Focus on Trade Talks – May 2019 Edition

The two main influences on mortgage rates this week, a lack of progress in the trade talks and weak inflation data, both were modestly positive for mortgage rates. As a result, rates ended a little lower.

Last week, senior administration officials suggested that a trade deal between the U.S. and China could be close, so investors were caught off guard on Tuesday when President Trump threatened to increase tariffs on Chinese goods. Trump also said that a good deal was a higher priority than a quick deal. Some analysts feel that this is an attempt by the Trump administration to apply pressure on China to speed up the negotiations, but investors are worried that Chinese officials will not back down and that an agreement may not be reached any time soon. Since trade restrictions such as tariffs slow global economic activity, which reduces the outlook for future inflation, the lack of progress was positive for mortgage rates.

The latest news on current inflation also was good for rates. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services, and it increased less than expected in April. Core CPI, which excludes the volatile food and energy components, was just 2.1% higher than a year ago. Despite solid economic growth, Core CPI has held steady close to this level for over a year.

Looking ahead, Retail Sales will be released on Wednesday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. Industrial Production, another important indicator of economic growth, also will come out on Wednesday. Housing Starts will be released on Thursday. Investors also will be watching for news about the trade negotiations between the U.S. and China.