Weekly Market Recap

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Week Ending: December 8th, 2017

There were few market moving events this week. The Employment report came in on target, and Congress passed the expected bill providing a two-week extension to government funding. Mortgage rates ended the week a little lower.

In November, the economy added 228,000 jobs, above the consensus forecast of 190,000. The economy has bounced back from the effects of the hurricanes, as the average job gains over the last three months were very close to the average of 174,000 jobs added per month in 2017. The unemployment rate was flat at 4.1%, matching the consensus. Average hourly earnings, an indicator of wage growth, fell slightly short of expectations. They were 2.5% higher than a year ago, up from an annual rate of 2.3% last month. The small upside surprise in job gains was offset by the minor miss in wage growth, and there was little reaction to the data.

Central bank policy has been a major influence on mortgage rates in recent years. Next week, both the U.S. Fed and the European Central Bank (ECB) will be meeting. It is widely expected that the Fed will raise the federal funds rate by 25 basis points for the third time this year. The greater potential for a surprise will come from the release of the Fed’s forecast for the pace of future rate hikes. At its last meeting in October, the ECB announced its plans for scaling back its bond purchases beginning in January. Following unexpectedly strong recent economic activity in the eurozone, investors will be more interested in any guidance about when the ECB will begin to raise rates.

On Thursday, the House and the Senate passed a bill which will fund the government through December 22. Without the bill, a government shutdown would have taken place on December 8. The bill provides an additional two weeks for Congress to negotiate a longer-term government funding bill.

Looking ahead, investors will be focused on the central bank meetings. The U.S. Fed will meet on Wednesday, and the European Central Bank on Thursday. The major U.S. economic reports will be the Consumer Price Index (CPI) inflation data on Wednesday and the Retail Sales data on Thursday. In addition, political news on Flynn, tax reform, or government funding could influence mortgage rates.

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