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The major stock market indexes began the New Year’s holiday-shortened week in an optimistic fashion with the Dow Jones Industrial Average coming within a fraction of a point at 19,999.63 of the elusive 20,000 landmark on an intraday basis Friday before pulling back.  Meanwhile, the bond market managed to record minor gains in the face of the stock market’s advance.  The minutes from the Federal Reserve’s latest Federal Open Market Committee meeting helped to lift prices of intermediate and long-term Treasuries to send their yields lower during the week.  The minutes revealed Fed officials continue to stress the pace of future interest rate hikes would be “gradual,” and investors took this as a “dovish” sign.

 

Stock investors were encouraged by a combination of good economic news and future prospects of improving quarterly corporate earnings reports.  Better than forecast readings in manufacturing activity in Great Britain, China, and the U.S. on Tuesday set a positive tone for the stock market for the week.  The Institute of Supply Management’s Purchasing Managers’ Index (PMI) for December showed a healthy expansion in manufacturing activity with a reading of 54.7 compared to a forecast of 52.8 with the New Orders Index advancing by its largest margin in seven years.

 

Expectations for improved corporate earnings are also sustaining the stock market with data and analytics firm FactSet reporting earnings for corporations in the S&P 500 Index as a whole will increase about 3% year-over-year for the fourth quarter of 2016 while other analysts polled by the Wall Street Journal expect earnings to increase by 11% for the first quarter of 2017.

 

The week’s most significant economic news arrived on Friday with the release of the December Employment Situation Summary from the Department of Labor’s Bureau of Labor Statistics.  This report showed a headline jobs gain of 156,000 that missed the consensus forecast of 178,000, but November’s initially reported 178,000 jobs were upwardly revised to 204,000.  However, it was a larger than expected 0.4% month-over-month jump and 2.9% year-over-year increase in Hourly Earnings that triggered a year-on-year sharp sell-off in bonds on Friday.  The increase was the fastest pace of the recovery to date suggesting the Fed may have to hike interest rates quicker than anticipated to keep personal consumption expenditure (PCE) inflation close to its 2% target.

 

In housing, mortgage application data for the prior two weeks was released by the Mortgage Bankers Association (MBA) showing their overall seasonally adjusted Market Composite Index declined by 12.0%.  The seasonally adjusted Purchase Index decreased 2.0% from the prior week, while the Refinance Index plunged 22.0% for a 13.0% decline on a year-over-year basis.  Overall, the refinance portion of mortgage activity increased to 52.2% of total applications from 51.8%.  The adjustable-rate mortgage share of activity accounted for 5.4% 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 4.45% to 4.39% with points increasing to 0.43 from 0.39.

 

For the week, the FNMA 3.5% coupon bond gained 7.8 basis points to end at $102.52 while the 10-year Treasury yield fell 1.10 basis points to end at 2.421%.  Stocks ended the week higher with the Dow Jones Industrial Average gaining 201.20 points to end at 19,963.80.  The NASDAQ Composite Index added 137.94 points to close at 5,521.06, and the S&P 500 Index advanced 38.15 points to close at 2,276.98.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 1.01%, the NASDAQ Composite Index has added 2.50%, and the S&P 500 Index has advanced 1.68%.

 

This past week, the national average 30-year mortgage rate decreased to 4.15% from 4.21% while the 15-year mortgage rate decreased to 3.35% from 3.40%.  The 5/1 ARM mortgage rate fell to 3.02% from 3.05%.  FHA 30-year rates were unchanged at 3.75% and Jumbo 30-year rates decreased to 4.20% from 4.23%.

 

Economic Calendar – for the Week of January 9, 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
Jan 09 15:00 Consumer Credit Nov $18.0B $16.0B
Jan 10 10:00 JOLTS – Job Openings Nov NA 5.534M
Jan 10 10:00 Wholesale Inventories Nov 0.9% -0.4%
Jan 11 07:00 MBA Mortgage Applications Index 01/06 NA 0.1%
Jan 11 10:30 Crude Oil Inventories 01/06 NA -7.100M
Jan 12 08:30 Export Prices excluding agriculture Dec NA 0.2%
Jan 12 08:30 Import Prices excluding oil Dec NA -0.1%
Jan 12 08:30 Initial Jobless Claims 01/07 255,000 235,000
Jan 12 08:30 Continuing Jobless Claims 12/31 NA 2,112K
Jan 12 14:00 Treasury Budget Dec NA -$14.4B
Jan 13 08:30 Producer Price Index (PPI) Dec 0.3% 0.4%
Jan 13 08:30 Core PPI Dec 0.1% 0.4%
Jan 13 08:30 Retail Sales Dec 0.7% 0.1%
Jan 13 08:30 Retail Sales excluding automobiles Dec 0.6% 0.2%
Jan 13 10:00 Business Inventories Nov 0.6% -0.2%
Jan 13 10:00 Univ. of Michigan Consumer Sentiment Index Jan 98.5 98.2

 

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

 

 

Bond prices shot higher to break above resistance at the 61.8% Fibonacci retracement level at $102.79 on Thursday only to fall back below this level on Friday.  The FNMA 30-year 3.5% coupon bond ($102.52, +7.8 basis points) traded within a narrower 89 basis point range between a weekly intraday low of $102.03 on Tuesday and a weekly intraday high of $102.92 on Friday before closing the week at $102.52.  The chart is showing a Dark Cloud Cover candlestick pattern resulting from Friday’s price pull-back.  This is a reversal pattern suggesting prices will fall back toward support located at the 25-day moving average at $102.05 and the 76.4% Fibonacci retracement level at $102.07.  Should this expected price action take place, we could see a slight worsening in mortgage rates in the coming week.

