MARKET COMMENT
Mortgage bond prices finished the week higher which put slight downward pressure on rates. Rates were worse Monday morning as Asian stocks were higher and US stocks were lower. The FHFA house price index rose 0.2% vs the expected 0.4% increase. Consumer confidence was 126.5 vs the expected 128. Weekly jobless claims were 222K, expected 224K. There was some flight to both US stocks and debt securities Thursday morning as news focused on tensions between the UK and China. There were reports that Chinese officials suspended the Shanghai-London Stock Connect in reaction to the UK’s stance on Hong Kong. The ISM manufacturing index came in at 47.2 versus the anticipated 49. Stocks were lower Friday morning as oil prices were higher in response to increased tensions between the U.S. and Iran. Mortgage interest rates finished the week better by approximately 1/8 to 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Trade Data | Tuesday, Jan. 7, 8:30 am, et | $47B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Factory Orders | Tuesday, Jan. 7, 10:00 am, et | Up 0.3% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| 3-year Treasury Note Auction | Tuesday, Jan. 7, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| ADP Employment | Wednesday, Jan. 8, 8:30 am, et | 80K | Important. An indication of employment. Weakness may bring lower rates. |
| 10-year Treasury Note Auction | Wednesday, Nov. 9, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, Jan. 9, 8:30 am, et | 210K | Important. An indication of employment. Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction | Thursday, Jan. 9, 1:15 pm, et | None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Employment | Friday, Jan. 10, 8:30 am, et | 3.5%, Payrolls +240K | Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
FED PROJECTIONS
The Federal Reserve has eight scheduled meetings this year with the next ending January 29th. No rate adjustments are expected at this meeting but we should get some revised forward guidance. The latest report from the Fed makes many short- and long-term projections about the U.S. economy. Member projections for Real GDP in 2020 range between 1.8 and 2.3. Those figures for 2021 range between 1.7 and 2.2 while 2022’s figures are 1.5 and 2.2. Unemployment ranges from 3.3 to 3.8 in 2020, 3.3 to 4.0 in 2021, 3.3 to 4.1 in 2022, and 3.5 to 4.5 for the “longer term.” Core PCE inflation, the Fed’s preferred inflation gauge, ranges from 1.7 to 2.1 in 2020, 1.8 to 2.3 in 2021, and 1.8 to 2.2 in 2022.
The most notable projections are for future Fed Funds rates. The range is 1.6 to 1.9 in 2020, 1.6 to 2.4 in 2021, 1.6 to 2.9 in 2022, and 2.0 to 3.3 in the “longer term.”
The good news is the Fed expects rates to remain low overall this year. However, the expectations are for higher rates as we go out in time. Anything can alter the Fed’s outlook, so caution is still key.