ECB Ends Bond Purchases

Raleigh Mortgage Group Uncategorized

While a lot of volatility again was seen in the stock market, it was a
relatively quiet week for mortgage rates. The major U.S. economic data
came in on target, and there were no surprises from the European
Central Bank. As a result, rates ended with little change.
Consumer spending accounts for about 70% of all economic activity in
the U.S., and the retail sales data is a key indicator. While they slowed
from the very strong pace seen in October, sales continued to display
solid growth. Excluding the volatile auto component, Retail Sales in
November rose 0.2% from October, and the results for October were
revised higher. This recent strength bodes well for the holiday season. 
The most recent inflation data was in line with the expected levels. In
November, the core Consumer Price Index (CPI), which excludes the
volatile food and energy components, was 2.2% higher than a year, down from an annual rate of increase of 2.5% last month. This was up from a
level of 1.8% at the start of 2018.
While there were no surprises from Thursday’s European Central Bank (ECB) meeting, it was notable for a couple of reasons. First, the ECB
confirmed that it will conclude its bond purchases at the end of 2018, as
previously announced. However, it will not begin to sell bonds from its
massive portfolio for “an extended period of time.” The ECB also lowered its economic growth forecasts for 2018 and 2019. Given the uncertainty
about the future strength of the economy, investors do not expect the
ECB’s first rate hike to take place before early 2020. Risk factors include
the threat of a global trade war, the need for a Brexit deal, and Italy’s
budget negotiations with the European Union. 
Looking ahead, the next Fed meeting will take place on Wednesday, and most investors expect a 25 basis point increase in the federal funds rate.
In addition, Housing Starts will be released on Tuesday and Existing
Home Sales on Wednesday. The core PCE price index, the inflation
indicator favored by the Fed, and Durable Orders will come out on
Friday.

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