The stock market resumed its bullish ways to end the week higher on firming oil prices and softer than anticipated inflation news.  The feeble inflation data coupled with disappointing economic news also helped to push Treasury prices higher and yields lower for the week.

 

Retail Sales for June fell for the second straight month, coming in below expectations at -0.2%. Economists had forecast June sales growth of 0.1%.  This weaker consumer spending will also have a negative influence on upcoming GDP models for the second quarter.  The Atlanta Fed’s GDPNow model forecast moved lower on Friday to 2.4% from 2.6% on Tuesday following the Retail Sales report.  Consumer sentiment is also sliding lower with the preliminary July reading of the University of Michigan’s Consumer Sentiment Index falling to 93.1 when analysts were expecting 95.1.

 

Core inflation at both the producer and consumer levels was reported below consensus forecasts at 0.1%.  Economists had expected core inflation at 0.2% for both.  This may cause the Federal Reserve to think twice about raising interest rates in December when Fed watchers next expect a rate hike.  In fact, Fed Chair Janet Yellen during her Wednesday testimony before the House Financial Services Committee referred to the recent weakness seen in inflation data by stating “monetary policy is not on a preset course” and “the Committee will be monitoring inflation developments closely in the months ahead.”  Also, Dallas Fed President and FOMC voting member Robert Kaplan stated he wants “greater evidence” of rising inflation before hiking rates again.

 

There were no economic reports from the housing sector other than the latest mortgage application data.  Application volume decreased during the week ending July 7.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 7.4%.  The seasonally adjusted Purchase Index decreased 3.0% from the prior week while the Refinance Index decreased 13% to its lowest level since last January.

 

Overall, the refinance portion of mortgage activity decreased to 42.1% of total applications from 44.9% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.7% of total applications from 7.2%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.22% from 4.20% with points increasing to 0.40 from 0.31.

 

For the week, the FNMA 3.5% coupon bond gained 21.9 basis points to close at $102.63.  The 10-year Treasury yield decreased 5.37 basis points to end at 2.3319%.  Stocks ended the week moderately higher.

 

The Dow Jones Industrial Average rose 223.40 points to close at 21,637.74.  The NASDAQ Composite Index advanced 159.39 points to close at 6,312.47 and the S&P 500 Index gained 34.09 points to close at 2,459.27.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 9.49%, the NASDAQ Composite Index has advanced 17.26%, and the S&P 500 Index has risen 9.85%.

 

This past week, the national average 30-year mortgage rate fell to 4.06% from 4.13%; the 15-year mortgage rate decreased to 3.34% from 3.38%; the 5/1 ARM mortgage rate increased to 3.22% from 3.20%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates decreased to 4.35% from 4.40%.

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Jobs Report

Jul 7, 2017

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The stock market traded in a rather subdued fashion on Tuesday and Wednesday in a holiday shortened week before jumping higher on Thursday and Friday.  Stocks advanced Thursday following news the U.S. is pulling out of the Paris Climate Accord that was seen as having a destructive impact on the U.S. economy while bond prices modestly declined.  On Friday, both stocks and bonds reacted positively to the May Employment Situation Summary (jobs report).  The Goldilocks report was not too “hot” and not too “cold” – it was just right enough to pacify the bears.

 

While the headline nonfarm payrolls number was reported at 138,000, it easily missed the consensus forecast of 185,000 as did nonfarm private payrolls at 147,000 versus 172,000 expected.  Furthermore, each of the last two monthly job gains were downwardly revised with March’s payroll growth losing 29,000 while April’s gains dropped by 37,000 jobs.  Average hourly earnings also missed the consensus forecast with a 0.2% increase versus expectations of 0.3%.

 

The one encouraging piece of data was the unemployment rate falling to a 16-year low of 4.3%.  Also, the underemployment rate, which adds those who are working part-time but would prefer full-time work, fell to 8.4% from April’s reading of 8.6%.  Gary Cohn, President Trump’s chief economic advisor, has stated in recent months that the administration is concentrating on bringing the underemployment rate lower.

