Market Update as of December 5, 2018

US/China Trade Truce Pulverizes Stock Markets
The US/China trade truce euphoria lasted about as long as it took the President to ask President Xi to pass the ketchup at dinner this weekend.    Stock markets got absolutely pulverized yesterday as Taco Tuesday quickly became Tariff Tuesday.    The Dow closed down 800 points as investors took a hard look at what actually came out of the Trump/Xi meeting….Nothing.  Throw in an increasingly dovish Fed, with Kashari commenting that “if we overdo interest rates, I do think that could cause a recession”, with the partially inverted yield curve yesterday, and we find the yield on the 10yr note down to 2.91%, below the 200 day moving average.   This plus plenty of economic headlines have caused mortgage rates to be 20-30bps lower in just a few weeks. We are clearly in unpredictable waters.

Construction Spending Chills         
U.S. construction spending fell for a third straight month, government data showed on Monday, while private-sector figures showed an uptick in manufacturing order growth but offered a mixed view on overall factory activity. The data comes as many investors are watching for signs the Federal Reserve's three-year tightening cycle could be coming to a close after an expected hike this month, which would be the fourth by the U.S. central bank this year. The Commerce Department said total construction spending fell 0.1 percent to $1.31 tril- lion in October, while economists polled by Reuters had forecast outlays rising 0.4 percent.

Trade Tariffs Halted Temporarily
Over the weekend the president and the Chinese government agreed to halt additional tariffs for 90 days as they attempt to work on a more permanent trade deal. The market’s immediate reaction sent bond prices lower and stock prices higher. Fast forward to this morning and markets are treating the meeting as a complete non-event; conceding that all this agreement does is delay talks a little longer. I think we’ll continue to see markets fade any headlines regarding trade talks between the United States and China until they address the elephant in the room: IP theft, cyber security, espionage, patent infringement, and the forced transfer of technology.

Interest Rates Lower
As a result of trade tariff talks, interest rates are actually lower than before the meeting took place with the yield on the 10-year trading at 2.997%. Mortgages are unchanged, perhaps waiting to see what happens with sub-3% ten years. Even stocks, desperate for some good news, have given up nearly 300 points from this morning’s high.


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Courtesy of Sotheby's International Realty's in-house Lender Simon Atik, 310.880.8414, Simon.Atik@grarate.com, Vice President of Mortgage Lending, Guaranteed Rate Affinity.

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