Stock prices fell during the week while bond prices posted modest gains with slightly lower yields as traders were confronted by heightened uncertainty surrounding the upcoming presidential election.  Plunging oil prices also weighed on stock market sentiment as the latest report from the U.S. Energy Information Administration showed a huge 14.4 million barrel buildup in crude oil inventories.  By the end of the week, the S&P 500 Index notched its ninth consecutive daily decline, its longest uninterrupted losing streak in 36 years.  The daily declines were fairly minor as the market seemed to undergo a “death by a thousand cuts.”

 

Wall Street always favors “certainty” over “uncertainty” and many on the Street believed Hillary Clinton had the election all but wrapped up.  However, reports of new scandals and corruption surrounding the Clintons and the Clinton Foundation improved polling results for Donald Trump, showing Trump has closed the polling gap with Clinton.  For whatever reason, this amplified feelings of political uncertainty among traders resulting in lower stock and higher bond prices.

 

The week’s economic reports were generally positive with Personal Income and Spending both logging healthy gains in September.  Personal Income increased 0.3% or $46.7 billion while Personal Spending increased 0.5% or $59.7 billion.  The week’s most significant report was Friday’s Employment Situation Summary for October showing Nonfarm Payrolls increased by 161,000 while Nonfarm Private Payrolls rose by 142,000.  Although these payrolls numbers slightly missed their consensus estimates, they were offset by upward revisions for August and September that combined for 44,000 jobs more than were previously reported.  The employment data indicated the labor market remains strong and will keep the Federal Reserve on track to raise interest rates at their December 14 FOMC meeting.  The probability for a rate hike at this meeting is currently 66.8%.

 

Elsewhere, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 28 showing the overall seasonally adjusted Market Composite Index fell 1.2%.  The seasonally adjusted Purchase Index dropped 0.4% from the prior week, while the Refinance Index decreased 2.0%.  Overall, the refinance portion of mortgage activity was unchanged at 62.7% of total.  The adjustable-rate mortgage share of activity accounted for 4.4% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.71% to 3.75% with points decreasing to 0.36 from 0.37.

 

For the week, the FNMA 3.0% coupon bond gained 18.7 basis points to end at $103.11 while the 10-year Treasury yield decreased 7.1 basis points to end at 1.7780%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 272.91 points to end at 17,888.28.  The NASDAQ Composite Index dropped 143.73 points to close at 5,046.37, and the S&P 500 Index lost 41.23 points to close at 2,085.18.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 2.59%, the NASDAQ Composite Index has added 0.77%, and the S&P 500 Index has advanced 1.98%.

 

This past week, the national average 30-year mortgage rate decreased to 3.59% from 3.60% while the 15-year mortgage rate remained unchanged at 2.90%.  The 5/1 ARM mortgage rate fell to 2.89% from 2.92%.  FHA 30-year rates were unchanged at 3.40% and Jumbo 30-year rates were also unchanged at 3.75%.

 

Economic Calendar – for the Week of November 7, 2016

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Nov 07 03:00 Consumer Credit Sept $17.5B $25.9B
Nov 08 10:00 Job Openings / JOLTS Report Sept NA 5.443M
Nov 09 07:00 MBA Mortgage Index 11/05 NA -1.2%
Nov 09 10:00 Wholesale Inventories Sept 0.2% -0.2%
Nov 09 10:30 Crude Oil Inventories 11/05 NA 14.420M
Nov 10 08:30 Initial Jobless Claims 11/05 262,000 265,000
Nov 10 08:30 Continuing Jobless Claims 10/29 NA 2,026K
Nov 10 14:00 Treasury Budget Oct NA -$136.6B
Nov 11 10:00 Univ. of Michigan Consumer  Sentiment Index Nov 87.9 87.2

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.11, +18.7 basis points) traded within a  narrower 42 basis point range between a weekly intraday high of $103.14 on Friday and a weekly intraday low of $102.72 on Tuesday before closing the week at $103.11.

 

 

The bond traded in a “sideways” direction during the week while trading between key technical support at the 200-day moving average at $102.92 and resistance at the 23.6% Fibonacci retracement level located at $103.19.  Trading this past week was very choppy ahead of the presidential election which has introduced a heightened level of uncertainty in the financial markets.  The slow stochastic oscillator remains “oversold” but is now making a turn higher indicating a pick-up in upward momentum.  If Trump pulls out an election victory, we could see bond prices move higher with yields falling and this would help to improve mortgage rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

chartt110720161

 

 

 

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ADP Employment Report

Nov 3, 2016

adp-info11-2-2016

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by | Categories: The Economy | No Comments

Encouraging economic news during the week resulted in rising bond yields and lower bond prices while stock prices put in an uneven performance on mixed third quarter corporate earnings reports.

