Month in Review
There's nothing like a little historical perspective when it comes to the market. A comprehensive look at where last month went and where next month is going, puts yet another powerful tool in your hands. Why not share it with your clients and realtors? Interesting and informative, it's another great marketing tool available exclusively to MBSQuoteline subscribers.
Demo based on market events from: Wednesday May 17, 2017
|The Fed, political events, and declining inflation all contributed to movement in mortgage rates during the month. Fortunately, the positive effects of these events outweighed the negative, and mortgage rates fell to near the best levels of 2017.|
The month of May included both a Fed meeting and the release of the minutes from that meeting. The statement released by the Fed after the May 3 meeting was not good for mortgage rates. It was deemed by investors to be more hawkish than expected. The Fed seemed to downplay the significance of slowing economic growth and declining inflation during the first part of the year and indicated no need to change the outlook for monetary policy.
The minutes released on May 24 had the opposite effect. They described the framework of the Fedâ€ s plan for reducing its holdings of Treasury and mortgage-backed securities (MBS). Investors had hoped to hear that the Fedâ€ s plan would attempt to minimize disruptions to the market. Although there are many details about the plan still to be learned, investors were happy with the outline in the minutes and pushed mortgage rates a little lower.
Many investors believed that the future of the European Union (EU) was at risk based on the outcome of the May 7 presidential election in France. One candidate was pro-EU while the other wanted to pull France out of the EU. During April, mortgage rates had improved as polls indicated that an anti-EU candidate had a chance to win. The improvement reversed as sentiment shifted in May towards the eventual pro-EU winner. This had a negative effect on rates in May.
In the U.S., turmoil surrounding the Trump administrationâ€ s alleged interference in an FBI investigation gave investors reason to question the President's ability to implement his pro-growth agenda. Investors reacted to the resulting political uncertainty by selling stocks and buying bonds, including MBS. This added demand for MBS was good for mortgage rates.
For most of 2016, inflation appeared to be slowly moving higher, but it has reversed direction so far this year. For example, the most recent reading for the core PCE price index, the inflation indicator favored by the Fed, was just 1.5% higher than a year ago, down from an annual rate of 1.8% two months ago. A similar trend was seen in another widely followed inflation indicator, the core consumer price index. Indications of lower inflation are good for mortgage rates.
Looking ahead, the next U.S. Fed meeting will take place on June 14. Investors widely expect a rate hike to take place, and they will be looking for guidance about the pace of future tightening. The key U.S. employment report will be released on June 2, and the retail sales data will come out on June 14. In addition, there will be a European Central Bank meeting on June 8 which could influence U.S. markets.