Weekly Economic Update – 5.02.17

The main influence on mortgage rates last week was events in Europe.  The outcome of Sunday’s French election was bad for mortgage rates, while Thursday’s European Central Bank meeting was mildly positive. The U.S. economic data had little impact and mortgage rates ended the week a little higher.

One pro-EU candidate (Macron) and one anti-EU candidate (Le Pen) won the first round of Sunday’s French Presidential election and will compete in the second round on May 7th.  Polls indicate that Macron is heavily favored to win the second round, which reduces some concerns that France will leave the European Union.  Investors reacted by reversing the flight to safety trade which took place ahead of the election. This means that they shifted back to riskier assets such as stocks and out of safer assets such as mortgage-backed securities (MBS).  The increased supply of MBS caused mortgage rates to rise.

At Thursday’s meeting, the European Central Bank (ECB) made no policy changes (as expected), which was technically good news for mortgage rates.

The first quarter U.S. gross domestic product (GDP) released on Friday was 0.7%, below the consensus of 1.1%, and down from 2.1% in the fourth quarter of 2016.  This was the slowest quarterly growth in three years.  Weak consumer spending and a decline in inventories were a couple of the primary factors in the shortfall.  These components are volatile on a quarterly basis, and many economists believe that the weakness in the first quarter simply pushed some economic activity into later quarters.  As a result, the report had little impact on mortgage rates.

Looking ahead, it will be a packed week.  The next Fed meeting will take place on Wednesday.  No change in rates is expected, but investors will be eager for guidance on the pace of future tightening which can cause rates to move.  The highly anticipated Employment report will be out on Friday, which can always be a “market mover”.

Please let me know if you have any questions in regards to this, or if there is anything we can do for you and your valued clients.

Thank you for your continued support, have a productive week.

Stuart Crawford
SVP, Regional Manager
THE CRAWFORD TEAM
V.I.P. Mortgage, Inc.
(480)776-2954
scrawford@vipmtginc.com

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