Disappointing third quarter earnings reports from Apple, 3M, Caterpillar, and Sherwin-Williams in addition to poor fourth quarter earnings guidance from retailers Under Armour, Kohl’s, and Macy’s helped to weigh on the stock market.

 

In economic news, the economy unexpectedly showed signs of improvement in the 3rd Quarter by growing at the fastest pace in two years.  According to the Commerce Department’s Bureau of Economic Analysis, 3rd Quarter GDP bounced back at a 2.9% annual rate after growing by only a 1.4% annual rate in the 2nd Quarter.

 

On the inflation front, the Advance 3rd Quarter Chain Deflator was reported at 1.5%, a little higher than the consensus forecast of 1.4%, but well below the 2nd Quarter’s level of 2.3%.  The 3rd Quarter Employment Cost Index matched both the consensus forecast and the 2nd Quarter result at 0.6%.  Wages and salaries increased 0.5% while benefits increased 0.7%.  For the 12-month period ending in September, compensation costs for civilian and private industry workers both increased 2.3% while those for state and local government workers increased 2.6%.  Apparently, it pays a little better to work for the government.

 

The week’s housing news was favorable with the Case-Shiller 20-City Home Price Index, which measures price changes in residential housing in 20 major cities across the U.S., moving 0.4% higher for the month August and 5.1% higher year-over-year.  The overall Case-Shiller Index measuring price changes in all nine U.S. census divisions across the U.S. was 5.3% higher on an annual basis in August from 5.0% in July.  Also, the FHFA Home Price Index for August increased 0.7% and this exceeded the consensus forecast of 0.5%.  On an annual basis, the FHFA Home Price Index was 6.4% higher.

 

New Home Sales were mostly upbeat.  The Census Bureau reported New Home Sales increased 3.1% to a seasonally adjusted annual rate of 593,000 in September.  This was below the consensus forecast of 610,000 but higher than a downwardly revised level of 575,000 in August.  Additionally, the September 2016 rate is 29.8% higher than the September 2015 rate of 457,000.  Furthermore, the median sales price for new homes sold in September jumped by $29,500 to $313,500 from $284,000 in August while the average sales price increased by $24,100 to $377,700.  At the current sales rate, there is currently a 4.8 month supply of 235,000 new homes available for purchase.

10312016chart1

 

The National Association of Realtors reported its Pending Home Sales Index jumped 1.5% to 110.0 in September after falling 2.5% during August.  The increase was more than the consensus forecast calling for a 0.6% gain and is a sign of the underlying strength the housing market.  Year-over-year, the Index is 2.4% higher than September 2015.

10312016chart2

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 21 showing the overall seasonally adjusted Market Composite Index fell 4.1%.  The seasonally adjusted Purchase Index dropped 7.0% from the prior week, while the Refinance Index decreased 2.0%.  Overall, the refinance portion of mortgage activity increased to 62.7% of total applications from 61.5% in the prior week.  The adjustable-rate mortgage share of activity accounted for 4.2% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.73% to 3.71% with points increasing to 0.37 from 0.36.

 

For the week, the FNMA 3.0% coupon bond lost 45.3 basis points to end at $102.92 while the 10-year Treasury yield increased 11.2 basis points to end at 1.8486%.  Stocks ended the week mixed with the Dow Jones Industrial Average gaining 15.48 points to end at 18,161.19.  The NASDAQ Composite Index dropped 67.30 points to close at 5,190.10, and the S&P 500 Index lost 14.75 points to close at 2,126.41.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 4.05%, the NASDAQ Composite Index has added 3.52%, and the S&P 500 Index has advanced 3.88%.

 

This past week, the national average 30-year mortgage rate increased to 3.60% from 3.54% while the 15-year mortgage rate increased to 2.90% from 2.85%.  The 5/1 ARM mortgage rate rose to 2.92% from 2.86%.  FHA 30-year rates increased to 3.40% from 3.35% and Jumbo 30-year rates increased to 3.76% from 3.70%.

 