 

There were no housing reports released during the week other than the latest mortgage data.

Mortgage application volume declined during the week ending May 26.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 3.4%.  The seasonally adjusted Purchase Index dropped 1.0% from the prior week, while the Refinance Index decreased 6.0%.

 

Overall, the refinance portion of mortgage activity decreased to 43.2% total applications from 43.9% from the prior week.  The adjustable-rate mortgage share of activity decreased to 7.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 4.17% with points decreasing to 0.32 from 0.39.

 

For the week, the FNMA 3.5% coupon bond gained 31.2 basis points to close at $103.38 while the 10-year Treasury yield decreased 9.09 basis points to end at 2.159%.  Stocks ended the week higher.

 

The Dow Jones Industrial Average added 126.01 points to end at 21,206.29.  The NASDAQ Composite Index advanced 95.61 points to close at 6,305.80 and the S&P 500 Index gained 23.25 points to close at 2,439.07.

 

Year to date on a total return basis, the Dow Jones Industrial Average has gained 7.31%, the NASDAQ Composite Index has advanced 17.14%, and the S&P 500 Index has risen 8.94%.

 

This past week, the national average 30-year mortgage rate fell to 3.98% from 4.02%; the 15-year mortgage rate declined to 3.24% from 3.28%; the 5/1 ARM mortgage rate dropped to 3.04% from 3.09%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates decreased to 4.27% from 4.30%.

 

Economic Calendar – for the Week of June 5, 2017

 

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
Jun 05 08:30 Revised 1st Quarter Productivity Qtr. 1 -0.2% -0.6%
Jun 05 08:30 Revised 1st Quarter Unit Labor Costs Qtr. 1 2.4% 3.0%
Jun 05 10:00 Factory Orders Apr -0.2% 0.2%
Jun 05 10:00 ISM Services Index May 57.0 57.5
Jun 06 10:00 JOLTS Job Openings Apr NA 5.743M
Jun 07 07:00 MBA Mortgage Applications Index 06/03 NA -3.4%
Jun 07 10:30 Crude Oil Inventories 06/03 NA -6.43M
Jun 07 15:00 Consumer Credit Apr $15.0B $16.4B
Jun 08 08:30 Initial Jobless Claims 06/03 240,000 248,000
Jun 08 08:30 Continuing Jobless Claims 05/27 NA 1,915K
Jun 09 10:00 Wholesale Inventories Apr -0.1% 0.2%

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.38, +31.2 bp) traded within a narrow 47 basis point range between a weekly intraday high of $103.47 on Friday and a weekly intraday low of $103.00 on Thursday before closing the week at $103.38.

 

The bond moved only eight basis points higher from Tuesday through Thursday until jumping 24 basis points higher on Friday following a rather benign May Situation Summary (Jobs Report).  Friday’s trading powered the bond above a tough dual layer of overhead resistance at the 200-day moving average (103.24) and prior resistance at 103.297.  These levels should serve as nearest technical support.  If these support levels can manage to hold in the coming week, the bond could take out resistance at Friday’s intraday high of 103.469.  Further resistance lies considerably higher at the 23.6% Fibonacci retracement level at 103.967.  However, further movement to the upside will be difficult as the slow stochastic oscillator is at an extreme level suggesting a pending pullback in upward momentum.  Mortgage rates should hold fairly steady in the coming week.

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Jobs Report

Jun 2, 2017

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The stock and bond markets traded relatively flat for the week.  The major stock indexes ended “mixed” with the Dow Jones Industrial Average and S&P 500 edging lower while the NASDAQ Composite Index reached another new high before recording a 20 point weekly gain.  Mortgage bonds gained a few basis points while most mortgage rates ended the week unchanged from the prior week.

 

Political turmoil generated by scheming democrats aided by a colluding mainstream media over President Trump’s firing of FBI Director James Comey appeared to have weighed on investor sentiment.  The generated political storm raised uncertainty about the ability of the president to build a consensus to pass market-friendly legislation including meaningful tax reform.  Ongoing tensions from North Korea also hindered the stock market after the North Korean ambassador to the UN voiced new threats directed at the U.S. on Tuesday.

