Concerns about the coronavirus caused a massive shift to less risky assets this week, while the economic data caused little reaction. As a result, the stock market posted enormous losses, and mortgage rates reached the lowest levels in years.

The reason that the coronavirus has been positive for mortgage rates is pretty straightforward. People have scaled back a wide range of activities such as going to work and traveling, which has slowed global economic activity and reduced the outlook for future inflation. Since no one knows how much more the disease will spread, it is still extremely difficult to forecast the extent of its economic impact. In response to the uncertainty, investors have continued to reduce the level of risk in their portfolios, which has been favorable for relatively safer assets such as mortgage-backed securities (MBS).

The latest report on inflation revealed that it already was holding steady at low levels even before the emergence of the coronavirus. In January, the core PCE price index, which excludes the volatile food and energy components, was just 1.6% higher than a year ago. This is the inflation indicator favored by the Fed, and Fed officials have stated that they would like to see it rise to an annual rate of 2.0%. Low current inflation and the uncertain economic impact of the disease have significantly raised investor expectations for the Fed to cut rates as soon as the next meeting on March 18.

Looking ahead, the coronavirus will remain the main focus for investors. The monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will come out on Monday and the ISM national services index on Thursday. In addition, news about the US elections could have an influence. 

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