The Impact of Trade Battles: The Weekly Market Update

No Wars -- Yet
No Wars -- Yet

No Wars -- Yet

There seems to be a lot of rhetoric going back and forth on the topic of trade wars. Much of this debate centers upon the question of whether we are in a trade war or not. We can’t answer that question definitively, but certainly we do understand that some of the basic characteristics of a trade war have been implemented and others have been threatened. We have imposed tariffs on other countries’ goods and they have done the same to our goods.

The important question is not whether this is a full-blown trade war, but what is the impact of the implementation of tariffs? In the short run, we have seen one major impact — the stock market has become very volatile. As we have previously discussed, this volatility is caused by more than one factor. However, the risk of trade wars certainly is playing a significant part in contributing to volatility. Why are the markets uneasy regarding these tariffs?

For one, tariffs raise prices to our consumers. On the other side of the equation, when other countries retaliate against our goods, it hurts the producers of these goods — from manufacturers to farmers. These two factors can actually balance each other out. For example, higher prices contribute to inflation which can bring higher interest rates. On the other hand, lowering exports can hurt certain sectors of the economy and that might bring rates down. Which side of the equation might win out? It is hard to tell. We actually hope that these “shots being fired” are precursors to the negotiation of better trade agreements that will benefit all parties. In the meantime, there will be some negative impacts and certainly a lot of noise.

The Weekly Market Update

Rates on 30-year fixed home loans were stable again in the past week. For the week ending March 29, Freddie Mac announced that 30-year fixed rates fell one tick to 4.44% from 4.45% the week before. The average for 15-year loans also decreased slightly to 3.90% and the average for five-year adjustables fell to 3.66%. A year ago, 30-year fixed rates averaged 4.14%, higher than today's level.

Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac -- “Treasury yields fell from a week ago helping to drive rates on home loans slightly lower. The yield on the 10-year Treasury dipped below 2.8 percent for the first time since early February of this year. The decline in Treasury yields comes as investors move into safer assets amid increased trade tensions. Following Treasurys, rates on home loans fell slightly. The U.S. weekly average 30-year fixed rate fell 1 basis point to 4.44 percent in this week’s survey.”

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.