Economic Calendar – for the Week of October 31, 2016

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Oct 31 08:30 Personal Income Sept 0.4% 0.2%
Oct 31 08:30 Personal Spending Sept 0.5% 0.0%
Oct 31 08:30 Core PCE Price Index Sept 0.1% 0.2%
Oct 31 09:45 Chicago Purchasing Managers Index (PMI) Oct 54.0 54.2
Nov 01 10:00 ISM Index Oct 51.7 51.5
Nov 01 10:00 Construction Spending Sept 0.5% -0.7%
Nov 02 07:00 MBA Mortgage Index 10/29 NA -4.1%
Nov 02 08:15 ADP Employment Change Oct 165,000 154,000
Nov 02 10:30 Crude Oil Inventories 10/29 NA -0.553M
Nov 02 14:00 FOMC Rate Decision Nov 0.375% 0.375%
Nov 03 07:30 Challenger Job Cuts Oct NA -24.7%
Nov 03 08:30 Initial Jobless Claims 10/29 256,000 258,000
Nov 03 08:30 Continuing Jobless Claims 10/22 NA 2,039K
Nov 03 08:30 Preliminary Productivity Qtr. 3 1.8% -0.6%
Nov 03 08:30 Unit Labor Costs Qtr. 3 1.2% 4.3%
Nov 03 10:00 Factory Orders Sept 0.2% 0.2%
Nov 03 10:00 ISM Services Index Oct 55.8 57.1
Nov 04 08:30 Nonfarm Payrolls Oct 175,000 156,000
Nov 04 08:30 Nonfarm Private Payrolls Oct 170,000 167,000
Nov 04 08:30 Hourly Earnings Oct 0.3% 0.2%
Nov 04 08:30 Unemployment Rate Oct 4.9% 5.0%
Nov 04 08:30 Average Workweek Oct 34.4 34.4
Nov 04 08:30 Trade Balance Sept -$38.5B -$40.7B

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.92, -45.3 basis points) traded within a  wider 72 basis point range between a weekly intraday high of $103.45 on Monday and a weekly intraday low of $102.73 on Thursday before closing the week at $102.92.

 

More favorable than anticipated economic data drove bond prices lower through technical support at the 23.6% Fibonacci retracement level at $103.19, and this level now reverts to nearest overhead resistance with technical support found at the key 200-day moving average at $102.87.  The bond is “oversold” at this point and could make a turn higher this week to stabilize mortgage rates.  However, an abundance of major economic news is scheduled for release this week, and if the data proves to be favorable for the economy, we could see bond prices pushed below the 200-day moving average toward the next level of support at the 38.2% Fibonacci retracement level at $102.46.  Should this occur mortgage rates would move slightly higher.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

10312016chart3

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From: Richmond Times Dispatch

The housing market in the Richmond area and surrounding counties is closing in on its fifth year of year-over-year growth, according to a report released Tuesday by the Central Virginia Regional Multiple Listing Service.

Residential sales in the immediate Richmond area — the city and Chesterfield, Hanover and Henrico counties — rose 6 percent in the third quarter from the same period a year ago.

The median price in the area, with half the homes selling for less and half for more, was $234,097 in the third quarter, up 4 percent from the same period a year ago.

The city of Richmond led the area in sales growth with 781 sales, up 16 percent from last year — marking the sharpest quarterly year-over-year percentage sales increase the city has seen in three years, according to the report.

In the 16 jurisdictions that make up the region, home sales — which totaled 5,224 in the third quarter — rose 8 percent from the same period a year ago  READ FULL STORY

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by | Categories: main | No Comments

 

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Weekly Review

 

Both the stock and bond markets showed modest improvement during the week on “mixed” economic and third quarter corporate earnings reports.

 

Several economic reports showed manufacturing remains tenuous.  The New York Fed reported the October New York Empire State Manufacturing Index continued its recent decline by dropping to -6.8 from September’s reading of -2.0.  The consensus forecast had called for rise to 2.0.  Readings below zero indicate a contraction in manufacturing activity and October’s was the weakest reading since May.

 

The Philadelphia Federal Reserve Bank reported its Manufacturing Index for October fell to a reading of 9.7 after reaching a 19 month high in September with a reading of 12.8.  However, a greater pullback was expected as various consensus forecasts for October ranged from 5.5 to 7.0.

 

The Federal Reserve reported Industrial Production increased by 0.1% month-over-month for September, but this was below the consensus forecast calling for a 0.2% gain.  Capacity Utilization declined to 75.4% from 75.5% and was below the consensus forecast of 75.6% while trending 4.6% below its long-term average.  This report revealed Industrial Production remains fragile while Capacity Utilization continues to be weak.

 

However, several reports on the housing sector revealed this area of the economy remains strong.

 

The National Association of Home Builders reported their October Housing Market Index, a measure of home builder sentiment, retreated a couple of points to 63 after hitting a decade high of 65 in September.   NAHB Chairman Ed Brady remarked “Even with this month’s drop, builder confidence stands at its second-highest level in 2016, a sign that the housing recovery continues to make solid progress.  However, builders in many markets continue to express concerns about shortages of lots and labor.”

 

The Commerce Department reported Housing Starts fell to their lowest level in 18 months at an annual rate of 1.047 million when the consensus forecast had estimated 1.168 million.  However, builders shifted their emphasis to building single-family homes from apartments as single-family housing starts rose 8.1% to an annual rate of 783,000, the highest in seven months.  Starts for buildings with five or more units fell 39%.  This emphasis on single-family construction is a sign of greater confidence in the economy.  There is now the largest number of single-family homes under construction since October 2008.

