Overview: Over the past week, progress in the trade talks between the U.S. and China almost exactly offset increased concerns about global growth, while the U.S. economic data had little impact. As a result, mortgage rates were volatile but ended with little change.
After an escalation in the trade war between the U.S. and China in recent weeks, which began with the unexpected announcement that the U.S. will impose tariffs on additional goods imported from China beginning on September 1, the two sides moved in a more constructive direction this week. Notably, U.S. trade officials said on Tuesday that the new tariffs will be delayed until December 15 for some Chinese imports. Since reduced barriers to trade such as tariffs improve the outlook for global economic activity, this news was negative for mortgage rates.
On Wednesday, a closely watched economic indicator crossed into territory that is viewed as an early warning signal of slower economic growth ahead. For the first time since 2007, the U.S. yield curve inverted, which means that yields on 2-year Treasuries were higher than on 10-year Treasuries. Normally, longer-term bonds have higher yields because investors demand to be compensated for the added risk introduced by a longer time horizon. An inversion generally occurs when bond investors expect that inflation will be lower in the future due to slower economic activity. While this signal is no guarantee that a recession is coming, many investors chose to play it safe and shifted some assets from stocks to bonds to reduce the risk level in their portfolios.
The latest data revealed that inflation again remained very close to the levels seen every month since the start of the year. In July, the Core Consumer Price Index (CPI), which excludes the volatile food and energy components, was 2.2% higher than a year ago, up from an annual rate of increase of 2.1% last month.
Week Ahead
August 15 — Retail Sales report
August 16 — New Residential Construction (Housing Starts)
August 21 — Minutes from July 31 Federal Reserve meeting
August 21 — Existing Home Sales
August 23 — New Home Sales