Early in the week, mortgage rates were driven by massive swings in the stock market, but the net result was small. Later, a budget deal and hawkish comments from European central bankers were negative for mortgage rates, and rates ended the week a little higher.
Quite often, stocks and mortgage rates will move in the same direction, and this is what took place on Monday and Tuesday. Both fell on Monday and rose on Tuesday. The reason is simply that investors are shifting assets between stocks and bonds. When stocks rise, the demand for bonds falls, which causes yields to move higher. The reverse occurs on down days for the stock market.
On Wednesday, the Senate passed a two-year budget deal, which was signed into law early Friday morning. The deal will increase the budget deficit more than expected. This will increase the future supply of bonds, which put upward pressure on yields, including mortgage rates.
The primary influence on U.S. mortgage rates on Thursday was hawkish comments from central bankers in Europe. Several officials at both the European Central Bank and the Bank of England recently have supported tighter monetary policy, which has helped push global bond yields higher.
The most significant economic data released this week was the ISM national services index. The index jumped to 59.9, which was well above the expected levels and was one of the best readings in a decade. Readings over 50 indicate an expansion in the services sector. Since stronger economic growth raises the outlook for future inflation, this data was negative for mortgage rates.
Looking ahead, the big day will be Wednesday with Retail Sales and CPI. Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. Industrial Production, another important indicator of economic growth, will come out on Thursday. Housing Starts will be released on Friday.
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