 

Moreover, the decline in Housing Starts was mostly offset by a strong showing in Building Permits suggesting a stronger rate of future construction.  Building Permits were reported at 1.255 million in September, a 6.3% monthly gain and the highest number since November.

201610241

Furthermore, the National Association of Realtors (NAR) reported Existing Home Sales increased 3.2% during September at a seasonally adjusted annual rate of 5.47 million, exceeding the consensus forecast of 5.30 million.  First-time home buyers led the surge in sales as this group accounted for 34% of all purchase transactions, the largest percentage of existing sales in four years.  The median sales price rose to $234,200 in September for a 5.6% year-over-year gain.  However, at the current sales rate existing housing inventory remains tight with just a 4.5 month supply of unsold homes.

201610242

 

As far as mortgages are concerned, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 14th showing the overall seasonally adjusted Market Composite Index increased 0.6%.  The seasonally adjusted Purchase Index rose 3.0% from the prior week, while the Refinance Index decreased 1.0%.  Overall, the refinance portion of mortgage activity decreased to 61.5% of total applications from 62.4% in the prior week.  The adjustable-rate mortgage share of activity accounted for 4.1% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.68% to 3.73% with points increasing to 0.36 from 0.35.

 

For the week, the FNMA 3.0% coupon bond gained 39.1 basis points to end at $103.38 while the 10-year Treasury yield decreased 6.8 basis points to end at 1.7364%.  Stocks ended the week higher with the Dow Jones Industrial Average gaining 7.33 points to end at 18,145.71.  The NASDAQ Composite Index added 43.24 points to close at 5,257.40, and the S&P 500 Index rose 8.18 points to close at 2,141.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.97%, the NASDAQ Composite Index has added 4.76%, and the S&P 500 Index has advanced 4.54%.

 

This past week, the national average 30-year mortgage rate decreased to 3.54% from 3.58% while the 15-year mortgage rate decreased to 2.85% from 2.89%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.91%.  FHA 30-year rates decreased to 3.35% from 3.40% and Jumbo 30-year rates decreased to 3.70% from 3.73%.

 

Economic Calendar – for the Week of October 24, 2016

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Oct 25 09:00 Case-Shiller 20-city Index Aug 5.1% 5.0%
Oct 25 09:00 FHFA Housing Price Index Aug NA 0.5%
Oct 25 10:00 Consumer Confidence Oct 100.8 104.1
Oct 26 07:00 MBA Mortgage Index 10/22 NA -0.6%
Oct 26 08:30 International Trade in Goods Sept NA -$58.4B
Oct 26 10:00 New Home Sales Sept 610,000 609,000
Oct 26 10:30 Crude Oil Inventories 10/22 NA -5.247M
Oct 27 08:30 Initial Jobless Claims 10/22 259,000 260,000
Oct 27 08:30 Continuing Jobless Claims 10/15 NA 2,057K
Oct 27 08:30 Durable Goods Orders Sept 0.0% 0.0%
Oct 27 08:30 Durable Goods Orders Excluding Transportation Sept 0.3% -0.4%
Oct 27 10:00 Pending Home Sales Sept 0.6% -2.4%
Oct 28 08:30 Advance 3rd Qtr. GDP Qtr. 3 2.5% 1.4%
Oct 28 08:30 Advance 3rd Qtr. Chain Deflator Qtr. 3 1.4% 2.3%
Oct 28 08:30 Employment Cost Index Qtr. 3 0.6% 0.6%
Oct 28 10:00 Final Univ. Michigan Consumer Sentiment Index Oct 88.2 87.9

 

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.38, +39.1 basis points) traded within a  45 basis point range between a weekly intraday high of $103.47 on Thursday and a weekly intraday low of $103.02 on Monday before closing the week at $103.38.

 

The bond bounced back above the 23.6% Fibonacci retracement level at $103.19 and this level reverts back to nearest technical support.  A tough triple layer of overhead resistance is found beginning with the 100-day moving average at $103.50 followed by the 25-day and 50-day moving averages at $103.54 and $103.60 respectively.  The slow stochastic oscillator suggests a further advance could take place this coming week into that ceiling of resistance, but it will be difficult for the bond to move above these levels unless there is a significant meltdown in the stock market.  A more likely scenario is the bond trading in a range between its nearest support and resistance levels with little resultant change in mortgage rates this coming week.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

201610243

 

 

 

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The stock and bond markets both struggled this past week.  Stocks fell for the second consecutive week as some encouraging domestic economic news was offset by a China Trade Balance report showing a 10% drop in exports and a 2% decline in imports during September.  This report renewed investor worries of a possible slowdown in global growth.  Also, the third quarter corporate earnings season got off to a disappointing start when Alcoa reported lower than expected revenue and profits in addition to softer earnings guidance.

