Focus on Fed and Trade

Raleigh Mortgage Group Uncategorized

This week, investors were focused on a highly anticipated speech from Fed Chair Powell and the trade negotiations between the U.S. and China. These events did little to alter the outlook for investors, however, and the reaction was minor. The economic data released this week also had little impact, and mortgage rates ended nearly unchanged. 

Speaking from the Jackson Hole global economic summit on Friday, Fed Chair Jerome Powell said that the Fed will “act as appropriate to sustain the expansion.” He noted several potential risks to economic growth including trade tensions, slowing global economic activity, political unrest in Hong Kong, the British exit from the European Union, and Italian elections. Powell hinted at monetary easing to address these issues, but he did not pinpoint any specific timing or magnitude of future policy changes. 

The trade negotiations between the U.S. and China grew a little more hostile this week. At the beginning of the month, trade officials unexpectedly said that the U.S. will impose additional tariffs of 10% on $300 billion of goods imported from China beginning on September 1. The implementation date for some of these tariffs was later postponed until December 15. Not surprisingly, China retaliated by announcing on Friday two new sets of tariffs on U.S. goods which will go into effect on September 1 and December 15. Later that day, President Trump urged U.S. companies to “immediately start looking for an alternative to China.” Most investors have accepted that reaching even a modest trade deal will be a very long process with many moves and countermoves by each side, so the impact of these latest developments on mortgage rates was limited.

The latest data from the housing sector was mostly positive. In July, sales of previously owned (existing) homes, which make up about 90% of the market, rose a solid 3% from June. Inventory levels remained the primary trouble spot, as the number of homes for sale was at just a 4.2-month supply, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. Median existing-home prices were 4% higher than a year ago. 

July new home sales, which account for the remaining 10% of the market, fell a shocking 13% from June. However, this was very misleading since the results for the prior month had a massive upward revision, which raised the June reading to the highest level since 2007. Given the outsized strength in June, the large decline in July simply brought new home sales back near the levels seen for most of this year. 

Looking ahead, Durable Orders, an important indicator of economic activity, will be released on Monday. The second estimate of second quarter GDP will come out on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. In addition, news about the trade negotiations could influence mortgage rates. 

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