Increased trade tensions between the U.S. and China were modestly positive for mortgage rates and negative for stocks this week, while the economic data and the Fed minutes had little impact. As a result, rates declined a bit and ended at the lowest levels in over a year.
The U.S. and China appeared to take a couple of steps backward in the trade negotiations this week, and this increased the likelihood that both countries will impose additional tariffs and other penalties on foreign firms. Since barriers to trade of this nature slow global economic activity, these developments were favorable for mortgage rates and very bad for the stock market.
The latest data from the housing sector was mixed. In April, existing home sales unexpectedly posted a small decline from March and were 4% lower than a year ago. Sales of new homes in April were close to the consensus forecast, but the March results were revised upward to the highest level since October 2007. Since new home sales represent signed contracts, while existing home sales are based on actual closings, the new home sales report is a more forward-looking indicator of housing market activity.
The minutes from the May 1 Fed meeting released on Wednesday contained no surprises. Fed officials will retain a patient approach to adjusting rates “for some time” and will be keeping a close eye on inflation to see if the current low levels are mostly due to temporary factors or longer-term trends. Investors are split on whether economic conditions will cause the Fed to cut rates later this year.
Looking ahead, it will be a light week for economic data. Pending Home Sales and the second estimate of first quarter GDP will be released on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will come out on Friday. In addition, news about the status of the trade negotiations between the U.S. and China could influence mortgage rates. Mortgage markets will be closed on Monday in observance of Memorial Day.
|Thu||5-30||Pending Home Sales|