 

The week’s economic news was also mixed.  Weekly Initial Jobless Claims were reported below consensus estimates and near four-decade lows, while continuing claims hit their lowest level since 1988. April Retail Sales disappointed with a less than expected increase of 0.4% versus a 0.6% forecast.  Inflation as measured by the Consumer Price Index (CPI) was benign with a gain of 0.2% while the Core CPI, which excludes food and energy, gained only 0.1% when the consensus forecast was for a reading of 0.2%.  On a year-over-year basis, total CPI is up 2.2% while the Core CPI has risen 1.9%.  Chicago Fed President Charles Evans remarked after the CPI report that he expects one or two additional rate hikes this year with the actual number depending on the level of inflation.  The June FOMC meeting on June 14 still looks like the date for the next rate hike.  The Fed funds futures market currently shows an implied probability of 78.5% for a hike.

 

As for mortgages, mortgage application volume increased during the week ending May 5.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 2.4%.  The seasonally adjusted Purchase Index increased 2.0% from the prior week, while the Refinance Index increased 3.0%.  Overall, the refinance portion of mortgage activity increased to 41.9% total applications from 41.6% from the prior week.  The adjustable-rate mortgage share of activity decreased to 8.2% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance was unchanged at 4.23% with points decreasing to 0.31 from 0.32.

 

For the week, the FNMA 3.5% coupon bond gained 3.1 basis points to close at $102.63 while the 10-year Treasury yield decreased 2.48 basis points to end at 2.3257%.  Stocks ended the week mixed.  The Dow Jones Industrial Average fell 110.33 points to end at 20,896.61.  The NASDAQ Composite Index gained 20.47 points to close at 6,121.23 and the S&P 500 Index lost 8.39 points to close at 2,390.39.  Year to date, the Dow Jones Industrial Average has gained 5.74%, the NASDAQ Composite Index has advanced 13.71%, and the S&P 500 Index has risen 6.79%.

 

This past week, the national average 30-year mortgage rate held steady at 4.09%; the 15-year mortgage rate was unchanged at 3.34%; the 5/1 ARM mortgage rate edged lower to 3.07% from 3.08%; and the FHA 30-year rate was unchanged at 3.85%.  Jumbo 30-year rates were also unchanged at 4.36%.

 

Economic Calendar – for the Week of May 15, 2017

 

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
May 15 08:30 NY Empire State Manufacturing Index May 7.5 5.2
May 15 16:00 Net Long-Term TIC Flows May NA $53.4B
May 16 08:30 Housing Starts Apr 1,255K 1,215K
May 16 08:30 Building Permits Apr 1,270K 1,260K
May 16 09:15 Industrial Production Apr 0.3% 0.5%
May 16 09:15 Capacity Utilization Apr 76.2% 76.1%
May 17 07:00 MBA Mortgage Applications Index 05/13 NA 2.4%
May 17 10:30 Crude Oil Inventories 05/13 NA NA
May 18 08:30 Initial Jobless Claims 05/13 240,000 236,000
May 18 08:30 Continuing Jobless Claims 05/06 NA 1,918K
May 18 08:30 Philadelphia Fed Manufacturing Index May 18.5 22.0
May 18 10:00 Index of Leading Economic Indicators Apr 0.4% 0.4%

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.63, +3.1 bp) traded within a 66 basis point range between a weekly intraday high of $102.72 on Monday and a weekly intraday low of $102.06 on Thursday before closing the week at $102.63.  Mortgage bonds traded down for a test of support for most of the week before strongly springing back on Friday.  Friday’s rebound triggered a new buy signal from a positive stochastic crossover from an “oversold” position.  The bond should continue higher for a test of formidable resistance at the 25-day moving average at $102.67 and the 38.2% Fibonacci retracement level at $102.81.  The bond will have to break above these levels in order for us to see a meaningful improvement in mortgage rates.  If the bond is turned away from resistance, rates should remain close to present levels.