 

Favorable economic news included continued strength in the job market with Weekly Jobless Claims falling to 246,000, a decline of 9,000 below the consensus forecast of 255,000 claims.  The underlying trend remains consistent with healthy labor market conditions as claims have now been below the 300,000 level for 84 consecutive weeks.  The four-week moving average of claims fell by 3,500 to 249,250 claims last week.  Furthermore, the Commerce Department reported Retail Sales were robust in September, rebounding from disappointing sales in August.  Retail Sales increased 0.6% in September while Retail Sales excluding autos increased 0.5%.  Both readings matched their respective consensus forecasts.  The Retail Sales numbers eased investor concerns over the current status of discretionary spending and its potential impact on 3rd quarter GDP.

 

The Wednesday release of the minutes from the Federal Reserve’s September FOMC meeting triggered some bond market volatility with the yield of the benchmark 10-year Treasury note rising to 1.80%, its highest level in four months.

 

The minutes showed “Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the committee expected.  It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.”  Among the participants who supported awaiting further evidence of continued progress toward the committee’s objectives, several stated that the decision at this meeting was a “close call.”  Based on the current prices of fed funds futures, the market is now pricing in a 64.3% chance of a rate increase by the Fed’s December 14 FOMC meeting.  The bond market was also hit with some selling pressure on Friday when Fed Chair Janet Yellen remarked in a speech that she was comfortable with the Fed “overshooting” their inflation target.

 

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending October 7th showing the overall seasonally adjusted Market Composite Index decreased 6.0%.  The seasonally adjusted Purchase Index fell 3.0% from the prior week, while the Refinance Index decreased 8.0%.  Overall, the refinance portion of mortgage activity decreased to 62.4% of total applications from 63.8% in the prior week.  The adjustable-rate mortgage share of activity decreased to 4.1% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.62% to 3.68% with points increasing to 0.35 from 0.32.

 

For the week, the FNMA 3.0% coupon bond lost 54.7 basis points to end at $102.98 while the 10-year Treasury yield increased 6.9 basis points to end at 1.8048%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 102.11 points to end at 18,138.38.  The NASDAQ Composite Index dropped 78.25 points to close at 5,214.16, and the S&P 500 Index lost 20.76 points to close at 2,132.98.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.93%, the NASDAQ Composite Index has added 3.97%, and the S&P 500 Index has advanced 4.17%.

 

This past week, the national average 30-year mortgage rate increased to 3.58% from 3.53% while the 15-year mortgage rate increased to 2.89% from 2.85%.  The 5/1 ARM mortgage rate rose to 2.91% from 2.90%.  FHA 30-year rates increased to 3.40% from 3.35% and Jumbo 30-year rates increased to 3.73% from 3.68%.

 

Economic Calendar – for the Week of October 17, 2016

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Oct 17 08:30 New York Empire State Manufacturing Index Oct 2.0 -2.0
Oct 17 09:15 Industrial Production Sept 0.2% -0.4%
Oct 17 09:15 Capacity Utilization Sept 75.6% 75.5%
Oct 18 04:00 Net Long-Term TIC Flows Aug 0.3% $103.9B
Oct 18 08:30 Consumer Price Index (CPI) Sept 0.2% 0.2%
Oct 18 08:30 Core CPI Sept 59.0 0.3%
Oct 18 10:00 NAHB Housing Market Index Oct NA 65
Oct 19 07:00 MBA Mortgage Index 10/15 NA NA
Oct 19 08:30 Housing Starts Sept 1,168K 1,142K
Oct 19 08:30 Building Permits Sept 1,164K 1,139K
Oct 19 10:30 Crude Oil Inventories 10/15 NA 4.900M
Oct 19 14:00 Fed’s Beige Book Oct NA NA
Oct 20 08:30 Initial Jobless Claims 10/15 249,000 246,000
Oct 20 08:30 Continuing Jobless Claims 10/08 NA 2,046K
Oct 20 08:30 Philadelphia Fed Manufacturing Index Oct 5.5 12.8
Oct 20 10:00 Existing Home Sales Sept 5.30 5.33M

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.98, -54.7 basis points) traded within a  53 basis point range between a weekly intraday high of $103.47 on Tuesday and a weekly intraday low of $102.94 on Friday before closing the week at $102.98.  The potential breakout pointed out in last week’s newsletter took place this week, and unfortunately it was a downward rather than an upward breakout despite the stock market losing ground.  The bond appears to be settling into a new trading range between technical resistance at its 23.6% Fibonacci retracement level and support at the 200-day moving average at $102.73.  A continuing move toward support this coming week will result in slightly higher mortgage rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

chart110172016

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Mortgage bond and U.S. Treasury prices finished the week close to where they began, although the yield curve steepened somewhat as shorter-term yields declined slightly.  Early in the week, Treasury yields increased, but then dropped when weaker economic data provided investors more assurance the Fed will not raise interest rates until their December 14 FOMC meeting.

