Market Updates – 10/18/2019

Investors were mostly focused on international events this week, but there was little fresh news on the trade negotiations with China or the British exit from the European Union. The major economic data was mixed and had little impact. As a result, mortgage rates ended the week nearly unchanged.

After a lack of success for over three years, another plan was put forth this week in the efforts to reach a deal on the British exit from the European Union (Brexit) before its October 31 deadline. While few people are pleased by the prospect of the uncertainty created by a departure with no deal in place, opposing sides have been unable to find a compromise solution. The British parliament will vote on the latest proposal over the weekend, and analysts are split about what the outcome will be.

Late last week, the announcement of a limited trade deal with China was a surprise to many investors. The main components are that China will purchase more U.S. agricultural products and the U.S. will not implement some planned new tariffs. Since then, though, there has been no additional market moving news.

Since rising consumer spending has been a key source of strength for the U.S. economy this year, the headline number for the important Retail Sales report initially caused concern for investors. It was consistent with the growing fear that consumers may be dialing back their purchases heading into the holiday shopping season. In September, retail sales declined 0.3% from August, far below the consensus for an increase of 0.3%.

However, a closer look makes it appear likely that the weakness was simply a temporary slowdown after a couple of unusually strong months. For one thing, the report also revealed that the results for August were revised higher. Factoring this in, the 3-month average, which helps smooth out the volatile monthly figures, showed solid gains in line with the levels seen earlier this year. In addition, even with the decline in September, retail sales were an impressive 4.1% higher than a year ago.

The latest data from the housing sector also contained mixed news. On the down side, overall housing starts in September fell a rather large 9% from August. However, the surprisingly strong reading seen last month was the highest since June 2007, so a significant decline this month had been expected. Also notable, the weakness was entirely due to volatile multi-family units, while single-family starts increased from August.

Looking ahead, the next European Central Bank meeting will take place on Thursday. In the U.S., Existing Home Sales will be released on Tuesday and New Home Sales on Thursday. Durable Orders, an important indicator of economic activity, also will come out on Thursday. In addition, news about Brexit, the impeachment inquiry, or the trade negotiations could influence mortgage rates.