 

 

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Jan 3, 2017

Weekly Review

 

The major stock market indexes posted moderate losses for the week and the psychological milestone of 20,000 for the Dow Jones Industrial Average remained elusive.  The indexes recorded the majority of their losses on Wednesday with the S&P 500 Index charting its largest drop since last October.  The selling in stocks was likely due to large institutional investors such as pension funds rebalancing their portfolios and locking in equity gains realized since the election.

 

Meanwhile, bond prices rose and yields fell following a surprisingly strong and robust $34 billion 5-year Treasury note auction that saw a high yield of 2.057% with a strong bid-to-cover ratio 2.72.  Indirect bidders (primarily foreign central banks) snapped up 71.4% of this supply while direct bidders (bond dealers, hedge funds, pension funds, mutual funds, insurers, banks, and individuals) bought 4.1% of the issue.  Bond prices also improved on news of an unexpected decline in Pending Home Sales.

 

Wednesday, the National Association of Realtors reported their Pending Home Sales Index fell to a 10-month low during November, falling 2.5% to 107.3.  Analysts had forecast the Index to increase 0.5% for the month.  The Index was also 0.4% lower than in November 2015.  This might be a sign that rising mortgage rates coupled with a shortage of home inventory available for sale could be weighing on the housing market.

 

However, home prices continue to remain strong.  According to the latest report from S&P CoreLogic Case-Shiller, home prices reached a new high, rising 5.6% in October.  The S&P/Case-Shiller U.S. National Home Price Index was also 5.6% higher in October from the prior year.  The Case-Shiller 20-City Composite Home Price Index increased 5.1% in October from the same time a year ago.

 

For the week, the FNMA 3.5% coupon bond gained 89.1 basis points to end at $102.42 while the 10-year Treasury yield fell 9.66 basis points to end at 2.446%.  Stocks ended the week lower with the Dow Jones Industrial Average falling 171.21 points to end at 19,762.60.  The NASDAQ Composite Index dropped 79.57 points to close at 5,383.12, and the S&P 500 Index lost 24.96 points to close at 2,238.83.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average (DJIA) has gained 11.83%, the NASDAQ Composite Index has added 6.98%, and the S&P 500 Index has advanced 8.70%.  When including dividends, the DJIA gained 13.4%, the NASDAQ Composite gained 7.5% and the S&P 500 gained 9.5% for the year.

 

This past week, the national average 30-year mortgage rate decreased to 4.21% from 4.33% while the 15-year mortgage rate decreased to 3.40% from 3.51%.  The 5/1 ARM mortgage rate fell to 3.05% from 3.15%.  FHA 30-year rates decreased to 3.75% from 3.85% and Jumbo 30-year rates decreased to 4.23% from 4.35%.

 

Economic Calendar – for the Week of December 26, 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
Jan 03 10:00 Construction Spending Nov 0.5% 0.5%
Jan 03 10:00 ISM Index Dec 53.6 53.2
Jan 04 07:00 MBA Mortgage Applications Index 12/31 NA 2.5%
Jan 04 14:00 FOMC Minutes Dec NA NA
Jan 05 07:30 Challenger Job Cuts Dec NA -13.0%
Jan 05 08:15 ADP Employment Change Dec 170,000 216,000
Jan 05 08:30 Initial Jobless Claims 12/31 265,000 265,000
Jan 05 08:30 Continuing Jobless Claims 12/24 NA 2,102K
Jan 05 10:00 ISM Services Index Dec 56.6 57.2
Jan 05 11:00 Crude Oil Inventories 12/30 NA 0.600M
Jan 06 08:30 Nonfarm Payrolls Dec 175,000 178,000
Jan 06 08:30 Nonfarm Private Payrolls Dec 170,000 156,000
Jan 06 08:30 Unemployment Rate Dec 4.7% 4.6%
Jan 06 08:30 Hourly Earnings Dec 0.3% -0.1%
Jan 06 08:30 Average Workweek Dec 34.4 34.4
Jan 06 08:30 Trade Balance Nov -$42.2B -$42.6B
Jan 06 10:00 Factory Orders Nov -2.1% 2.7%

 

Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

 

Bond prices shot higher and broke above two levels of resistance during the week.  The FNMA 30-year 3.5% coupon bond ($102.42, +89.1 basis points) traded within a wider 120 basis point range between a weekly intraday low of $101.30 on Tuesday and a weekly intraday high of $102.50 on Friday before closing the week at $102.42.  Trading volumes will get back toward normal levels during this coming week, and coupled with major economic news headlined by December’s Employment Situation Summary, we could see an increase in market volatility.  The chart is showing the bond is not yet “overbought” while in a favorable upward trend, so we could see a continuation higher toward the next resistance level at the 61.8% Fibonacci retracement level at $102.79.  As a result, we should see slightly lower mortgage rates in the coming week.

