Strong GDP Growth and Lower Mortgage Rates
It was a good week for mortgage rates in spite of mixed data reports on the economic front. The stock market continued its trend of volatility and finished the week down overall. Concurrent changes in the bond market reflected its inverse relationship with equities, and the continued outlook for a global slowdown also helped to push yields lower. This, in turn, influenced the decrease in mortgage rates.
One of the bright spots of the week could be found in the gross domestic product (GDP) numbers that were released this week for Q3. While experts expected a first-read of around 3.3% overall growth, the broad measure for current economic growth during the third quarter came in at 3.5%. Of note is the consecutive growth in both Q2 (+4.2%) and Q3 that reflects the highest GDP performance since 2014.
A look at the drivers of this continued growth shows consumer spending as well as government expenditures as the most impactful. Corporate cap-ex and overall investment were somewhat anemic, but not impactful enough to adversely affect the overall growth numbers. The market did not have much of a reaction to the release of the data, as the first read number was basically in line with expectations.
With the additional tax cuts that are on the horizon, as well as a lot of renewed talk about an infrastructure bill, spending and overall growth is expected to continue through year-end and into 2019 and beyond.
Overseas, we did not see too many substantive changes from the ongoing issues of Brexit and the dispute over Italy's budget proposal. Mario Draghi and the European Central Bank (ECB) continued to leave rates unchanged. The guidance from Thursday's meeting gave further credence to the continued expectation for the ECB to wrap up the bond purchases prior to year-end, and no rate hikes are expected at this time.
The upcoming week of shortened trading due to the Thanksgiving holiday is expected to be quiet. On the reporting front, look for employment numbers on Friday which is a typically low-volume day on the trading floor. ISM national manufacturing index data and the Core PCE price index will both be released in what many are expecting to be a week of moderate changes to the market, both stocks and bonds as brokers and traders look forward to a little family time.
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Have a great Thanksgiving, everyone!