Focus on Central Banks 


The focus was on central banks this week. While the net impact of the U.S. Fed meeting was minor, the European Central Bank meeting was positive for global bond yields. As a result, mortgage rates ended the week a little lower. 

Pricing is roughly an +.125 better than last Friday.

As expected, the Fed announced a 25 basis point federal funds rate hike at Wednesday's meeting. After the release of the Fed statement, investors focused on a small increase in the federal funds rate forecasts for 2018 and 2019 from the 15 Fed officials. This was viewed as hawkish, meaning in favor of tighter monetary policy. However, comments from Fed Chair Powell during his press conference later came across as more dovish than expected, meaning in favor of looser monetary policy. While there was some volatility following the meeting, the net effect on mortgage rates was small.

On Thursday, the European Central Bank (ECB) announced that it will begin to wind down its bond purchases in September and will end them in December, which was anticipated. Investors were surprised, however, that officials said that the first rate hike will not take place until at least September 2019, later than expected. Global bond yields, including U.S. mortgage rates, moved lower after the news.

Since consumer spending accounts for roughly 70% of economic activity, the Retail Sales report is closely watched each month. Following the hurricanes, retail sales surged last fall, and the trend was expected to continue. They then turned negative for three straight months, leading to questions about the strength of the consumer earlier this year. 

However, Thursday's release revealed that retail sales in May were much higher than expected, marking the third straight month of solid gains and further easing investor concerns about the economy. 

Next week will be a light one for economic data. Housing Starts will be released on Tuesday. Existing Home Sales will come out on Wednesday. The Philly Fed regional manufacturing index will be released on Thursday.

Weekly Change:

Mortgage rates fell 0.03

DOW fell 300

NASDAQ rose 75

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