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MBS RECAP: Traders Trading Trade (Deal)

October 10, 2019
by admin

With the exception of the wee hours yesterday morning, the past 2 days have been all about the trade deal. Markets knew Trump and the Chinese vice premier would be meeting this afternoon and they increasingly believed some sort of trade announcement was likely. In fact, both stocks and bonds did such a good job getting ahead of such a thing that they moved in counter-intuitive directions as soon as it was announced. You know… buy the rumor, sell the news, and all that…

While you know I’d be the first in line to say too many words about something that happens in financial markets, today was really that simple. In short, it was 2nd day of stocks and bonds pricing in some announcement of progress in US/China trade relations. In that context, the bond losses are reasonable (more than reasonable, really).

In fact, bond losses are so mild relative to the news that we may well wonder what next week will look like. The outlook is complicated by the fact that it’s a 3-day weekend. We tend to think of that as being a reason for bond traders to err on the side of caution (i.e. maybe buyers will be more confident on Tuesday). But what if it’s a similar story for the stock market? In other words, what if stocks would have been more willing to gain more ground if not for the uncertainty created by a 3-day weekend? Either way, the first 2 business days of next week matter greatly to the near-term outlook for both sides of the market.

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