Mortgage Rates Slightly Rise as Applications Take a Breather
The economic data that was released earlier this week came with little surprises. The overall impact of the data on mortgage rates was insignificant except for a slight rise in the rates that was fuelled by the news on various trade deals.
Since President Donald Trump ascended to power, he has been expressing strong intentions to end the famous NAFTA trade agreement that has existed between the US, Canada, and Mexico since the start of 1994. Several reports that were published towards the end of the week indicated that a new trade agreement had been reached between the United States and Canada. Other reports also suggested that the trade negotiations between the Trump administration and Canada were at an advanced stage and an agreement could be reached soon.
Shifting To Safer Assets
However, the uncertainty that surrounded these trade negotiations and the fear of escalation prompted several investors to turn their focus to relatively safer assets in the recent months. A significant number of them opted to go for the U.S mortgage-backed securities which led to a substantial increase in the demand for MBS over the last few months. But, the positive outcome of the trade negotiations led to a reverse effect with a significant reduction in the demand for MBS. This is one of the top reasons why the mortgage rates went slightly higher.
Consumer Spending to Remain Strong
The latest indicators also express strong confidence in the present and future United States economic conditions suggesting that the consumer spending in the U.S may only get stronger in the coming days. The fundamental economic indicators point to a solid economic growth, strong labor market and record stock prices that raise the hopes of investors.
The two major inflation reports that were released this month are the core PCE price index that is the inflation indicator that is primarily favored by the Fed and the consumer price index (CPI) that is supported by the investors. Earlier this month, the core CPI showed a tremendous growth rising to the highest annual growth in more than a decade. Earlier this week, the core PCE indicated that a steady continuation of the growth. However, it is good to note that the PCE report usually excludes the highly volatile energy and food components.
What Does the Future Hold?
Looking into the future, the critical monthly employment report will be released on 1st September, and the crucial numbers on the unemployment rate, number of jobs, and the wage inflation will be the most critical economic data that investors will most likely focus on. News on trade agreements could also influence the mortgage rates.