 

Weaker economic data released during the week included Retail Sales falling 0.3% in August while Industrial Production for August showed a 0.4% decline as did manufacturing, which accounts for 80% of total industrial output.

 

Still, the Labor Department reported inflation edged higher at the consumer level with the August Consumer Price Index (CPI) rising 0.2% compared to the consensus forecast of a 0.1% gain.  Rising rents (+0.3%) and healthcare costs (+1.0%) were cited as reasons for the unexpected increase in the CPI.  On an annual basis through August, the CPI has increased 1.1%.  When excluding volatile food and energy costs, the so-called Core CPI increased 0.3%, the largest increase since February.  The consensus forecast had called for only a 0.2% increase in the Core CPI.  The Core CPI has now increased 2.3% during the past 12 months through August.

 

However, the financial markets have virtually rejected a rate increase next week as the Fed Funds Futures market is now showing the implied probability of a rate hike has only increased to 15.0% on Friday from 12.0% on Thursday.  Many economists now expect the Fed will hike interest rates by 25 basis points in December as the probability of a rate hike at the December FOMC meeting has increased to 45.4% from 39.6% on Thursday.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 10th showing the overall seasonally adjusted Market Composite Index increased 4.2%.  The seasonally adjusted Purchase Index rose 9.0% from the prior week, while the Refinance Index increased 2.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

 

For the week, the FNMA 3.0% coupon bond lost 3.1 basis points to end at $103.47 while the 10-year Treasury yield increased 1.94 basis points to end at 1.6943%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 38.35 points to end at 18,123.80.  The NASDAQ Composite Index gained 118.66 points to close at 5,244.57, and the S&P 500 Index rose 11.35 points to close at 2,139.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.86%, the NASDAQ Composite Index has added 4.52%, and the S&P 500 Index has advanced 4.45%.

 

This past week, the national average 30-year mortgage rate increased to 3.47% from 3.46% while the 15-year mortgage rate increased to 2.82% from 2.80%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.90%.  FHA 30-year rates increased to 3.30% from 3.25% and Jumbo 30-year rates increased to 3.62% from 3.60%.

 

Economic Calendar – for the Week of September 19, 2016

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Sept 19 10:00 NAHB Housing Market Index Sept 59 60
Sept 20 08:30 Housing Starts Aug 1,186K 1211K
Sept 20 08:30 Building Permits Aug 1,160K 1152K
Sept 21 07:00 MBA Mortgage Index 09/17 NA 4.2%
Sept 21 10:30 Crude Oil Inventories 09/17 NA -0.559M
Sept 21 14:00 FOMC Rate Decision Sept 0.375% 0.375%
Sept 22 08:30 Initial Jobless Claims 09/17 262,000 260,000
Sept 22 08:30 Continuing Jobless Claims 09/10 NA 2,143K
Sept 22 09:00 FHFA Housing Price Index July NA 0.2%
Sept 22 10:00 Existing Home Sales Aug 5.50M 5.39M

 

 

 

 

 

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.47, -3.1 basis points) traded within a narrower 56 basis point range between a weekly intraday high of $103.61 on Monday and a weekly intraday low of $103.05 on Tuesday before closing the week at $103.47.

 

The bond bounced higher off of support provided by the 100-day moving average at $103.23 and advanced toward overhead resistance located at the 25-day moving average at $103.64.  The slow stochastic oscillator is continuing to trend higher after showing a positive crossover buy signal this past Wednesday.  If stocks continue to show weakness this coming week, the bond should challenge resistance early in the week.  A break above resistance would result in a slight improvement in rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

chart092620151

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Mortgage bond and U.S. Treasury prices finished the week close to where they began, although the yield curve steepened somewhat as shorter-term yields declined slightly.  Early in the week, Treasury yields increased, but then dropped when weaker economic data provided investors more assurance the Fed will not raise interest rates until their December 14 FOMC meeting.

 

Weaker economic data released during the week included Retail Sales falling 0.3% in August while Industrial Production for August showed a 0.4% decline as did manufacturing, which accounts for 80% of total industrial output.

 

Still, the Labor Department reported inflation edged higher at the consumer level with the August Consumer Price Index (CPI) rising 0.2% compared to the consensus forecast of a 0.1% gain.  Rising rents (+0.3%) and healthcare costs (+1.0%) were cited as reasons for the unexpected increase in the CPI.  On an annual basis through August, the CPI has increased 1.1%.  When excluding volatile food and energy costs, the so-called Core CPI increased 0.3%, the largest increase since February.  The consensus forecast had called for only a 0.2% increase in the Core CPI.  The Core CPI has now increased 2.3% during the past 12 months through August.

