Economic Commentary for March 27th, 2014: Confidence Springs Higher


Since last Wednesday’s Fed meeting, there has been little market moving news. The economic data released over the past week contained few surprises. One influence on U.S. mortgage rates resulted from a shift in expectations for European Central Bank (ECB) policy, which helped mortgage rates move a little lower this week.

While the Fed is cutting its bond purchases and providing guidance for raising the fed funds rate, the central banks in Europe and Japan remain on the opposite path. The Bank of Japan (BOJ) continues to provide massive amounts of monetary stimulus, with no indications of slowing. Low readings for inflation in the euro zone this week sparked rising expectations that the ECB will increase its monetary stimulus. In the global economy, stimulus from the BOJ and the ECB affects bond yields around the world, including U.S. mortgage-backed securities (MBS).

The housing data released over the past week reflected results for February which remained depressed by unusually severe winter weather. Both New and Existing Home Sales decreased a little from January and were well below last year’s levels. As a potential sign that spring will see improving economic activity, Consumer Confidence, which is March data, jumped to the highest level since January 2008.

The next Employment Report, the most significant economic data each month, will be released on April 4. Before then, Pending Home Sales, Core PCE inflation and ISM Manufacturing will be of interest to investors. Outside the U.S., economic data from China and Europe will have the potential to influence U.S. mortgage rates. Investors also will be keeping an eye on the situation in Ukraine.