French Election and US Data

Week of May 15th, 2017

 A victory by Macron in the French election was viewed as negative for mortgage rates early in the week, while Friday's weaker than expected U.S. economic data was positive. These influences were roughly offsetting, and mortgage rates ended the week with little change. Sunday's French Presidential election featured one pro-EU candidate, Macron, and one anti-EU candidate, Le Pen. While Macron remained comfortably ahead in the polls, investors still had to consider that an unexpected victory by Le Pen could lead to a French exit from the European Union (EU). Macron did win the election, and investor concerns were eased. They reacted by shifting back to riskier assets such as stocks, and away from safer assets such as mortgage-backed securities, causing a small increase in mortgage rates.

On Friday, a downside miss in key data on inflation and economic activity was good news for mortgage rates. The April core consumer price index (CPI), which excludes the volatile food and energy components, rose 0.1% from March, below the consensus of 0.2%. Core CPI was 1.9% higher than a year ago, down from 2.0% last month and from 2.3% in January.

For most of 2016, inflation appeared to be trending higher, but it has reversed direction so far this year. In addition, retail sales in April rose 0.4% from March, which was a nice improvement from the slight gains seen in March, but it was below the consensus for an increase of 0.6%. Weak consumer spending was a big factor in the slow GDP growth seen during the first quarter.


The Week Ahead

Looking ahead, it will be a light week for economic data. The NAHB housing confidence index will be released on Monday. Housing Starts and Industrial Production will come out on Tuesday. The Philadelphia Fed regional manufacturing index will be released on Thursday.


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