Jan 082020
 

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By G. Steven Bray

When I predict whether rates will rise or fall, I always issue the caveat “absent unexpected headlines.” Well, the past few days have provided a case in point. Rates dropped quickly following the US drone strike last week on the Iranian general and rose just as quickly today following the President’s address that suggested the crisis has passed.

Where does that leave us? Rates are stuck in the range again and waiting for inspiration. Potential sources for that inspiration are many, but let’s focus on a few of them.

First and foremost, if the Iranians don’t “stand down” as the President suggests, rates are certain to fall again. Renewed hostilities will make investors more cautious, and that caution will lead to lower interest rates.

Assuming that doesn’t happen, and markets currently seem confident it won’t, the next big event is this week’s jobs report. Recession whisperers were headliners on cable news last fall when it appeared the jobs market was softening. That changed with Dec’s blowout jobs report. Markets expect another strong report this Fri. Because of this expectation, its verification is unlikely to change rates much. Should the report disappoint, rates should improve a little.

Trade is the other major source of inspiration. The Senate is expected to pass the new trade deal with Mexico and Canada soon, and the President said he expects to sign a Phase 1 deal with China mid-month. Markets widely expect this to happen, so when it does, it’s unlikely to change market sentiment. Rates seem to be experiencing some slight upward pressure, and that probably would continue. However, should we experience a hiccup in either deal, we’d likely see at least a short-term drop in rates.

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