Weekly Review - for the week of November 9, 2015 There was continuing turmoil in the financial markets this past week generated from the better than forecast employment numbers in the October Employment Situation Summary released on November 6. There is growing sentiment that the Federal Reserve will act to raise interest rates on December 16 for the first time in a decade due to the better employment data. There is little doubt now that the Fed will pull the trigger on a 0.25% rate hike unless the next jobs report, due out on December 4, is a complete downside disaster. The 30-day Fed Funds Futures are currently showing a 70% probability for a December rate hike, a 74% probability for a January rate hike, and a 33.1% probability for a second rate hike in March. This past Friday, U.S. Treasuries and mortgage bonds rallied on weak U.S. economic data, lower crude oil prices, and a selloff in the stock market. Retail Sales, Core Retail Sales, the Producer Price Index, and the Core Producer Price Index all missed consensus forecasts. The Commerce Department reported Retail Sales rising just 0.1% during October after being unchanged in September. The consensus forecast had called for Retail Sales increasing 0.3% after a previously reported 0.1% increase in September. A surprising 0.5% decline in automobile sales led to the lower retail sales figure, suggesting there could be a slowdown in consumer spending that could reduce expectations for a stronger advance in fourth quarter economic growth. However, the Retail Sales data is unlikely to alter expectations that the Federal Reserve will raise interest rates in December following October's strong employment report. Additionally, the Labor Department reported the Producer Price Index (PPI), a measure of wholesale costs, fell -0.4% in October when the consensus forecast had been for a +0.1% increase. The PPI has now been either flat or lower for four consecutive months leading to a record 1.6% decline over the past year. When excluding the volatile categories of food, energy and trade, the Core PPI declined by a smaller -0.3% but well below the consensus forecast of +0.1%. It seems inflationary pressure at the wholesale level within the U.S. economy is difficult to find, but the Fed sounds ready to raise interest rates anyway as early as December 16 because they expect inflation to accelerate when the effects of cheaper gas prices and a strong dollar decline. In housing, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending November 6 showing the overall Index fell 1.3%. The Refinance Index dropped 2.0% from the prior week, while the seasonally adjusted Purchase Index increased by 0.1% from a week earlier. Overall, the refinance portion of mortgage activity increased to 59.8% of total applications from 59.7%. The adjustable-rate mortgage segment of activity decreased to 6.6% of total applications from 6.7% the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance rose from 4.01% to 4.12%, its highest level since August 2015. For the week, the FNMA 3.5% coupon bond lost 10.9 basis points to end at $103.19 while the 10-year Treasury yield decreased 5.1 basis points to end at 2.27%. Stocks ended the week with the NASDAQ Composite losing 219.24 points to close at 4,927.88. The Dow Jones Industrial Average fell 665.09 points to end at 17,245.24, and the S&P 500 dropped 76.16 points to close at 2,023.04. Year to date, and exclusive of any dividends, the NASDAQ Composite has declined 3.89%, the Dow Jones Industrial Average has lost 3.35%, and the S&P 500 has fallen 1.77%. This past week, the national average 30-year mortgage rate decreased to 4.03% from 4.04% while the 15-year mortgage rate decreased to 3.24% from 3.27%. The 5/1 ARM mortgage rate increased to 3.00% from 2.95%. FHA 30-year rates remained unchanged at 3.75% while Jumbo 30-year rates decreased to 3.84% from 3.85%.