 

 

 

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This past week the major stock market indexes ended mixed for the week while bond prices plunged, with yields and interest rates rising.  The week’s most significant piece of economic news was the Federal Reserve’s decision to raise the target for the fed funds rate by 25 basis points to a range of 0.50 – 0.75%.

 

While this rate hike was widely anticipated, the financial markets were surprised by the Fed signaling their intention to raise rates an additional three times in 2017 which was higher than market expectations for only two rate hikes next year.  This forward guidance on interest rate hikes sent a strong hawkish signal to the bond market, sparking a sell-off in Treasuries and mortgage bonds while strengthening the U.S. dollar.  Selling in the 10-year Treasury note pushed yields to 2.599% on Friday to its highest level since September 2014 while the U.S. Dollar Index soared 1.3% to its highest mark since early 2003.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending December 9 showing the overall seasonally adjusted Market Composite Index fell 4.0%.  The seasonally adjusted Purchase Index declined 3.0% from the prior week, while the Refinance Index fell 4.0%.  Overall, the refinance portion of mortgage activity increased to 57.2% of total applications from 56.2%.  The adjustable-rate mortgage share of activity accounted for 6.2% 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 4.27% to 4.28% with points decreasing to 0.36 from 0.37.

 

In housing, the Commerce Department reported Housing Starts fell more than forecast in November, dropping 18.7% at a seasonally adjusted annual rate of 1.09 million versus a consensus forecast of 1.225 million.  However, the rate of Housing Starts in October was revised higher to 1.340 million from 1.323 million.

 

Meanwhile, Building Permits declined 4.7% at an annual rate of 1.201 million while the consensus forecast had predicted a decline of about 1.6% to a rate of 1.236 million.  October’s Building Permits were revised higher to an annual rate of 1.260 million from 1.229 million.

121920161

 

 

For the week, the FNMA 3.5% coupon bond lost 103.2 basis points to end at $101.11 while the 10-year Treasury yield increased 13.30 basis points to end at 2.599%.  Stocks ended the week mixed with the Dow Jones Industrial Average gaining 86.56 points to end at 19,843.41.  The NASDAQ Composite Index dropped 7.34 points to close at 5,437.16, and the S&P 500 Index lost 1.46 points to close at 2,258.07.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 12.19%, the NASDAQ Composite Index has added 7.90%, and the S&P 500 Index has advanced 9.48%.

 

This past week, the national average 30-year mortgage rate increased to 4.38% from 4.20% while the 15-year mortgage rate increased to 3.57% from 3.40%.  The 5/1 ARM mortgage rate rose to 3.25% from 3.06%.  FHA 30-year rates increased to 4.10% from 3.90% and Jumbo 30-year rates increased to 4.40% from 4.25%.

 

Economic Calendar – for the Week of December 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
Dec 21 07:00 MBA Mortgage Index 12/17 NA -4.0%
Dec 21 10:00 Existing Home Sales Nov 5.50M 5.60M
Dec 21 10:30 Crude Oil Inventories 12/17 NA -2.600M
Dec 22 08:30 3rd Estimate for 3rd Qtr. GDP Qtr.3 3.3% 3.2%
Dec 22 08:30 3rd Estimate for 3rd Qtr. GDP Deflator Qtr.3 1.4% 1.4%
Dec 22 08:30 Initial Jobless Claims 12/17 256K 254K
Dec 22 08:30 Continuing Jobless Claims 12/10 NA 2018K
Dec 22 08:30 Durable Goods Orders Nov -4.5% 4.8%
Dec 22 08:30 Durable Goods Orders Excluding Transportation Nov 0.2% 1.0%
Dec 22 09:00 FHFA Housing Price Index Oct NA 0.6%
Dec 22 10:00 Index of Leading Economic Indicators Nov 0.1% 0.1%
Dec 22 10:00 Personal Income Nov 0.3% 0.6%
Dec 22 10:00 Personal Spending Nov 0.4% 0.3%
Dec 22 10:00 Core PCE Price Index Nov 0.1% 0.1%
Dec 23 10:00 Final Univ. of Michigan Consumer Sentiment Index Dec 98.2 98.0
Dec 23 10:00 New Home Sales Nov 573K 563K

 

Mortgage Rate Forecast with Chart

 

FNMA 30-Year 3.5% Coupon Bond

121920162

 

 

Bond prices edged higher on Monday and Tuesday only to plunge on Wednesday and Thursday before recovering slightly on Friday. The FNMA 30-year 3.5% coupon bond ($101.11, -103.2 basis points) traded within a wider 160 basis point range between a weekly intraday high of $102.44 on Wednesday and a weekly intraday low of $100.84 on Thursday before closing the week at $101.11.  Friday the bond bounced marginally higher off of the 100% Fibonacci retracement support level located at $100.91.  Nearest overhead resistance is found at $101.36 while stronger resistance is located at the 76.4% Fibonacci retracement level at $102.07.

