Economic Insights: A June Journey Through Rates and Inflation
After a bumpy start to the year, May marked a turning point for rates and inflation expectations. June continued this positive trajectory, although this past week didn’t significantly alter the broader landscape.
As markets prepared to close on Wednesday for Juneteenth, Tuesday’s Retail Sales report stood out. The numbers fell just below predictions, with the previous month’s figures adjusted downward. This slight miss nudged rates back toward recent lows but didn’t push them past that threshold.
While some claim mortgage rates are hitting multi-month lows, this assertion leans on Freddie Mac’s weekly survey, which isn’t always precisely aligned with real-time data due to its unique timing and methodology. Both 10-year Treasury yields and mortgage rates show a more stable, sideways trend rather than further declines.
Apart from Retail Sales, Friday’s PMI data from S&P Global triggered the week’s most notable market reaction, showcasing the strongest levels in over two years, albeit just barely.
Stronger economic data typically prompts higher rates. If we use 10-year Treasury yields as a gauge for mortgage rate trends, the impact of this week’s data is evident, though less pronounced compared to last week’s CPI figures. These reports presented conflicting cases, keeping rate movements in a narrow range for now.
In essence, most of June’s progress on rates was already established before this week. Rates are now nearing a longer-term uptrend, which will be challenging to break unless upcoming June data highlights economic weaknesses and lower inflation. However, it will be several weeks before we see most of this data.
The latter part of this week’s data, while not market-moving, was heavily focused on housing. New Residential Construction indicators, such as building permits and housing starts, showed a mild downward trend, although numbers remain high compared to pre-pandemic levels.
The National Association of Homebuilders (NAHB) released its Housing Market Index, reflecting builder confidence. The current environment of high rates and reduced affordability continues to weigh on builders, leading them to lower prices or offer more incentives.
Existing Home Sales, highly sensitive to post-pandemic rate fluctuations, have performed worse than new construction. This week’s update didn’t dramatically alter expectations but reaffirmed the challenging environment.
However, the potential for lower rates in the future could be intriguing for home sales. The last significant rate rally spurred noticeable activity in the housing market. Early July’s upcoming data will be crucial in determining if rates can challenge the prevailing uptrend. Success in this regard could signal a meaningful boost in housing market activity.
