Once again, investors mostly remained on the sidelines waiting for progress on the fiscal cliff talks and the European debt troubles. Headlines in these areas, along with Friday’s Employment report, caused daily volatility, but mortgage rates ended the week with little change.
Friday’s Employment data was stronger than expected. Against a consensus forecast of 90K, the economy added 146K jobs in November. Expected to increase to 8.0% from 7.9% last month, the Unemployment Rate decreased to 7.7%, the lowest level since December 2008. The decline was due to workers leaving the labor force, however, rather than job gains. Overall, investors feared weaker results, and the news was favorable for stocks and negative for bonds.
The last few weeks in December are traditionally a period marked by larger than usual price movements, due to thin trading volume. Usually the flow of news also winds down toward the end of the year. This year, however, there remain several major events which likely will have a significant impact on mortgage rates over the next few weeks, including a Fed meeting, the fiscal cliff talks, and deadlines on the Greek bailout. While there is no way to know what net effect these events will have on mortgage rates, it is reasonable to expect a high level of volatility.
The big story this week will be Wednesday’s Fed meeting. In particular, investors will be looking to see if the Fed will replace a bond purchase program which is due to expire at the end of the year. The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Thursday. Retail Sales account for about 70% of economic activity. Industrial Production will come out on Friday. The Trade Balance and Import Prices will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
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