 

Overall, the bond chart shows significant technical damage has taken place since the end of September, and especially since stock prices have rocketed higher in response to the presidential election.  The black circles on the chart show multiple negative moving average crossovers.  Although these are “lagging indicators” they can be powerful sell signals.  The first negative crossover on October 24 shows the 25-day and 50-day moving averages crossing below the longer term 100-day moving average – a sell signal.  The second on December 12 shows the 100-day moving average crossing beneath the 200-day moving average, another sell signal.

 

The bond remains deeply “oversold” while stocks seem significantly “overpriced,” but it is difficult to predict when the “tables will be turned” with stock prices undergoing a correction or at least a consolidation while bonds undergo a relief rally.  To that end, there is a weak buy signal for the bond with a positive stochastic crossover taking place on Friday.  However, any bounce higher will be met by formidable technical resistance, and it will likely take a meaningful pull-back in stock prices to fuel a recovery in bond prices leading to lower yields and lower mortgage rates

 

 

 

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This past week the major stock market indexes traded to new all-time highs as investors became more optimistic about the incoming Trump administration’s plans for economic stimulus through deregulation, reduced corporate tax rates, and leveraged infrastructure spending.  The stock market may have also received a boost from traders who had taken short positions having to buy back borrowed stock to cover losing positions after the S&P 500 Index crossed above a key technical threshold at 2,225 on Wednesday.

 

For the bond market it was a different story.  The week’s economic data were, overall, supportive for investing in stocks over bonds, with positive readings for the November ISM Services Index (57.2), October Factory Orders (+2.7%), and the December Consumer Sentiment Index (98.0).

Moreover, the bond market was sent reeling after the European Central Bank (ECB) decision on Thursday to reduce the amount of monthly asset purchases from 80 billion euros to 60 billion euros after March 2017, to continue through December 2017.  The ECB also rejected a 12-month extension of asset purchases at the 60 billion euros per month rate because monetary policy “hawks” wanted only six months at that pace.  They ended up compromising on a nine month extension and this disappointed bond traders who were looking for a longer extension period.

 

In the realm of housing, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending December 2 showing the overall seasonally adjusted Market Composite Index fell 0.7%.  The seasonally adjusted Purchase Index rose 0.4% from the prior week, while the Refinance Index decreased 1.0%.  Overall, the refinance portion of mortgage activity increased to 56.2% of total applications from 55.1%.  The adjustable-rate mortgage share of activity accounted for 6.0% 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 4.23% to 4.27% with points decreasing to 0.37 from 0.41.

 

For the week, the FNMA 3.5% coupon bond lost 46.8 basis points to end at $ 102.14 while the 10-year Treasury yield increased 7.60 basis points to end at 2.47%.  Stocks ended the week significantly higher with the major indexes setting new all-time highs.  The Dow Jones Industrial Average gained 586.43 points to end at 19,756.85.  The NASDAQ Composite Index added 188.85 points to close at 5,444.50, and the S&P 500 Index rose 67.58 points to close at 2,259.53.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 11.80%, the NASDAQ Composite Index has added 8.03%, and the S&P 500 Index has advanced 9.54%.

 

This past week, the national average 30-year mortgage rate increased to 4.20% from 4.13% while the 15-year mortgage rate increased to 3.40% from 3.34%.  The 5/1 ARM mortgage rate rose to 3.06% from 3.03%.  FHA 30-year rates increased to 3.90% from 3.85% and Jumbo 30-year rates increased to 4.25% from 4.20%.

 

Economic Calendar – for the Week of December 12, 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
Dec 12 14:00 Treasury Budget Nov -$135.0B -$56.8B
Dec 13 08:30 Export Prices excluding agriculture Nov NA 0.2%
Dec 13 08:30 Import Prices excluding oil Nov NA -0.1%
Dec 14 07:00 MBA Mortgage Index 12/10 NA -0.7%
Dec 14 08:30 Retail Sales Nov 0.3% 0.8%
Dec 14 08:30 Retail Sales excluding automobiles Nov 0.4% 0.8%
Dec 14 08:30 Producer Price Index (PPI) Nov 0.1% 0.0%
Dec 14 08:30 Core PPI Nov 0.2% -0.2%
Dec 14 09:15 Industrial Production Nov -0.1% 0.0%
Dec 14 09:15 Capacity Utilization Nov 75.1% 75.3%
Dec 14 10:00 Business Inventories Oct -0.1% 0.1%
Dec 14 10:30 Crude Oil Inventories 12/10 NA -2.389M
Dec 14 14:00 FOMC Rate Decision Dec 0.625% 0.375%
Dec 15 08:30 Consumer Price Index (CPI) Nov 0.2% 0.4%
Dec 15 08:30 Core CPI Nov 0.2% 0.1%
Dec 15 08:30 Initial Jobless Claims 12/10 256,000 258,000
Dec 15 08:30 Continuing Jobless Claims 12/03 NA 2,005K
Dec 15 08:30 Philadelphia Fed  Manufacturing Index Dec 9.0 7.6
Dec 15 08:30 N.Y. Empire State Manufacturing Index Dec 3.0 1.5
Dec 15 08:30 3rd Quarter Current Account Balance Qtr. 3 -$111.6B -$119.9B
Dec 15 10:00 NAHB Housing Market Index Dec 63 63
Dec 15 16:00 Net Long-Term TIC Flows Oct NA -$26.2B
Dec 16 08:30 Housing Starts Nov 1,225K 1,323K
Dec 16 08:30 Building Permits Nov 1,236K 1,229K

