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Weekly Recap and the Financial Markets – 3/10/17

Weekly Recap and the Financial Markets

Rates in the past week suffered again as stronger than expected labor data emerged. Increased expectations for tighter monetary policy from the central banks in the U.S. and Europe also were unfavorable. As a result, mortgage rates ended the week higher.

ADP estimated on Wednesday about 298,000 private sector jobs would be added in February; much higher than the consensus figure of 190,000. While great for the economy, economic growth raises the inflation outlook and is bad for rates. Friday’s official labor report revealed 235,000 jobs were added, closer to the consensus forecast of 190,000. Because it was slightly weaker than expected, rates actually recovered a portion of their losses from earlier in the week.

Investors are nearly certain that the Fed will raise the federal funds rate on March 15. Many have also significantly raised their outlook for rate hikes in 2017. Stronger European economic growth may lead to less accommodative monetary policy overseas. At its Thursday meeting the European Central Bank said that there is no longer “that sense of urgency” to provide new stimulus measures.

Wednesday will be the big day this week as Retail Sales and CPI are released in the morning and the results of the Fed meeting in the afternoon. Consumer spending accounts for about 70% of economic output so retail sales is a key indicator worth watching. The CPI is a widely followed monthly inflation report that looks at the price change for retail goods and services. The Fed is widely expected to hike rates, so investors will be focused on hints about the pace of future tightening. After that, Housing Starts will be released on Thursday, and Industrial Production will come out on Friday.

Posted on March 14, 2017 at 8:36 am by Rob Williams

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