Julie C. Nichols General

ECB Stirs up Markets
Comments from the ECB this week were perceived as negative for mortgage rates. The economic data had little net effect. As a result, mortgage rates ended the week higher.
On Tuesday, comments from an unnamed official at the European Central Bank (ECB) caused global bond yields to rise, including U.S. mortgage-backed securities (MBS). The official said that a "consensus" was forming about what approach to use when they decide that it’s time to conclude their bond buying program. The plan would be to gradually taper the monthly purchases, similar to what the U.S. Fed did to end its bond buying program. According to the ECB, the decision about when to end the program will depend on the performance of the economy. The added demand for bonds from central banks around the world has helped push down yields. Although no mention was made about the timing of the end of the bond purchases, these comments caused investors to reduce their expectations for additional stimulus from the ECB, which was negative for both stocks and bonds.

Friday’s important Employment report came in very close to expectations and caused little net change in mortgage rates. Against a consensus forecast of 170K, the economy added 156K jobs in September. The unemployment rate increased from 4.9% to 5.0%, above the consensus for a flat reading of 4.9%. This was viewed as a sign of strength, however, because the increase was due to the entrance of 444K people to the workforce.
The labor force participation rate rose to 62.9%, up half a point from a year ago. Average hourly earnings, an indicator of wage growth, matched expectations and were 2.6% higher than a year ago.
The most significant economic report next week will be Retail Sales on Friday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The JOLTS report, measuring job openings and labor turnover rates, will come out on Wednesday. The minutes from the September 17 Fed meeting also will be released on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to move markets. The next ECB meeting will take place on October 20. Mortgage markets will be closed on Monday in observance of Columbus Day.

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