 

Mortgage Rate Forecast with Chart

FNMA 30-Year 3.5% Coupon Bond

chart112122016

 

Bond prices swung higher Monday through Wednesday only to tumble lower on Thursday and Friday.  The FNMA 30-year 3.5% coupon bond ($102.14, -46.8 basis points) traded within a 77 basis point range between a weekly intraday high of $102.91 on Wednesday and a weekly intraday low of $102.14 on Friday before closing the week at $102.14.  Friday’s close was the week’s low price and right on the 100% Fibonacci retracement support level.  A close below this level this coming week may result in a continuation lower to the next support level at $101.36 – 78 basis points lower.  Should this happen, mortgage rates would move higher.

 

The bearish case for mortgage bonds is this.  The three-day candlestick pattern formed between Tuesday and Thursday was an “Evening Star” pattern and is considered to be a moderately powerful sell signal.  Furthermore, the slow stochastic oscillator is showing a negative stochastic crossover sell signal.

 

On a more bullish outlook for bonds, the stock market is “overbought” and susceptible to a correction which would help bond prices improve.  The catalyst for a move lower in stocks could arrive on Wednesday when the Federal Reserve will likely raise interest rates by 25 basis points.  Also, mortgage rates have historically tended to decline in the beginning of a rate increase cycle so we could see mortgage rates improve following the next rate hike.  Further, the bond closed right on support while in an “oversold” position so we could see a technical bounce higher off of the $102.14 support level and this would help stabilize rates.

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This past week there were numerous economic reports released to influence stock and bond traders highlighted by a somewhat disappointing November employment report.  Other influential reports included the second estimate of 3rd Quarter GDP; the October Personal Income and Spending report; and the Institute for Supply Management’s (ISM) Manufacturing Index for November.  These latter reports generally exceeded consensus forecasts to lend support for a Federal Reserve interest rate hike of 25 basis points at the Fed’s next FOMC meeting on December 14.  The current probability for a rate hike at this meeting based on the CME Group 30-Day Fed Fund futures prices is 97.2%.

 

The Labor Department’s November jobs report showed Nonfarm Payrolls missed the consensus forecast of 180,000 with a reading of 178,000.  Also, October’s initially reported 161,000 new jobs were downwardly revised to 142,000.  Nonfarm Private Payrolls came in at 156,000 to miss the consensus estimate of 170,000, and October’s number was downwardly revised to 135,000 from 142,000.

 

Average Hourly Earnings disappointed with a decline of 0.1% month-over-month to miss the consensus forecast calling for +0.2% growth.  The Unemployment Rate fell more than expected to 4.6% from 4.9%, but this was due to 450,000 people falling out of the labor force and not from the month-over-month gain of 160,000 additionally employed people.  The November labor force participation rate dropped slightly to 62.7% but remains near 40-year lows.  The number of people not in the labor force increased to 95.05 million, up from 94.6 million in October 2016, and 94.4 million in November 2015.

 

In housing, the S&P/Case-Shiller national home price index climbed to a record high of 184.80 in September to exceed the previous high of 184.62 set in July 2006 – the peak of the housing boom.

The 20-city Home Price Index increased by 5.1% year-over-year while the national index increased 5.5% year-over-year.

 

Further, the National Association of Realtors reported home buyers showed more caution in October as Pending Home Sales increased just 0.1% month-over-month when the consensus forecast had called for a 0.7% increase.  On a year-over-year basis, Pending Home Sales are 1.8% higher.

120520161

 

Elsewhere, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending November 25 showing the overall seasonally adjusted Market Composite Index fell 9.4%.  The seasonally adjusted Purchase Index fell 0.2% from the prior week, while the Refinance Index decreased 16.0%.  Overall, the refinance portion of mortgage activity fell to 55.1% of total applications from 58.2%.  The adjustable-rate mortgage share of activity accounted for 5.7% 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 4.16% to 4.23% with points increasing to 0.41 from 0.39.

 

For the week, the FNMA 3.5% coupon bond gained 14.0 basis points to end at $ 102.61 while the 10-year Treasury yield increased 3.32 basis points to end at 2.39%.  Stocks ended the week “mixed” with the Dow Jones Industrial Average gaining 18.28 points to end at 19,170.42.  The NASDAQ Composite Index fell 143.27 points to close at 5,255.65, and the S&P 500 Index lost 21.40 points to close at 2,191.95.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 9.10%, the NASDAQ Composite Index has added 4.72%, and the S&P 500 Index has advanced 6.75%.

