China Paused, Dollar Rallied, and Mortgage Rates Slid

Jeffrey Roach (00:08):

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial with three key talking points for the current macro landscape. First, China's in a much weaker spot. Now, I've been asked a lot about the U.S. and China trade spat, and it's important to put this into context here. China was growing around 7% when the U.S. and China had tariffs and retaliatory tariffs in 2018. Now, in contrast, China is growing at 4.8% according to the latest figures. That's much lower now than during Trump 1.0. So that's why I see China in a much weaker spot Now relative to previous years, this could be one reason why China will delay for one year those rare earth export controls that were announced earlier. Of course, this provides only some short term relief and highlights the need for the U.S. to invest in the industry. And of course, it highlights the importance of a healthy domestic economy as the White House engages with world leaders.

Jeffrey Roach (01:09):

Second, mortgage rates are the lowest in three years. One of the big events last week was the Fed's press conference following the federal open market committee's decision to lower rates within that range of three and a quarter percent and 4%. Now, that move wasn't a surprise, but what was a surprise was Chairman Powell's hawkish statement that a December rate cut is no guarantee. Investors had a tough time processing that statement. We saw treasury yields jump on the news. However, retail rates are behaving a little differently. Despite all that disappointment with the Fed and concerns about its structure, I think investors should at least celebrate the drop in mortgage rates. The national average for a 30-year fixed rate mortgage, according to bank rate, is the lowest in over three years. Given the softening job market and the expected improvement in inflation with the next several months, we should expect the Fed to cut further.

Jeffrey Roach (02:09):

And although there is not a strong correlation between general retail consumer rates and the fed's policy rate, consumers should also expect lower retail rates, especially as we make our way through 2026. Third U.S. dollar should stay off the recent lows. There are economic reasons why the dollar has rallied over the past six plus weeks, and it's mostly due to the ultralow rates in Japan, depressing the value of the yen. The Yen's weakness stems from a significant more dovish or stimulative policy stance from the Bank of Japan. Compared to the U.S. Federal Reserve, despite a recent Fed rate cut last week, U.S. interest rates remain comparatively higher. This creates a significant gap making dollar denominated assets much more attractive to investors seeking higher returns. We often talk about that carry trade, which factors into the recent strength out of the dollar. Investors borrow in a low interest rate currency like the end and invest in a higher interest rate currency like the dollar. This carry trade increases demand for the dollar and drives down the value of the end. Further risks for the end comes from the political uncertainty of Japan contributing to the end slide and correspondingly the dollars rally. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.