While a lot of volatility again was seen in the stock market, it was a relatively quiet week for mortgage rates. The major U.S. economic data came in on target, and there were no surprises from the European Central Bank. As a result, rates ended with little change.
Consumer spending accounts for about 70% of all economic activity in the U.S., and the retail sales data is a key indicator. While they slowed from the very strong pace seen in October, sales continued to display solid growth. Excluding the volatile auto component, Retail Sales in November rose 0.2% from October, and the results for October were revised higher. This recent strength bodes well for the holiday season.
The most recent inflation data was in line with the expected levels. In November, the core Consumer Price Index (CPI), which excludes the volatile food and energy components, was 2.2% higher than a year, down from an annual rate of increase of 2.5% last month. This was up from a level of 1.8% at the start of 2018.
While there were no surprises from Thursday’s European Central Bank (ECB) meeting, it was notable for a couple of reasons. First, the ECB confirmed that it will conclude its bond purchases at the end of 2018, as previously announced. However, it will not begin to sell bonds from its massive portfolio for “an extended period of time.” The ECB also lowered its economic growth forecasts for 2018 and 2019. Given the uncertainty about the future strength of the economy, investors do not expect the ECB’s first rate hike to take place before early 2020. Risk factors include the threat of a global trade war, the need for a Brexit deal, and Italy’s budget negotiations with the European Union.
Looking ahead, the next Fed meeting will take place on Wednesday, and most investors expect a 25 basis point increase in the federal funds rate. In addition, Housing Starts will be released on Tuesday and Existing Home Sales on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, and Durable Orders will come out on Friday.