 

This past week, the national average 30-year mortgage rate decreased to 4.13% from 4.19% while the 15-year mortgage rate decreased to 3.34% from 3.39%.  The 5/1 ARM mortgage rate fell to 3.03% from 3.06%.  FHA 30-year rates increased to 3.85% from 3.80% and Jumbo 30-year rates decreased to 4.20% from 4.25%.

 

Economic Calendar – for the Week of December 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
Dec 05 10:00 ISM Services Index Nov 55.6 54.8
Dec 06 08:30 Revised 3rd Quarter Productivity Qtr. 3 3.3% 3.1%
Dec 06 08:30 Revised 3rd Unit Labor Costs Qtr. 3 0.2% 0.3%
Dec 06 08:30 Balance of Trade Oct -$41.8B -$36.4B
Dec 06 10:00 Factory Orders Oct 2.5% 0.3%
Dec 07 07:00 MBA Mortgage Index 12/03 NA -9.4%
Dec 07 10:00 JOLTS – Job Openings Oct NA 5.486M
Dec 07 10:30 Crude Oil Inventories 12/03 NA -0.884M
Dec 07 15:00 Consumer Credit Oct $18.7B $19.3B
Dec 08 08:30 Initial Jobless Claims 12/03 255K 268K
Dec 08 08:30 Continuing Jobless Claims 11/26 NA 2081K
Dec 08 10:30 Natural Gas Inventories 12/03 NA NA
Dec 09 10:00 Univ. of Michigan Consumer Sentiment Index Dec 94.3 93.8
Dec 09 10:00 Wholesale Inventories Oct -0.4% 0.1%

 

Mortgage Rate Forecast with Chart

FNMA 30-Year 3.5% Coupon Bond

120520162

 

It was a fairly volatile week for bond prices characterized by choppy, up and down trading.  The FNMA 30-year 3.5% coupon bond ($102.61, +14.0 basis points) traded within a  wide 112 basis point range between a weekly intraday high of $103.09 on Tuesday and a weekly intraday low of $101.97 on Thursday before closing the week at $102.61.

 

Thursday’s “Hammer” candlestick signaled a possible reversal on Friday, and the bond did bounce higher to move about mid-way within a wide trading range between the 100% Fibonacci retracement support level ($102.14) and the 76.4% Fibonacci retracement resistance level.  If the stock market loses some of its luster this coming week, we should see bond prices rise toward resistance resulting in a slight improvement in mortgage rates

 

 

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Strong jobs report

Dec 2, 2016

jobs-report-12-2-2016

 

 

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This past week the stock market advanced for the third consecutive week with all of the major indexes reaching a series of new highs while the bond market continued lower with yields rising.

In fact, this past Monday, the stock market achieved a “superfecta” for the first time in 17 years with the Dow Jones Industrial Average, S&P 500, Nasdaq Composite, and small-cap Russell 2000 Indexes all setting new records.  Wednesday, market participants interpreted comments released in the minutes from the Federal Reserve’s last monetary policy meeting as an affirmation that a rate hike was coming when the Fed next meets on December 14 and bond prices fell in response.

 

Overall, the week’s economic reports were regarded as favorable led by a solid 4.8% or $11.0 billion increase in October Durable Goods Orders to $239.4 billion. On a year-over-year basis, Durable Goods increased 2.1% in October compared to 1.6% in September.

 

Housing market data was more mixed while still showing strength as sales of existing homes in October reached their highest level since early 2007 while new home sales unexpectedly declined.

The National Association of Realtors reported Existing Sales increased by 2.0% at a seasonally adjusted annual rate of 5.60 million, exceeding the consensus forecast of 5.40 million.  Homes continued to appreciate with the median existing home price for all housing categories increasing 6.0% year-over-year to $232,200 while the median existing single family home price surged 5.9% to $233,700.  Housing inventories remain tight with total housing inventory declining 0.5% to 2.02 million, and this helps to elevate home prices.  At the current sales pace, unsold inventory is at a 4.3 month supply and is lower than the 4.5 month supply in September and 4.6 month supply in August.  First-time buyers comprised 33.0% of sales, down slightly from 34.0% in September, but higher than the 31.0% from a year ago.

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Going forward, rising mortgage rates may negatively impact potential home buyers.  The stock market rally since the presidential election has been enticing investors away from the relative safety of U.S. Treasuries and has driven yields higher.  When the rally falters, as all rallies do, investing in the opposite direction should occur to help stabilize or lower rates.  Although rates have risen over the past two weeks, they remain well below the historical average.

 

Meanwhile, the Commerce Department reported New Home Sales rose 1.9% during October to a seasonally adjusted annual rate of 563,000 from a downwardly revised September pace of 574,000.  October’s reading was lower than the consensus forecast of 587,000.  The median sales price increased 1.9% from a year ago to $304,500 while the average sales price fell 3.3% to $354,900.  Inventory increased slightly to a 5.2 month supply of new homes at October’s sales rate compared to a 5.0 month supply in September and 5.1 month supply in August.

