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2018-01-31 11:28:48
Market Update 1/31/2018

Mortgage rates are set to open flat today as they take a breather from their relentless march higher.


The good news is that today is the last day of January and we can finally put this month behind.  So far this year mortgage rates have risen every single week.


President Trump’s State of the Union speech last night did very little to move financial markets.  The speech contained very few specific details regarding infrastructure and trade deals.    


This morning the ADP National Employment Report was released showing 234,000 new private sector jobs added to U.S. payrolls.   Economists were forecasting an increase of 195,000 new jobs so a big beat on the headline number. (See ADP chart Below)  This Friday the Non-Farm Payroll report (NFP) is released with economists forecasting 175,000 new jobs added and the unemployment rate holding steady at 4.1%.   


Today at 2:00pm EST the Federal Open Market Committee (FOMC) will release their decision on interest rates.   This will be the last meeting that Janet Yellen presides over as Federal Reserve Chair.  Jerome Powell will be the new Fed Chair moving forward.   There will be no press conference or q&a session following today’s rate decision.  Only a statement will be released to markets which will be thoroughly combed through for hints regarding more rate hikes in the future.


Markets are not expecting any change to the Fed Funds Rate today.  Currently, the market is pricing in 3 rate hikes for 2018 with the first coming at the Fed’s March 18th meeting.


Inflation, Central Bank tightening, and supply continues to be the drivers behind the move to higher interest rates.  Any hints that the European Central Bank (ECB) or the Bank of Japan (BOJ) will be pulling back on their economic stimulus will send rates higher.  The Fed is already in a tightening cycle but yields are still historically low because foreign central banks continue to support financial markets by buying fixed income securities.  When that stimulus comes to an end we should expect rates to move even higher, if just in the short term.   For rates to continue to rise inflation will have to continue to rise.   Many prominent economists only see inflation rising in the next few years above 2% because of tax cuts and higher wages before falling again to depressed levels in the years to follow.


The 10yr Note touched its highest level in 4 years yesterday @ 2.735%.  Currently, the 10yr is yielding  2.71%.   The trend is not our friend at the moment as rates look to continue to rise in the months ahead as more supply hits the market and inflation continues to rise.  Unless we see a major downturn in the economic data in the months ahead I expect this trend to continue.







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