Weekly Market Recap

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Week Ending: November 09, 2018

While there was a wide range of economic news, it was a quiet week for mortgage rates. Reaction to the inflation data, the election results, and the Fed meeting was minimal, and mortgage rates ended the week with little change.

The one significant surprise in this week’s news was Friday’s inflation data. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products. In October, PPI was 2.9% higher than a year ago, up from an annual rate of increase of 2.6% last month, and far above the consensus for a reading of just 2.5%.

While higher inflation is negative for mortgage rates, the PPI data is very volatile month to month, so investors placed little weight on the results for October. If a similar surge is seen in the less volatile Consumer Price Index (CPI) report released next week, the reaction likely will be much larger.

The midterm election results were in line with the scenario anticipated by investors and had little impact on mortgage rates. With control of the House switching to the Democrats and that of the Senate retained by the Republicans, investors expect that fewer major policy changes will be accomplished going forward. If this is the case, it may result in slower increases in government spending, which would reduce the amount of bond issuance needed to fund the budget deficit.

As expected, Thursday’s Fed meeting produced no increase in the federal funds rate and few changes in the language in the Fed statement. Fed officials emphasized sustained improvement in the labor market, while noting that growth in business investment “has moderated” in recent months. The main point of debate about the appropriate pace of future rates hikes continues to center on whether to move quickly in response to the tightening labor market or to proceed more slowly and wait to see if it leads to a pickup in inflation.

Looking ahead, the Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Thursday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. Mortgage markets will be closed on Monday in observance of Veterans Day.

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