Overview: Over the past week, investors were waiting for the election results, and quite simply, they were negative for mortgage markets. This far offset weaker than expected labor market data, and mortgage rates climbed to the highest levels since early July.
From the point of view of mortgage markets, Republican policies are anticipated by investors to be unfavorable for several reasons. First, economic growth is expected to be higher, which raises the outlook for future inflation. In addition, proposed tariffs likely would add to inflationary pressures. Finally, investors anticipate that increased deficit spending will require the issuance of larger quantities of bonds, and higher yields potentially will be needed to attract additional purchasers.
Forecasts for the closely watched Employment Report released on Friday factored in the impact of multiple hurricanes and a large Boeing strike, but the results still came in far below the expected levels. The economy added just 12,000 jobs in October, well below the consensus forecast of 100,000 and the smallest monthly increase since December 2020. In addition, the figures for prior months were revised lower by 112,000. Average hourly earnings, an indicator of wage growth, were 4% higher than a year ago, matching expectations.
Two other significant economic reports released this week by the Institute for Supply Management (ISM) revealed mixed results. The ISM Services Index jumped to 56, far above the consensus forecast and the highest level since April 2022. By contrast, the ISM Manufacturing Index was just 46.5, a little below expectations. Since readings above 50 indicate an expansion in the sector and below 50 indicate a contraction, these reports continue to emphasize that service companies have outperformed manufacturers in recent years.
Job Gains (thousands)
Week Ahead
The next Federal Reserve meeting will take place on Thursday (a day later than usual due to the election). Most investors anticipate a 25 basis-point rate cut and will be looking for guidance from officials on their plans for future monetary policy. For economic reports, by far the most significant will be the Consumer Price Index (CPI) on November 13. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.
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