Market Updates – 04/12/2019

Most investors expect moderate U.S. economic growth this year, some degree of weakness in other regions, and continued low levels of inflation. This week’s news did little to alter their outlook, and mortgage rates ended slightly higher.

Wednesday’s release of the Consumer Price Index (CPI), a widely followed monthly inflation report that looks at the price change for U.S. goods and services, revealed that core inflation has been trending lower in recent months. Core CPI, which excludes the volatile food and energy components, rose less than expected in March. It was just 2.0% higher than a year ago, down from an annual rate of increase of 2.1% last month, and at its lowest level in more than a year.

The combination of uncertainty about the outlook for global economic growth and contained levels of current inflation has caused global central banks to delay their plans to further tighten monetary policy. This was reflected in the latest news from the European Central Bank (ECB) and the U.S. Fed. At Wednesday’s meeting, the ECB made no policy changes and repeated that it plans to hold rates at current levels at least through the end of the year. The minutes from the March 20 Fed meeting released on Wednesday confirmed that a majority of Fed officials also do not expect to raise the federal funds rate this year. Officials at both banks cited potentially weak global growth, trade tensions, and concerns about the effects of Brexit as factors in their patient approach.

The vote in favor of the British exit (Brexit) from the European Union took place in June 2016, and, nearly three years later, UK lawmakers still were unable to agree to the terms of the departure prior to its originally scheduled date of March 29. After accepting a brief delay near the end of March, EU leaders agreed this week to postpone Brexit until October 31. While this removes the immediate prospect of leaving the EU with no deal in place, the uncertainty about the eventual terms will remain, meaning that individuals and businesses will continue to hesitate to make long-term commitments.

Looking ahead, it will be a light week for economic data. Retail Sales will be released on Thursday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. Housing Starts will come out on Friday. In addition, news about trade negotiations between the U.S. and China could affect mortgage rates. Mortgage markets will close early at 2:00 et on Thursday and will be closed on Friday in observance of Good Friday.