 

However, the financial markets have virtually rejected a rate increase next week as the Fed Funds Futures market is now showing the implied probability of a rate hike has only increased to 15.0% on Friday from 12.0% on Thursday.  Many economists now expect the Fed will hike interest rates by 25 basis points in December as the probability of a rate hike at the December FOMC meeting has increased to 45.4% from 39.6% on Thursday.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 10th showing the overall seasonally adjusted Market Composite Index increased 4.2%.  The seasonally adjusted Purchase Index rose 9.0% from the prior week, while the Refinance Index increased 2.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

 

For the week, the FNMA 3.0% coupon bond lost 3.1 basis points to end at $103.47 while the 10-year Treasury yield increased 1.94 basis points to end at 1.6943%.  Stocks ended the week higher with the Dow Jones Industrial Average adding 38.35 points to end at 18,123.80.  The NASDAQ Composite Index gained 118.66 points to close at 5,244.57, and the S&P 500 Index rose 11.35 points to close at 2,139.16.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.86%, the NASDAQ Composite Index has added 4.52%, and the S&P 500 Index has advanced 4.45%.

 

This past week, the national average 30-year mortgage rate increased to 3.47% from 3.46% while the 15-year mortgage rate increased to 2.82% from 2.80%.  The 5/1 ARM mortgage rate fell to 2.86% from 2.90%.  FHA 30-year rates increased to 3.30% from 3.25% and Jumbo 30-year rates increased to 3.62% from 3.60%.

 

Economic Calendar – for the Week of September 19, 2016

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Sept 19 10:00 NAHB Housing Market Index Sept 59 60
Sept 20 08:30 Housing Starts Aug 1,186K 1211K
Sept 20 08:30 Building Permits Aug 1,160K 1152K
Sept 21 07:00 MBA Mortgage Index 09/17 NA 4.2%
Sept 21 10:30 Crude Oil Inventories 09/17 NA -0.559M
Sept 21 14:00 FOMC Rate Decision Sept 0.375% 0.375%
Sept 22 08:30 Initial Jobless Claims 09/17 262,000 260,000
Sept 22 08:30 Continuing Jobless Claims 09/10 NA 2,143K
Sept 22 09:00 FHFA Housing Price Index July NA 0.2%
Sept 22 10:00 Existing Home Sales Aug 5.50M 5.39M

 

 

 

 

 

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.47, -3.1 basis points) traded within a narrower 56 basis point range between a weekly intraday high of $103.61 on Monday and a weekly intraday low of $103.05 on Tuesday before closing the week at $103.47.

 

The bond bounced higher off of support provided by the 100-day moving average at $103.23 and advanced toward overhead resistance located at the 25-day moving average at $103.64.  The slow stochastic oscillator is continuing to trend higher after showing a positive crossover buy signal this past Wednesday.  If stocks continue to show weakness this coming week, the bond should challenge resistance early in the week.  A break above resistance would result in a slight improvement in rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 chart109192016

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Bond and stock prices saw an increase in volatility this past week, rising early in the week before plunging over Thursday and Friday.  Treasury yields jumped on expectations for higher rates. The yield on the 10-year Treasury note reached its highest level since June as prices fell.

 

A surprising contraction in the Institute for Supply Management’s (ISM) Services Index propelled both bond and stock prices higher on Tuesday as traders felt the disappointing report would make the Federal Reserve less likely to raise interest rates at its upcoming meeting on September 21.

 

The ISM reported their Services Index retreated to 51.4 in August from July’s reading of 55.5.  The August ISM Services Index was the lowest since February 2010.  Digging a little deeper into the report showed the Business Activity Index falling considerably lower to 51.8 in August from 59.3 in July.  The New Orders Index also fell substantially to 51.4 from 60.3 in July and the Employment Index slipped to 50.7 in August from 51.4 in July.  The services sector of the economy is becoming more important as over 80% of Americans are employed in service-oriented businesses.

 

Near the end of the week, the stock and bond markets were hit with selling following the European Central Bank’s (ECB) decision to maintain its zero interest rate policy while leaving its quantitative easing program at its current level.  The ECB left its deposit rate unchanged at -0.40%; its main refinance rate unchanged at 0.0%; the marginal lending rate unchanged at 0.25%; and its asset purchase program unchanged at 80 billion euros per month.  Traders were disappointed the ECB decided not to extend the program’s asset purchases beyond its March 2017 expiration date.

