Mortgages and Stocks Rally on Japan Rate Cut
Friday’s surprise move by the Bank of Japan (BOJ) was positive for global bond markets. The BOJ announced that it was cutting short-term rates to try to boost economic growth and inflation. While the BOJ made no change to its massive bond buying program, BOJ officials expressed a willingness to expand the program in the future if necessary. The BOJ announcement was favorable for U.S. stocks and mortgage-backed securities (MBS).
The two biggest U.S. economic reports released over the past week did nothing to conflict with the outlook for slower growth. Fourth quarter Gross Domestic Product (GDP) increased just 0.7%, down from 2.0% during the third quarter. For the entire year, GDP rose 2.4%, matching the level seen in 2014. Durable orders in December declined 5% from November, which was much weaker than expected. Slower growth means less inflationary pressure, which is good for the prospect of continued low mortgage rates.
Week Ahead:
Factors: The important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.
Volatility: Increasing
Trend: Neutral
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