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Fed Will Provide Maximum Support
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This week, the unemployment figures continued to rise and the GDP data reflected the slowdown in economic activity due to the coronavirus. US and European central bank meetings produced no significant surprises and had little impact. Daily volatility in mortgage markets remained low, and the change in rates for the week again was small.
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Since major global central banks have been announcing policy changes as needed lately rather than waiting for scheduled meeting times, investors correctly anticipated that no major market moving news would emerge from this week's meetings. On Wednesday, the US Fed said that it will use all its tools to support the economy and that the federal funds rate will remain near zero until full employment and higher inflation are achieved. To help stabilize markets, the Fed has been buying large amounts of Treasuries and mortgage-backed securities (MBS) in recent weeks, but no additional guidance was given about the quantity of future purchases. Forecasts from Thursday's European Central Bank (ECB) meeting indicated that central bankers expect European economic growth to decline by 5% to 12% this year.
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The US economic data reflected the impact of the pandemic again this week. Following growth of 2.1% in the fourth quarter of 2019, gross domestic product (GDP), the broadest measure of economic activity, fell 4.8% in the first quarter of 2020. This was the weakest reading since 2008. Consumer spending, which makes up roughly two-thirds of total GDP, declined 8%, partly due to the closing of nonessential stores.
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Filings for new Jobless Claims dropped from 4.4 million last week to 3.8 million this week. Typical readings before the outbreak were around 250,000. The US has lost over 30 million workers, about 19% of the labor force, over the past six weeks.
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Looking ahead, the coronavirus will remain the main focus. Investors will be watching for news about medical advances, Fed actions, government fiscal stimulus programs, and plans for reopening the economy. Beyond that, the key monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will provide additional valuable information on labor market conditions. The ISM national services index will be released on Tuesday.
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| Weekly Change |
| 10yr Treasury |
flat |
0.00 |
| Dow |
rose |
200 |
| NASDAQ |
rose |
50 |
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| Calendar |
| Mon |
5/5 |
Factory Orders |
| Tue |
5/6 |
ISM Services |
| Fri |
5/9 |
Employment |
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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