Overview: The coronavirus continued to be the source of nearly all market movement this week. Daily volatility remained extremely high, but mortgage rates ended with little change.

There are no good historical comparisons for the economic impact of the coronavirus, and any attempts to forecast how much it will slow global economic activity are based on massive assumptions about key variables. There is simply no way to predict its spread. As a result, the daily movements in financial markets continue to be extraordinarily large.

Over the past week, two basic economic influences had roughly equal impact on mortgage rates. The country’s slowed economic growth, partly caused by social distancing and self-quarantining, reduces the outlook for future inflation, which is positive for rates. On the other hand, one of the primary tools to help offset an economic slowdown is increased government spending. The Trump administration has announced new spending proposals to support struggling people and businesses. This would be funded by issuing more bonds, and added supply is negative for rates.

The U.S. economy was performing very well prior to the outbreak of the pandemic. However, the latest data is beginning to reflect the slowing economy. In February, retail sales declined 0.5% from January, far below the consensus forecast for a small increase. The uncertainty and loss of income for many workers is expected to lead to larger declines in consumer spending in the coming months.

Week Ahead

Looking ahead, the coronavirus will remain the primary focus for investors. The Existing Home Sales report will be released on Friday, and the Durable Goods report will come out on March 25. In addition, news about the elections could have an influence.

Retail Sales (% change)