September 28th, 2018 6:09 PM by Dana Bain
Mortgage bond prices finished the week slightly higher which put a little downward pressure on rates. The week started on a negative note as the Treasury auctions had lower than average demand. The FHFA House Price Index rose 0.2% as expected. Consumer confidence was a strong 138.4 versus an expected 131 reading. New home sales were 629K versus the expected 630K. The Fed raised rates 25 basis points as expected. However, projections for the funds rate hit 3.25% in 2020 rather than 2019 as was predicted earlier. Personal income rose 0.3% versus the expected 0.5% increase. Outlays rose 0.3%, expected up 0.4%. The Core PCE inflation reading was unchanged. Analysts expected a 0.1% increase. Consumer sentiment was 100.1 versus an expected reading of 101. Mortgage interest rates finished the week better by 1/8 of a discount point.
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In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates. Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted. Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility. Rates remain historically very favorable. Now is a great time to take advantage of these levels.
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