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Weekly Recap and the Financial Markets

Weekly Recap and the Financial Markets
With everything that happened last week, it seems higher mortgage rates were on the move. Stronger than expected economic data, hawkish Fed comments and a stock market rally were rough on rates for the first half of the week but rates recovered their losses and ended the week with little change.

Most economic activity reports this week were stronger than expected. Excluding the volatile auto component, retail sales doubled the expected January increase and December numbers were revised higher to boot. Retail sales data is a key indicator because consumer spending accounts for about 70% of our economic output.

January housing starts also surpassed expectations. But the biggest surprises came from two regional manufacturing indexes that beat the consensus by a wide margin. One reached its highest level since 1984. Also, CPI and PPI inflation for January was higher than expected. Increasing economic activity and rising inflation are not good for mortgage rates.

Early in the week, Fed Chair Yellen delivered her semi-annual testimony to Congress and her comments were more hawkish than expected. She stressed that it would be “unwise” to wait too long to raise the Federal funds rate. She also said in coming months the Fed will consider when to begin reducing its portfolio of mortgage-backed securities. On the plus side, she pointed out the Fed will move gradually. It was Fed’s purchasing of mortgages that helped push down mortgage rates in recent years.

This Wednesday the minutes from the February 1 Fed meeting will be released and they will provide insight into the debate between Fed officials. These notes can significantly move markets. Existing Home Sales also are to be released Wednesday and New Home Sales on Friday. Mortgage markets are closed today in observance of Presidents Day.

Posted on February 20, 2017 at 11:37 am by Rob Williams

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