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By G. Steven Bray
Still riding the range. It’s not a bad place to be when mortgage rates are the lowest they’ve been in a year. This range has held for an unusually long time, and we’ve been looking towards this month as the time when the range finally might break down. There’s no sign of that yet, but let’s review some events that could make it happen.
US economic data probably carries the greatest weight. Most of the data this year has shown continued economic strength – until the Feb jobs report. The report didn’t just miss expectations, it was anemic. Could it be an outlier due to the government shutdown or seasonal factors? Possibly. The Jan number was oddly high. Regardless, the weak jobs report combined with this week’s tame inflation reports have bond buyers in a frisky mood, and that’s good for interest rates. Any additional weak economic data likely will get the recession whisperers going again, and rates could break lower.
The other elephant in the room is the ongoing Chinese trade talks. I still think a trade deal is likely to pump up rates a bit as it not only will remove impediments to economic growth, it will remove the uncertainty that acts like a weight on rates.
Foreign economic uncertainty carries less weight, but its pervasiveness at the moment may be giving it an over-sized effect. Brexit talks continue to flounder, and a no-deal divorce between Britain and the EU is full of unknowns. The European Central Bank last week again lowered its growth estimates and discussed stimulus measures to shore up the European economy. Chinese growth has cooled significantly, and recent data shows its manufacturing sector in contraction.
Finally, we have the Federal Reserve meeting next week. The Fed had a large part in setting up the current range with its about-face on rate hikes following its Dec meeting. Markets currently see little chance of the Fed raising interest rates soon. Should the Fed’s post-meeting announcement suggest otherwise, rates could make a quick jump higher.