Monday, November 29, 2010

Market Recap - Week Ending November 26, 2010

During the short Thanksgiving week, turmoil in Korea had the greatest impact on mortgage rates. A wide range of economic data was released ahead of the holiday, but overall it was roughly neutral for mortgage rates, which ended the week slightly higher.

An attack by North Korea on a South Korean island caused global investors to shift funds to relatively safer assets on Tuesday. As usual, this hurt stocks and helped bonds, including mortgage-backed securities, pushing mortgage rates a little lower. The conflict did not escalate or spread, though, and investors reversed their actions on Wednesday, moving mortgage rates higher.

On Tuesday, the detailed minutes from the November 3 Fed meeting revealed a high level of disagreement between Fed officials about the new $600 billion quantitative easing program. With high unemployment and low inflation, Fed officials would like to take action. The problem is that the options available to the Fed to help boost economic growth have potentially negative consequences. According to the minutes, some Fed officials pointed out that the quantitative easing program could weaken the dollar or lead to undesirably high future inflation. In the end, 10 out of 11 Fed officials decided that the expected benefits justified the risks and was better than doing nothing, but many officials considered it a very close call. The relatively weak support within the Fed further clouds the future of the program, and the uncertainty for investors has added to already high levels of volatility in mortgage rates.

The biggest economic event next week will be the important Employment report on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for an increase of about 150K jobs in November. Before the employment data, the Chicago PMI manufacturing index will be released on Tuesday. The ISM manufacturing index and the Fed's Beige Book will come out on Wednesday. Pending Home Sales, a leading indicator for the housing market, will be released on Thursday. Factory Orders, ISM Services, Productivity, Construction Spending, and Consumer Confidence will round out the schedule.

Market Recap - Week Ending November 26, 2010

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