The trade negotiations with China were the main influence on mortgage rates again this week, but this time they had a favorable impact. The major economic data came in close to the expected levels and caused little reaction. As a result, rates ended the week lower.
Last week, it seemed like the U.S. and China were close to signing a limited “phase one” trade agreement, which reportedly would contain some of the easier concessions for each side to make. This week, however, both sides appear to be dragging their feet over the precise terms of the deal. In particular, China is hesitant to commit to specific levels of U.S. agricultural purchases, while the U.S. seeks better protection of intellectual property. Since tariffs and other restrictions imposed in the trade war have slowed global economic activity, this week’s lack of progress in reaching a deal was positive for mortgage rates.
Friday’s report on retail sales revealed that consumer spending has rebounded from a brief slowdown last month heading into the important holiday shopping season. In October, retail sales rose a solid 0.3% from September, which was slightly stronger than expected and were 3.1% higher than a year ago. The shift in favor of internet shopping continued as online spending showed large gains, while purchases at department stores declined.
The other major economic report released this week indicated that core inflation eased slightly from last month, as expected. In October core CPI was 2.3% higher than a year, down from an annual rate of increase of 2.4% in September.
In testimony to Congress this week, Chair Powell didn’t change the Fed’s recent message that monetary policy likely is on hold for a while. Powell said that there will be no further rate adjustments if the economy performs as expected with modest growth and inflation near the Fed’s target level.
Looking ahead, Housing Starts will be released on Tuesday. The minutes from the October 30 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials about future monetary policy and have the potential to move markets. Existing Home Sales will be released on Thursday. In addition, news about the trade negotiations with China could have an influence.