Bad news is good news for the U.S. bond market and rates. This past week, bad news by way of worse-than-expected economic numbers in Europe cast a dark shadow on the financial markets. As a result, U.S. home loan rates ticked down to the best levels in ten months.

The U.S. economy is the “cleanest shirt in the dirty laundry” when compared to other global economies — meaning our economy is performing pretty well, while countries like Germany are on the brink of recession.

How do problems in Europe help our rates? With their economies materially slowing, their Central Bank, the ECB, will not be raising rates anytime soon, possibly not for another year or more. This means their rates will stay low for longer. And when rates around the globe move lower it drags U.S. rates lower as well.

The chance of a Fed rate hike in 2019 is looking more unlikely every day and this fresh round of weak economic data from Europe helps the Fed’s case for no hikes in 2019.

In the absence of a surprise uptick in economic growth and inflation, we should expect home loan rates to remain near current levels for 2019 and possibly beyond.

After last week’s light schedule of economic data, this week’s calendar is filled with data that could move the markets and interest rates.

The Fed is “data-dependent,” meaning they are watching the incoming data carefully and will use these reports to determine their next course of action — whether to hike or even cut rates later this year.

Inflation numbers, manufacturing, consumer spending and sentiment along with a reading on small business optimism will be released.

As mentioned earlier, inflation is a key metric for the Fed. The rate of inflation has started to show signs of slowing – if that trend continues, we will likely see home loan rates improve again.

Reports to watch:

  • Inflation data in the upcoming week will come from Wednesday’s Consumer Price Indexfollowed by the Producer Price Index on Thursday.
  • Retail Sales will be delivered on Thursday along with Weekly Initial Jobless Claims.
  • On Friday, the Empire Manufacturing Index and Consumer Sentimentwill be released.

And while not a traditional economic data point, the NFIB Small Business Optimism Index will be announced on Tuesday. Small businesses make up a large chunk of the U.S. labor market and the index has been hovering near all-time high levels.

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