Mortgage rates improved last week as the rout in oil markets triggered a global bond rally as investors expect continued central bank accommodation to fight off low inflation.
The continued decline in crude oil, with Brent Crude falling below $50 a barrel for the first time since 2009, caused a global rally in bond prices as low inflation will keep central banks from increasing rates for some time to fight off the possibility of deflation. Oil prices did stabilize somewhat later in the week causing mortgage rates to increase from the lows seen on Tuesday.
The Non-Farm Payrolls report released on Friday added to support for bond prices, as lower than expected wage growth outweighed the better than expected jobs and unemployment rate. Payrolls for December increased 252,000 versus a 240,000 estimate, with a two month net revision coming in at an additional gain of 50,000 jobs from previous estimates. The Unemployment rate also dropped more than expected to 5.6% from 5.8% the month prior. While the gain in jobs and the drop in unemployment would normally be seen as a positive, declines in average hourly earnings at -0.2% versus a +0.2% estimate turned the report to an overall negative, as sluggish wage growth is seen as a major negative for labor markets.
Economic releases last week that exceeded expectations included ADP employment at 241,000 versus a 225,000 estimate and Trade Balance at -39 billion versus a -42 billion estimate. Economic releases that were worse than expected this week included Factory Orders at -0.7% versus a -0.5% estimate, ISM Non-Manufacturing at 56.2 versus a 58.0 estimate, and Jobless claims at 294,000 versus a 290,000 estimate.
Key Market Indicators
By: Michael Borodinsky
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