Overview: Over the past week, investors grew more concerned that a trade deal between the U.S. and China may not be reached any time soon. There was little reaction to the economic data, and rates ended at the lowest levels in over a year.
Following some optimistic comments from U.S. officials a few weeks ago, the trade talks with China seem to have stalled. The outlook for most investors now is for a lengthy period of uncertainty without a deal. Since tariffs and other restrictions on imports slow global economic activity, this lack of progress has been bad for the stock market but good for bonds, including mortgage rates.
At first glance, the latest housing data appeared to be disappointing, but a closer look revealed the opposite. In April, sales of new homes fell 7% from March to an annual rate of 673,000 units, which was close to the consensus forecast. While this initially seemed like an unexpectedly large monthly decline, it took place because the March results were revised significantly higher to the best level since October 2007.
Despite the trade tensions with China, workers in the U.S. remain extremely confident about the prospects for the economy and the labor market. The most recent Consumer Confidence report showed a much larger than expected increase to one of the highest readings in years. Notably, 47% of consumers polled thought that jobs are “plentiful,” which is the most since 2001..
Looking ahead, the second estimate of first quarter gross domestic product (GDP) will be released on Thursday. The core Personal Consumption Expenditures (PCE) Price Index, the inflation indicator favored by the Federal Reserve, will come out on Friday. The Institute for Supply Management (ISM) Manufacturing Index will be released on Monday, followed by the ISM Services Index on Wednesday. The next Employment Report will come out on June 7. In addition, news about the trade negotiations could influence mortgage rates.