Market Updates – 12/06/2019

While news about the trade talks caused some volatility this week, the primary influence on mortgage rates was Friday’s labor market data. Stronger than expected job growth was unfavorable for rates, and they ended the week a little higher.

Against a consensus forecast of 185,000, the economy added a massive 266,000 jobs in November. In addition, revisions added 41,000 jobs to the results for prior months. Average job gains over the last three months were an impressive 205,000. Hiring was strong in health care, restaurants, and transportation. Since faster economic growth raises the outlook for future inflation, this data was negative for mortgage rates.

The other major components of the Employment report were consistent with the strong job gains. The unemployment rate unexpectedly declined from 3.6% to 3.5%, matching the 50-year low seen in September. Average hourly earnings, an indicator of wage growth, were 3.1% higher than a year ago, which was slightly above the consensus forecast.

The trade talks between the U.S. and China continued to generate market moving headlines this week, but the net effect was small. On Tuesday, President Trump caught investors off guard when he said that it might be better to wait until after the 2020 election to make a deal with China. Later in the week, however, trade officials emphasized that the negotiations remained in progress and that the U.S. was ready to sign a deal at any time if the terms were favorable.

Looking ahead, attention will be focused on central bank meetings. The next U.S. Fed meeting will take place on Wednesday followed by the European Central Bank (ECB) meeting on Thursday. For economic data, the Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Friday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. In addition, news about the trade negotiations with China or the impeachment inquiry could have an influence. Trading volume in mortgage markets often is very light during the last couple of weeks of December which can lead to increased volatility.