
Given the fierce battle that will likely take place at the 50 day moving average, a locking bias remains prudent.