 

Also weighing heavily on investor sentiment were “hawkish” comments made by Boston Fed President and FOMC voting member Eric Rosengren, who is traditionally seen as a prominent Fed “dove.”  Rosengren said a rate hike may be necessary as a preventative measure so certain sectors of the economy won’t overheat.  Rosengren noted the labor market continues to “gradually tighten” and “the combination of the relatively strong domestic demand and the restocking of inventories should provide a basis for growth to exceed 2% over the next two quarters.”

 

Rosengren also said he would be in favor of gradual interest-rate hikes, saying waiting too long risks some asset markets, like commercial real estate, becoming “too ebullient.”  These comments coming from a Fed official normally seen as “dovish” increased the belief that the Fed seems determined on hiking interest rates even if the economic data continues to be inconsistent and not that supportive for a rate hike.  The 30-day Fed Funds futures prices are currently predicting the probability for a September 21 rate hike at 24.0%.

 

In housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending September 2nd showing the overall seasonally adjusted Market Composite Index increased 0.9%.  The seasonally adjusted Purchase Index rose 1.0% from the prior week, while the Refinance Index also increased 1.0%.  Overall, the refinance portion of mortgage activity increased to 64.0% of total applications from 63.5% in the prior week.  The adjustable-rate mortgage share of activity fell to 4.3% of total applications from 4.6% in the prior week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.67% to 3.68% with points increasing to 0.37 from 0.33.

 

For the week, the FNMA 3.0% coupon bond lost 12.5 basis points to end at $103.50 while the 10-year Treasury yield increased 6.74 basis points to end at 1.6749%.  Stocks ended the week lower with the Dow Jones Industrial Average losing 406.51 points to end at 18,085.45.  The NASDAQ Composite Index dropped 123.99 points to close at 5,125.91, and the S&P 500 Index lost 52.17 points to close at 2,127.81.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.65%, the NASDAQ Composite Index has added 2.31%, and the S&P 500 Index has advanced 3.94%.

 

This past week, the national average 30-year mortgage rate increased to 3.46% from 3.42% while the 15-year mortgage rate increased to 2.80% from 2.76%.  The 5/1 ARM mortgage rate rose to 2.90% from 2.85%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.60% from 3.53%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.50, -12.5 basis points) traded within a wider 63 basis point range between a weekly intraday high of $104.08 on Wednesday and a weekly intraday low of $103.45 on Friday before closing the week at $103.50.

 

A sell signal on Thursday from a three-day Evening Star candlestick pattern forecast market weakness on Friday and turned out to be accurate as the bond continued to decline, falling below a dual level of support provided by the 50-day and 25-day moving averages at $103.74 and $103.72 respectively.  These moving averages will now revert to overhead resistance levels.  The next level of support is found at the 38.2% Fibonacci retracement level at $103.15.  Also, the slow stochastic oscillator now shows a negative crossover sell signal suggesting further market weakness lies ahead.  If this signal proves to be reliable we could see a slight worsening in mortgage rates this week.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

09122016chasrt1

 

Economic Calendar – for the Week of September 5, 2016

 

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Sept 13 14:00 Treasury Budget Aug NA -$64.4B
Sept 14 07:00 MBA Mortgage Index 09/10 NA 0.9%
Sept 14 08:30 Export Prices excluding agriculture Aug NA 0.3%
Sept 14 08:30 Import Prices excluding oil Aug NA 0.3%
Sept 14 10:30 Crude Oil Inventories 09/10 NA -14.513M
Sept 15 08:30 Initial Jobless Claims 09/10 263,000 259,000
Sept 15 08:30 Continuing Jobless Claims 09/03 NA 2,144K
Sept 15 08:30 Retail Sales Aug -0.1% 0.0%
Sept 15 08:30 Retail Sales excluding automobiles Aug 0.3% -0.3%
Sept 15 08:30 Producer Price Index (PPI) Aug 0.1% -0.4%
Sept 15 08:30 Core PPI Aug 0.1% -0.3%
Sept 15 08:30 Philadelphia Fed Manufacturing Index Sept 0.0 2.0
Sept 15 08:30 Current Account Balance 2nd Qtr. -$122.8B -$124.7B
Sept 15 08:30 New York Empire State Manufacturing Index Sept 0.0 -4.2
Sept 15 09:15 Industrial Production Aug -0.3% 0.7%
Sept 15 09:15 Capacity Utilization Aug 75.7% 75.9%
Sept 15 10:00 Business Inventories July 0.1% 0.2%
Sept 16 08:30 Consumer Price Index (CPI) Aug 0.1% 0.0%
Sept 16 08:30 Core CPI Aug 0.2% 0.1%
Sept 16 10:00 Univ. of Michigan Consumer Sentiment Index Sept 91.5 89.8

 

 

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