Weekly Economic Update – 9.20.17

Early last week, good news regarding North Korea impacted mortgage rates, while domestic economic data caused little reaction. Mortgage rates ended the week higher, up from the best levels of the year.

In recent weeks, investors have reacted to news about North Korea in the expected fashion. Each time North Korea has conducted a missile test, investors have shifted to relatively safer assets, including mortgage-backed securities (MBS). The added demand has been positive for mortgage rates. As the North Korean government celebrated its 69th anniversary last weekend, many investors had expected another missile test. When this did not occur, investors took the reverse action on Monday. They added riskier assets to their portfolios, which was negative for MBS and mortgage rates. However, on Friday investors broke from the recent trend and showed surprisingly little reaction to another missile launch.

Two big economic reports released on Friday fell well short of the expected levels. Retail sales in August fell 0.2% from July, below the consensus for a small increase. Auto sales dropped sharply from July, partly due Hurricane Harvey. Industrial production posted a much bigger miss with a decline of 0.9% from July, well below the consensus for a small increase. However, the Federal Reserve attributed nearly all of the drop to the effects of the hurricane, so there was little market impact.

It is difficult to know what effects the hurricanes will have on economic activity. Some areas will look weak now due to the storms, but the rebuilding efforts will boost activity in the future. As a result, investors likely will not react much to individual reports for some time. Instead, they will look at the results over a longer time frame to try to judge the underlying strength of the economy.

Looking ahead, the next Fed meeting will take place tomorrow. Investors widely expect the Fed to announce that it will begin to reduce the quantity of Treasury and mortgage securities on its balance sheet, which could have an effect on mortgage rates in the future.

Please reach out with 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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