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Furthermore, The Federal Housing Finance Agency (FHFA) reported home prices increased 0.6% in September after having risen 0.7% in August.  The inflation-adjusted home price has advanced 6.1% when compared to the third quarter of 2015.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending November 18 showing the overall seasonally adjusted Market Composite Index rose 5.5%.  The seasonally adjusted Purchase Index jumped +19.0% from the prior week, while the Refinance Index decreased 3.0%.  Overall, the refinance portion of mortgage activity fell to 58.2% of total applications from 61.9%.  The adjustable-rate mortgage share of activity accounted for 5.2% 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 3.95% to 4.16% with points unchanged at 0.39.

 

For the week, the FNMA 3.5% coupon bond fell 26.5 basis points to end at $ 102.47 while the 10-year Treasury yield increased 1.14 basis points to end at 2.359%.  Stocks ended the week higher with the Dow Jones Industrial Average gaining 284.21 points to end at 19,152.14.  The NASDAQ Composite Index rose 77.41 points to close at 5,398.92, and the S&P 500 Index added 31.45 points to close at 2,213.35.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 9.02%, the NASDAQ Composite Index has added 7.25%, and the S&P 500 Index has advanced 7.65%.

 

This past week, the national average 30-year mortgage rate increased to 4.19% from 4.12% while the 15-year mortgage rate increased to 3.39% from 3.35%.  The 5/1 ARM mortgage rate rose to 3.06% from 3.05%.  FHA 30-year rates increased to 3.80% from 3.75% and Jumbo 30-year rates increased to 4.25% from 4.22%.

 

Economic Calendar – for the Week of November 28, 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 29 08:30 2nd Estimate 3rd Qtr. GDP Qtr. 3 3.0% 2.9%
Nov 29 08:30 2nd Estimate 3rd Qtr. GDP Deflator Qtr. 3 1.5% 1.5%
Nov 29 09:00 Case-Shiller 20-city Index Sep 5.2% 5.1%
Nov 29 10:00 Consumer Confidence Index Nov 100.0 98.6
Nov 30 07:00 MBA Mortgage Index 11/26 NA -5.5%
Nov 30 08:15 ADP Employment Change Nov 160K 147K
Nov 30 08:30 Personal Income Oct 0.4% 0.3%
Nov 30 08:30 Personal Spending Oct 0.5% 0.5%
Nov 30 08:30 Core PCE Price Index Oct 0.1% 0.1%
Nov 30 09:45 Chicago Purchasing Managers Index Nov 52.0 50.6
Nov 30 10:00 Pending Home Sales Oct +0.7% 1.5%
Nov 30 10:30 Crude Oil Inventories 11/26 NA -1.255M
Nov 30 14:00 Fed’s Beige Book Nov NA NA
Dec 01 07:30 Challenger Job Cuts Nov NA -24.7%
Dec 01 08:30 Initial Jobless Claims 11/26 253K 251K
Dec 01 08:30 Continuing Jobless Claims 11/19 NA 2043K
Dec 01 10:00 Construction Spending Oct 0.6% -0.4%
Dec 01 10:00 ISM Index Nov 52.1 51.9
Dec 02 08:30 Nonfarm Payrolls Nov 180K 161K
Dec 02 08:30 Nonfarm Private Payrolls Nov 170K 142K
Dec 02 08:30 Hourly Earnings Nov +0.2% 0.4%
Dec 02 08:30 Unemployment Rate Nov 4.9% 4.9%
Dec 02 08:30 Average Workweek Nov 34.4 34.4

 

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($102.47, -26.5 basis points) traded within a  wide 93 basis point range between a weekly intraday high of $103.59 on Thursday and a weekly intraday low of $102.66 on Friday before closing the week at $102.73.

 

The bond appears to be range-bound between nearest support at the 100% Fibonacci retracement level at $102.14 and resistance at the 76.4% Fibonacci retracement level at $103.02.  Friday’s reduced trading hours and resulting Doji candlestick indicated a lack of conviction among traders, however there is a 56% chance (almost a coin flip) that Friday’s candlestick with its downward gap signals an upward reversal even though in theory this pattern is supposed to be a bearish continuation.  Hopefully, we will see bond prices and interest rates show signs of stabilizing this coming week.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

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Weekly Rate Update

Nov 21, 2016

This past week the stock market continued to advance while bond prices fell with rising yields as investors anticipate a Trump presidency will result in faster economic growth, stronger corporate earnings growth, and higher inflation.

 

This outlook to a certain extent was validated on Thursday when Federal Reserve Chair Janet Yellen testified before the Joint Economic Committee of Congress appearing to confirm recent economic data have been strong enough to persuade the Fed to raise interest rates during its December 13–14 FOMC meeting.  Yellen said the Fed could raise interest rates “relatively soon if economic data keeps pointing to an improving labor market and rising inflation.”  Yellen said the case for a rate hike had strengthened with the economy appearing on track to grow moderately, which would help bring about full employment and push inflation higher toward the Fed’s 2% target.  The Fed Funds futures market is currently pricing in a 95.6% probability for a rate hike of 25 basis points.

