|10 year government bond yield||1.77%|
|30 year fixed rate mortgage||3.91%|
Stocks are lower this morning on more trade war fears. Bonds and MBS are up.
Bond yields worldwide are down this morning, and many traders are watching the yuan / dollar exchange rate. Weakening the yuan is one of the arrows in China’s quiver to combat tariffs. A weaker yuan will make Chinese imports cheaper, which can offset the effect of tariffs. Globally, we see the German Bund with a negative 50 basis point handle, and the Japanese government bond pushing negative 20 basis points. If this continues, I think we are looking at another 25 basis point cut in September.
Trump tweeted about the yuan exchange rate this morning and called it “currency manipulation.” This is not an idle term – Treasury Secretary Steve Mnuchin has resisted calling China a currency manipulator, because it is a weighty accusation. Trump also asked if the Fed was “listening.” The Fed is not in the currency business – that is Treasury’s job – but he is putting additional pressure on the Fed to cut rates. If there is a silver lining in all this, it is that it means lower rates and that is good for the mortgage market. It also looks like some of the more expensive real estate markets on the West Coast are re-thinking their zoning laws, which could add some much-needed supply.
The week after the jobs report is invariably data-light, and this week is no exception. The biggest reports will be job openings on Tuesday and producer prices on Friday. Since we are no longer in a tightening cycle, the inflation data will not be a market mover. Note that the disappointing construction spending number is pulling down Q3 GDP estimates to the 1.6% – 1.9% range.