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Week ending 12/13/13

Rollercoaster ride due to economic data, budget talks and upcoming Fed meeting.

Germany announced their industrial production fell for a second month. This triggered speculation that the ECB will also keep borrowing costs low to support growth in Euro zone. No economic news released.

The FHFA announced a GFee increase effective April 1st. This increase of 10 bps, is one of the larger increases we have seen to date.

Overnight Treasuries declined due to speculation that U.S. budget agreement will support the economy and make it easier for the Fed to cut bond purchases. Retail sales increased in November economists predict.

Bond market broke three day winning streak after strong petroleum report. Rates increased. 10 year auction captured some losses back. Reports in Washington suggest budget deal may be close, causing investors to think about taper.

Inflation report less than stellar. U.S. PPI for crude goods drops more than 2.5%, which is biggest decrease since 2012.With inflation lower than expected, Fed may not be ready to tighten policy.
Other notable events:

• Congressman Mel Watt was confirmed this week as Director of the FHFA. The FHFA is the conservator over Fannie Mae and Freddie Mac and as such has tremendous influence over much of the mortgage market.

Week ahead:

• The next Fed meeting will take place on Wednesday. The statement is scheduled to be released at 2:00 EST. Decision regarding the timing of the taper likely will produce a significant reaction. Other market moving reports include inflation indicators and housing reports.