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December 13, 2017 (AFTERNOON REVISION)
WEDNESDAY AFTERNOON UPDATE:
The final FOMC meeting of the year has adjourned with a quarter point increase to key short-term interest rates. This was the third rate hike this year but was widely expected. The Fed also agreed to maintain their current balance sheet reduction plan they started in October and predicted there would be three rate hikes next year, unchanged from their previous estimate. Some analysts were expecting them to hint at possibly seeing more than three.
Their economic projections were a mixed bag for mortgage rates. They revised their prediction for overall GDP growth to 2.5% next year, up from the 2.1% they made in September. The update also showed a slight downward revision to next year’s unemployment rate. The good news came in the inflation estimates. While they were unchanged, they were left at levels that are higher than the current rate and higher than many market participants feel can be met. That means that the markets feel inflation will continue to run lower than the Fed’s preferred rate, helping to prevent a more aggressive rate hike plan. Some think that if inflation continues to run below expectations, the three rate moves next year may not happen either.
We are seeing a positive reaction in the stock and bond markets, mostly due to the sign of relief that the Fed still feels only three rate hikes are coming next year. The weaker than wanted inflation rate is also helping bond prices this afternoon. Stocks are higher than they were this morning, but some of that improvement came before the FOMC meeting adjourned. The bond market is setting new highs for the day, currently up 14/32 (2.35%), which should cause some lenders to improve pricing intraday by approximately .125 – .250 of a discount point from this morning’s rates.
November’s Consumer Price Index (CPI) was released at 8:30 AM ET this morning. It showed a 0.4% rise in the overall reading and a 0.1% increase in the more important core data. The overall reading pegged forecasts, but the core data fell short of the 0.2% increase that was expected. The weaker than thought inflation reading is good news for bonds and mortgage-related securities, leading to this morning’s early bond gains.
Tomorrow has two pieces of economic data set for release at 8:30 AM ET, one of which is much more important to the markets than the other. November’s Retail Sales data is that highly important release. It will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher. Current forecasts are calling for an increase of 0.3% in November’s sales.
The second release is last week’s unemployment figures. They are forecasted to show that 239,000 new claims for unemployment benefits were filed last week, up from the previous week’s 236,000 initial claims. This report usually doesn’t cause much movement in the markets or mortgage rates unless it shows a significant jump or drop in initial claims for benefits. The higher the number of claims, the better the news it is for bonds and mortgage rates since rising claims is a sign of employment sector weakness.
If I were considering financing/refinancing a home, I would…Lock if my closing was taking place within 7 days… Float if my closing was taking place between 8 and 20 days…Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now…This is only my opinion of what I would do if I was financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.