Market Updates – 07/26/2019

While there were some significant economic events this week, they held few surprises, and mortgage rates ended with little change.

Gross Domestic Product (GDP), the broadest measure of economic activity, revealed modestly stronger than expected growth of 2.1% during the second quarter, but was down from a rate of 3.1% in the first quarter. While the report caused some volatility on Friday, it was pretty close to the expected levels overall, and it had little lasting effect on mortgage rates.

As usual, the meaningful story was found in the performance of the various components of GDP, and the two areas of greatest interest to investors diverged in the second quarter. Massive strength was seen in consumer spending, helped by stock market gains and a solid labor market. By contrast, business investment showed a somewhat concerning decline, partly due to uncertainty about trade and global growth. The components which tend to be more volatile from quarter to quarter, including exports, government spending, and inventories, had mixed results.

The latest housing data indicated that sales of previously owned homes in June were roughly in line with expectations, just a bit lower than a year ago at this time. Median home prices were up 4% annually, while inventories of homes for sale were unchanged from a year ago. The National Association of Realtors again pointed to a lack of lower priced homes on the market as a major obstacle holding back sales activity.

As expected, Thursday’s European Central Bank (ECB) meeting statement took a more dovish tone and prepared investors for looser future monetary policy. According to the statement, potential easing measures under consideration include rate cuts, additional asset purchases, and cheaper access to loans for banks. However, ECB President Draghi did note that members of the ECB were divided about how much further stimulus will be needed.

Next week will be packed with major economic events. The core PCE price index, the inflation indicator favored by the Fed, will be released on Tuesday. The next Fed meeting will take place on Wednesday, and investors expect at least a 25 basis point rate cut with a small chance of a larger reduction of 50 basis points. The ISM national manufacturing index will come out on Thursday. The monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. In addition, news about the trade negotiations may influence mortgage rates.