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During a week packed with major economic news, the biggest story came from Europe. On Thursday, the ECB added less stimulus than expected, causing global bond yields to increase sharply. Weaker than expected manufacturing data on Tuesday helped offset the increase in mortgage rates, however. Friday's key labor market data had little net impact. Mortgage rates ended the week just a little higher.
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The European Central Bank (ECB) announced additional stimulus measures, but the package was smaller than investors had expected. The ECB cut rates and will extend its bond purchase program by six months, but the quantity of monthly purchases will remain at $60 billion euros. Investors were looking for a large expansion of this figure. The smaller than expected package means less added demand for bonds, and bond yields around the world, including U.S. mortgage-backed securities, moved higher on the news. This caused mortgage rates to move higher.
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While Europe and most other countries are adding stimulus, the Fed is beginning a cycle to tighten monetary policy. This has raised the value of the U.S. dollar, which increases the cost of U.S. goods for foreign consumers and hurts the U.S. manufacturing sector. This was seen on Tuesday as the ISM national manufacturing index unexpectedly dropped to the lowest level since 2009. Slower economic growth is positive for mortgage rates, because it reduces inflationary pressure, and this report caused rates to move lower.
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Friday's important BLS employment report was a little stronger than expected. Against a consensus forecast of 190K, the economy added 211K jobs in November. Upward revisions to prior months added another 35K. The Unemployment Rate remained at 5.0%. Average hourly earnings, a proxy for wage growth, were 2.3% higher than a year ago.
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The report caused some volatility, but it had little net effect on mortgage rates. The solid labor market data made investors nearly certain that the Fed will hike rates at the next meeting on December 16.
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Next week, the second biggest report of the month, Retail Sales, will be released on Friday. Retail sales account for about 70% of economic activity. Before that, the JOLTS report will be released on Tuesday. JOLTS measures job openings and labor turnover rates, and this report is closely watched by Fed officials. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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