 

The week’s economic news was mostly positive.  October Retail Sales highlighted continuing strength in the U.S. economy with a reading of 0.8% versus a consensus estimate of 0.6%.  When excluding automobiles, Retail Sales still climbed 0.8% compared to a forecast of 0.5%.  In the area of manufacturing, the Federal Reserve Bank of New York reported its Empire State Manufacturing Index showed some expansion with a reading of 1.5 for November that was above the consensus forecast of -0.5 and notably higher than October’s -6.8 reading.

 

Inflation data was mixed.  The Department of Labor reported inflation at the producer or wholesale level was non-existent in October as the Producer Price Index (PPI) for final demand was flat at 0.0%.  Furthermore, the so called Core PPI, which excludes the volatile categories of food and energy, declined by 0.2% when the forecast had called for a gain of 0.2%.  Meanwhile, inflation at the consumer level as measured by the Consumer Price Index (CPI) increased 0.4% in October following a 0.3% rise in September.  On a year-over-year basis the CPI has risen 1.6%, the largest such increase since October 2014.  However, the Core CPI, which strips out food and energy costs, only advanced 0.1% last month to match September’s gain.  As a result, the year-on-year increase in the Core CPI fell to 2.1% from a 2.2% gain in September.

 

Housing data remains strong.  The National Association of Home Builders (NAHB) reported their Housing Market Index was unchanged for November, matching October’s level of 63.  This was close to the consensus forecast of 64.  The current sales index was unchanged at 69, while the buyer traffic index edged higher to 47 from 46.  However, the index for sales expectations in six months slipped slightly to 69 from 71.

 

Furthermore, the Commerce Department reported Housing Starts surged to a nine year high in October as homebuilders broke ground at a seasonally adjusted annual pace of 1.32 million units, a 25.5% increase, and the highest level since August 2007.  October Starts easily beat the consensus forecast of 1.178 million units and were led by a 75% surge in multifamily units.  Further, Housing Permits for new construction were reported higher than forecast with a 0.3% gain, an annual rate of 1.23 million.  Permits indicate the strength of future demand and are currently running about 5% above year-ago levels.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending November 11 showing the overall seasonally adjusted Market Composite Index fell 9.2%.  The seasonally adjusted Purchase Index fell 6.0% from the prior week, while the Refinance Index decreased 11.0%.  Overall, the refinance portion of mortgage activity fell to 61.9% of total applications from 62.3%.  The adjustable-rate mortgage share of activity accounted for 4.7% 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 3.625% to 4.00% with points increasing to 0.39 from 0.38.

 

For the week, the FNMA 3.5% coupon bond plunged 106.3 basis points to end at $ 102.734 while the 10-year Treasury yield increased 56.96 basis points to end at 2.3476%.  Stocks ended the week higher with the Dow Jones Industrial Average gaining 50.12 points to end at 18,867.93.  The NASDAQ Composite Index rose 86.59 points to close at 5,321.51, and the S&P 500 Index added 17.28 points to close at 2,181.90.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 7.65%, the NASDAQ Composite Index has added 5.90%, and the S&P 500 Index has advanced 6.32%.

 

This past week, the national average 30-year mortgage rate increased to 4.12% from 3.87% while the 15-year mortgage rate increased to 3.35% from 3.13%.  The 5/1 ARM mortgage rate rose to 3.05% from 2.92%.  FHA 30-year rates increased to 3.75% from 3.62% and Jumbo 30-year rates increased to 4.22% from 4.00%.

 

Economic Calendar – for the Week of November 21, 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 22 10:00 Existing Home Sales Oct 5.40M 5.47M
Nov 23 07:00 MBA Mortgage Index 11/19 NA -9.2%
Nov 23 08:30 Initial Jobless Claims 11/19 243,000 235,000
Nov 23 08:30 Continuing Jobless Claims 11/12 NA 1,977K
Nov 23 08:30 Durable Goods Orders Oct 1.1% -0.1%
Nov 23 08:30 Durable Goods Orders Excluding Transportation Oct 0.3% 0.2%
Nov 23 09:00 FHFA Housing Price Index Sep NA 0.7%
Nov 23 10:00 New Home Sales Oct 587,000 593,000
Nov 23 10:00 Final Univ. of Michigan Consumer Sentiment Index Nov 91.6 91.6
Nov 23 10:30 Crude Oil Inventories 11/19 NA 5.274M
Nov 23 14:00 FOMC Minutes Nov 2 NA NA
Nov 25 08:30 International Trade in Goods Oct NA -$56.1B
Nov 25 08:30 Advance Wholesale Inventories Oct 0.2% +0.2%

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($102.73, -106.3 basis points) traded within a  wide 93 basis point range between a weekly intraday high of $103.59 on Thursday and a weekly intraday low of $102.66 on Friday before closing the week at $102.73.

 

The bond fell below closest support following a rally attempt earlier in the week to challenge the next level at the 100.0% Fibonacci retracement level located at $102.72.  Resistance is located at the 76.4% Fibonacci retracement level at $103.46.  The slow stochastic oscillator is now showing a negative crossover sell signal while remaining significantly “oversold.”  If support at $102.72 fails to hold, mortgage rates would likely continue to worsen as the next support level is found at $102.14.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

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