With the election results mostly determined, the pandemic was the main focus for investors this week. Fantastic news about progress on a Covid vaccine was offset by rising case counts, and mortgage rates ended with little change near record low levels.
On Monday, Pfizer reported extremely positive trial data for a Covid vaccine, which caused investors to anticipate a quicker return to activities which have been restricted by the pandemic. In the short-run, however, rising case counts in many regions could hamper economic growth. The more optimistic future outlook offset more pessimistic current conditions, and the net effect on mortgage rates was minor.
The reduced economic activity resulting from the coronavirus has caused a significant decline in inflation. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In October, core CPI was just 1.6% higher than a year ago. While this was up from recent levels of just 1.2%, it still was far below the readings around 2.3% seen during the first few months of the year.
While the final outcome of the election has not yet been completely determined, investors feel that neither party will have overwhelming control. For mortgage markets, divided government typically is viewed as positive, because it makes the passage of large new programs funded by additional bond issuance more challenging.
Looking ahead, investors will continue watching Covid case counts, progress on vaccines, and election results. Beyond that, Retail Sales will be released on Tuesday. Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. Housing Starts will come out on Wednesday and Existing Home Sales on Thursday.
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