Overview: An increase in the trade tensions between the U.S. and China had a positive impact on mortgage rates over the past week, while the U.S. economic data and a speech by Federal Reserve Chair Jerome Powell had little effect. As a result, rates ended a bit lower.
The latest developments in the trade negotiations between the U.S. and China involved announcements of planned tariff increases by both sides. In addition, President Trump urged U.S. companies to "immediately start looking for an alternative to China." Since tariffs reduce global economic activity, this news was modestly favorable for mortgage rates.
On Friday, Fed Chair Powell’s speech offered little reason for investors to change their outlook for future monetary policy. He said that the Fed will "act as appropriate to sustain the expansion" and listed many potential risks to economic growth. These included trade tensions, slowing global economic activity, political unrest in Hong Kong, the British exit from the European Union, and Italian elections. To help maintain the Fed’s flexibility to react to changing economic conditions, Powell did not provide any expected timing or magnitude of potential policy actions such as rates cuts.
The headline figure from the report on new home sales initially suggested unexpected weakness. However, a closer look revealed that the data actually was somewhat encouraging. In July, new home sales fell a massive 13% from June. The key consideration, though, was an enormous upward revision to the results for June to the highest level since 2007. The large decline in July from the much improved June figures simply brought new home sales back in line with the levels seen for most of this year.
Week Ahead
August 29 — Pending Home Sales (PHS) Index
August 29 — Second estimate of Q2 gross domestic product (GDP)
August 30 — Core Personal Consumption Expenditures (PCE) Price Index
September 3 — Institute for Supply Management (ISM) Manufacturing Index
September 5 — ISM Services Index
September 6 — Employment Report