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Weekly Recap and the Financial Markets – 01/20/17

Weekly Recap and the Financial Markets

Mortgage rates sufferd this week from comments from Fed officials and stronger than expected economic data. Renewed concerns about Brexit helped a little but the week ended with higher mortgage rates.

Brexit is back. On Tuesday, British Prime Minister Theresa May spoke about the UK’s objectives in its negotiations to exit the European Union. The UK will not attempt to remain in the single market of the EU because that requires free movement of workers between the UK and the rest of the EU. Instead, the UK will negotiate trade agreements with the EU and other countries. It is difficult to predict how Brexit will affect economies in Europe. This uncertainty caused investors to shift to safer assets, including U.S. mortgage-backed securities. This added demand was good for mortgage rates.

On Wednesday, the Fed’s Kaplan expressed support for tighter monetary policy because of a stronger labor market and higher inflation estimates. He thinks the Fed should soon begin to reduce its large holdings of MBS and Treasuries. The prospect that this change may take place sooner than expected was negative for mortgage rates. Later that day, Fed Chair Yellen said that most Fed officials expect to raise the federal funds rate gradually until it reaches 3.00% by the end of 2019. This was a faster pace than many investors had expected, which pushed mortgage rates higher.

Housing data released this week revealed that the housing market ended 2016 on a positive note. In December, housing starts rose 11% from November, well above the expected levels. For the year, housing starts were 5% higher than in 2015, making it the best year since 2007.

Looking ahead, additional information about policy changes under the Trump administration could continue to affect mortgage rates. Existing Home Sales will be released Tuesday and New Home Sales on Thursday. The first reading for fourth quarter GDP, the broadest measure of economic growth, will be released Friday. Durable Orders, another important indicator of economic activity, comes out on Friday as well.

Posted on January 23, 2017 at 3:24 pm by Rob Williams

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