Geopolitical Events Influence Rates

Global Events Drive Rate Volatility 

This week was jammed with world events that influenced mortgage rates. Rates pushed to the highest level in the last couple weeks after President Trump announced sweeping new tariffs against several European countries over Greenland. While at the World Economic Forum in Davos, Switzerland, he announced that he would not add tariffs and rates promptly fell back down. There was discussion of military invasions of Greenland and then that option was taken off the table by the president. Major negotiations are clearly happening, and the markets are reacting in a very bipolar manner. 

Japan Bonds Spark Global Rate Reaction 

In Japan, bond yields rose sharply after they announced more debt issuance, shocking the markets. Global yields (rates) rose too, as markets are all connected. The Japanese Prime Minister also dissolved their government and called for new elections in an attempt to capitalize on record high approval ratings. US Treasury Secretary Bessent and Japanese Finance Minister Katayama calmed markets and the week ended relatively flat. 

ADP Employment Shows Weak Job Growth 

ADP released their weekly employment reading at 8,000 jobs created. That projects a 32,000 monthly job creation number, which is very weak. This is lower than the 11,250 we heard from the previous week. This could indicate a low reading is coming from the January ADP Employment report coming out next month.   

PCE Inflation Supports Future Rate Cuts 

The Federal Reserve’s (Fed) favorite inflation report is the Personal Consumption Expenditures (PCE). We got the delayed October and November PCE readings this week.  Headline and Core (removing volatile food and energy prices) yearly readings were the same moving from 2.8% in September to 2.7% in October and then back to 2.8% in November.   

The main reason for the increase in November was due to a very low reading from November 2024 that was removed from the calculation. This is called a “replacement” value.  The “replacements” from January and February of 2025 are much larger, and this bodes well for progress in lower inflation. This would free the Fed to continue with more interest rate cuts. 

NAR Confidence Index Signals Housing Stability 

The National Association of Realtors (NAR) released its December Confidence Index.  When comparing to December 2024, it shows a very resilient housing market. The Properties Sold Above List, Contract Cancellations, and Cash Sales all remained the same as last year. The average number of offers per home was the same at 2.2 and the days on market number increased slightly. Please see reference image below. Ultimately, this doesn’t sound like a horrible housing market. 

Looking Ahead: Fed Chair Announcement Expected Next Week  

US Treasury Secretary Bessent stated that President Trump will announce his pick for the next Fed Chairman next week. 

Monday, (January 26): Durable Goods Orders 

Tuesday, (January 27): Case-Schiller and FHFA Home Price Index 

Wednesday, (January 28): Fed meeting concludes and press conference 

Thursday, (January 29): Initial and continuing jobless claims, Productivity and Unit Labor Costs 

Friday, (January 30): Producer Price Index