Mortgage rates improved on Friday, as weaker-than-expected economic data had an influence on market movements. It looks like that the economy isn’t firing on all cylinders, as we have seen some soft domestic economic in the last few weeks. Back on Friday, the second estimate of the first quarter GDP came in, showing that the economy contracted by 0.7% in Q1. Economists had forecast a 0.8% contraction for the said period. The initial estimate was signaling a growth of 0.2%.
Manufacturing activity in the Midwest shrank to 46.2 in May, following a reading of 53.2 in the prior month, the latest Chicago PMI regional manufacturing index revealed on Friday. The current figure is far below the consensus expectation of 53.1. When the reading is coming out below 50, it indicates contraction.
The University of Michigan’s Consumer Sentiment Index dropped to 90.7 in May from April’s 95.9, marking a sixth-month low, as Americans became less optimistic about the prospects of the economy. This also signals the biggest decrease since the end of 2012. The consensus expectation was for a reading of 90.3, so the current figure is only slightly better than that, but overall this is a weak data.
Following the release of the second estimate for Q1 GDP, yields on treasury bonds decreased, with the benchmark 10-year treasury note finishing the day at 2.12%. The 30-year treasury note closed the trading day at 2.88%.
Average national mortgage rates lost some ground this week, according to Freddie Mac’s weekly Primary Mortgage Market Survey (PMMS). The mortgage-finance company reported on Thursday, that the average rate on the 30-year fixed mortgage increased to 3.87% this week, the highest reading for this type of mortgage in 2015. The 15-year FRM ticked up as well, with the average rate coming out at 3.11%, an increase of 6 basis points compared to data from the prior week.
On the other hand, it seems that the Fed isn’t likely to pull the trigger and hike rates in June, as the latest set of economic reports haven’t met expectations. Although, April’s housing starts and new home sales statistics are showing some positive outlook for the housing market, other industry reports are signaling a slow down. Also, the majority of most recent manufacturing reports are showing weakness, instead of the expected rebound in the sector. With the Fed seemingly nixed the likelihood of a rate hike in June, markets are looking for more clues when the actual lift in rates could take place.
However, as we reported before, not all Fed members are convinced that the U.S. central should raise rates this year. For instance, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said on Thursday, that raising interest rates this year would be a mistake. Kocherlakota, who is one of the more dovish members of the Fed, believes, that such a move would send a message to financial markets, that the U.S. central bank is not committed to reach its target inflation level.
Another top Fed official, Charles Evans said last week in Stockholm, that the organization should refrain from hiking rates until early 2016. He expressed concerns over low inflation and said that the Fed should keep short-term interest rates near zero until the end of the year.
The upcoming week’s economic calendar is going to be packed with important data, with the most significant Non-Farm Payroll data for May due for release on Friday. A strong employment report could put a big pressure on mortgage rates. On the other hand, if the data misses expectations big time, mortgage rates could benefit. Other key reports to be released during the week includes fresh data on personal income and outlays, construction spending, factory orders, ADP employment, weekly jobless claims, ISM non-manufacturing index amongst others.
Aside that markets are looking forward to a bunch of economic data in the upcoming week, an important event will take place in Europe as well, with Greece’s debt payment due on June 5. All the aforementioned economic data and events can have an influence on U.S. mortgage rates and it’s more likely that we will see more volatility in the markets in the upcoming week compared to last week.
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