Looming Fed Decision and Weak ECB Stimulus Push Rates Up
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.
Following last Friday’s solid November nonfarm payroll report most market participants now firmly anticipate the first 25 basis-point rate hike from the Fed since June 2006 is “baked-in-the-cake” — and is scheduled for delivery next week Wednesday.
I believe it is probably safe to say the vast majority of investors view a December rate hike affecting the Fed’s benchmark short-term interest rates is more symbolic than substantive — and that realization probably helped spawn last Friday’s small rally in the mortgage market
From this point forward job creation numbers, inflation data, and the pace of retail sales will draw increased scrutiny from mortgage investors.
Expect macro-economic data indicating expanding economic growth and/or rising inflation pressures to make it difficult for mortgage interest rates to gain noticeable traction to lower levels.
Factors: Retail Sales will be released on Friday, which carries influence second only to the monthly job report. 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.
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