Weekly Economic Update - 4.23.18

Hello,

I hope you had a nice weekend.   

RATE MOVEMENT (from prior week) ~ INCREASED!

Strangely, mortgage rates moved higher during the second half of the week without a clear cause.  The economic data released this week produced little reaction, and there was not much change in the stock market.  Still, mortgage rates finished near the highest levels in several years.  Rate trading has been “stuck” in the same channel since Mid- February, and we finally broke out of it on Friday (in a negative way) and rates are now poised to loiter in a higher channel (i.e. higher rates). 

IMPORTANT ECONOMIC FACTORS:

Bond Supply & Inflation  - There are several big picture factors which are viewed as negative for mortgage rates, but investors have been aware of them for months.  First, the supply of bonds issued by the Treasury is increasing due to larger government deficits resulting from policy changes.  Yields generally need to rise to entice investors to purchase additional bonds.  Second, the Fed has been very clear in stating that it is tightening monetary policy by raising the federal funds rate and reducing its enormous holdings of Treasuries and mortgage-backed securities.  This also adds to the supply of bonds.  Finally, global economic growth in recent months has been the strongest since the financial crisis, which could increase inflationary pressures.  The only potential factor that was new this week was that oil prices reached the highest level since 2014, which also could increase the outlook for future inflation. 

Consumer Spending  – Since consumer spending accounts for roughly 70% of economic activity, investors keep a close eye on the retail sales data.  Following strong readings during the fall, retail sales posted unexpected declines for three straight months. Although, the data for March released last Monday showed that they increased a healthy 0.6% from February, breaking the unwelcome trend.

 Housing Starts - This week's report on housing starts was not as encouraging as the retail sales data.  On the surface, overall home construction in March looked good with a stronger than expected increase from February, but this was completely due to strength in the multi-family segment.  Single-family housing starts fell 4% from February, and permits to build single-family homes dropped even more to the lowest level since September 2017.  This is volatile month to month data.

 THE FORECAST/GUIDANCE:

This week we will be waiting in anticipation to get readings on GDP (gross domestic product), and to see what the ECB (European Central Bank) will say from their meeting on Thursday.  Both of these factors could influence rates.

Please let me know if you have any questions in regards to this.

Thank you for your continued support, have a productive week.

Stuart Crawford

SVP, Regional Manager

THE CRAWFORD TEAM

VIP Team

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