Strong GDP Growth and Market Volatility Push Yields Lower
The top takeaway from this week's market performance is the effect that the volatility had on the overall mortgage markets. With a lower market came lower rates, with the major economic news released throughout the week seeming to have little effect. The mixed data didn't seem to move markets either way in any significant form. Strong earnings and GDP growth pushed yields lower and brought mortgage rates down. Analysts maintained their weaker outlook for overall global growth in spite of the release of some strong economic data.
The initial numbers for one of the most looked at metrics, Gross Domestic Product (GDP), for the third quarter out-performed estimates by coming in at 3.5% compared with the 3.3% outlook. This continued the upward trend experienced with the 4.2% increase in second-quarter performance. The back-to-back growth that occurred in these two quarters meets a performance level of growth realized in 2014. Cap ex and other business investment were deemed weak overall, while government spending and consumer purchases were strong.
It remains to be seen if this recent economic data is overly reliant on temporary measures like fiscal spending and reduced tax rates, or if these levels of performance are sustainable over the long term. Although GDP growth was .02% above expectation, recent downward adjustments that have occurred in previously reported GDP data has analysts considering it a wash and assigned little significance to the slightly higher rate of growth.
In geopolitical news, Italy continues to defy the greater EU community with its budgetary guidance and increased deficit spending. The European Central Bank (ECB) meeting held on Thursday yielded few surprises. Yes, there remains uncertainty surrounding Brexit and the Italy budget and spending situation does not appear to be any closer to resolution, but there was no talk of adjustments to interest rates of alterations to the ongoing bond purchase program which will wrap up at the end of this year.
Upcoming economic data reporting to keep an eye on in the coming week includes Friday's employment figures and wage changes. Inflation data will be released on Monday and is sure to be a hot topic. Investors may expect the Fed to provide additional and updated guidance on rate changes, especially if the Core PCE price index data reflects a hold-off of inflationary pressures. Thursday's ISM national manufacturing index data will also offer further macroeconomic insight.
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