Ukraine and Global Growth Concerns An escalation in the conflict in Ukraine was favorable for mortgage rates this week. Concern about the pace of global economic growth also was positive for mortgage rates, which ended the week near the lowest levels of the year. Investors remain very sensitive to geopolitical events. This was evident on Friday when news services reported that Ukrainians destroyed part of an armed Russian convoy which had crossed the border into Ukraine. A shift to safer assets quickly took place, causing stocks to decline and increasing the demand for bonds, including mortgage-backed securities (MBS). This added demand for MBS pushed mortgage rates lower. One concern about the conflict in Ukraine is that it will reduce the level of economic activity in Europe. Euro zone second quarter GDP data released this week revealed very weak growth. Sanctions imposed on Russia are adding to the burden, and any additional sanctions would create an even larger obstacle for the economies in the region to overcome. In the US, the economic news showed that some parts of the economy are slowing as well. The biggest report was Retail Sales, which account for roughly 70% of US economic activity. During the end of the first quarter, Retail Sales showed a nice bounce back from depressed levels due to unusually severe winter weather. The momentum did not continue, though. For the last several months, the gains in Retail Sales have been diminishing, and the July data showed no increase from June. Slower economic growth reduces future inflationary pressures, which is positive for mortgage rates.
Posted on: Fri, 15 Aug 2014 23:29:18 +0000
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