 

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May 1, 2017

The stock market continued to march ever higher, especially early in the week when both the small-cap Russell 2000 and the technology-laden Nasdaq Composite Indexes reached record highs.  In fact, the Nasdaq Composite broke above the 6,000 mark for the first time ever.  Investor sentiment was enhanced in response to the election results in France when pro-European Union globalist Emmanuel Macron received more votes than anti- European Union nationalist Marine Le Pen during the first round of presidential elections.  The two candidates will now square off in a runoff election on May 7.

 

However, other political developments both here and abroad managed to keep investors wary.  President Trump’s proposal for meaningful tax reform, threats to pull out of NAFTA, a revised plan repeal and replace Obamacare (The Affordable Care Act), and escalating tensions between the U.S. and North Korea over the North Korean’s ballistic missile testing all combined to impact investor sentiment.

 

Bond yields crept higher as talk of potential tax cuts negatively impacted Treasury prices early in the week.  The yield on the 10-year Treasury reached its highest level in over two weeks on Wednesday, before pulling back as investors contemplated the possibility of a potential government shutdown.

 

In housing, the spring home selling season got off to a great beginning as New Home Sales soared to an 8-month high in March.  The Commerce Department reported New Home Sales at a seasonally-adjusted annual rate of 621,000 for March, easily exceeding the consensus forecast of 590,000.  March sales were the second-strongest since early 2008, and were just slightly lower than last July’s reading of 622,000 while being 15.6% higher than a year ago.  The median home sales price increased 1.2% to $315,000 and is 1.2% higher compared to a year ago while the average sales price increased 5.6% to $388,200.  Inventory continues to slide and at the current rate of sales, it would take just 5.2 months to exhaust available supply.

 

Home prices continue to march steadily higher and this was confirmed by both the Federal Housing Finance Agency (FHFA) and S&P/Case-Shiller.  The FHFA monthly House Price Index (HPI) for February showed home prices rose 0.8% in February and 6.4% annually in addition to an upward revision in January’s index to 0.2%.  The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Because of this, the selection excludes high-end homes bought with jumbo loans or cash sales.  Meanwhile, the S&P/Case-Shiller National Home Price Index soared 5.8% in February, the largest gain in 32 months, when analysts had predicted a 5.7% increase.  This is further evidence strong home buyer demand continues to outweigh supply in the housing market.

 

Furthermore, the National Association of Realtors reported March Pending Home Sales, based upon contract signings, retreated 0.8% to 111.4 from 112.3 in February.  This slight loss in sales momentum was due to the scarcity of available inventory.  Despite the decrease in March, the index is 0.8% above a year ago and was the third best reading in the past year.

 

In the realm of mortgages, mortgage application volume increased slightly during the week ending April 21.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 2.7%.  The seasonally adjusted Purchase Index decreased 1.0% from the prior week, while the Refinance Index increased 7.0%.  Overall, the refinance portion of mortgage activity increased to 44.0% total applications from 42.4% from the prior week.  The adjustable-rate mortgage share of activity increased to 8.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.20% from 4.22%, its lowest level since November 2016, with points increasing to 0.37 from 0.35.

 

For the week, the FNMA 3.5% coupon bond dropped 7.8 basis points to close at $102.797 while the 10-year Treasury yield increased 4.29 basis points to end at 2.289%.  Stocks ended the week higher.  The Dow Jones Industrial Average rose 392.75 points to end at 20,940.51.  The NASDAQ Composite Index advanced 137.09 points to close at 6,047.61 and the S&P 500 Index added 35.51 points to close at 2,384.20.  Year to date, the Dow Jones Industrial Average has gained 5.96%, the NASDAQ Composite Index has advanced 12.34%, and the S&P 500 Index has risen 6.49%.

 

This past week, the national average 30-year mortgage rate rose to 4.09% from 4.05%; the 15-year mortgage rate increased to 3.34% from 3.29%; the 5/1 ARM mortgage rate increased to 3.08% from 3.04%; and the FHA 30-year rate increased to 3.80% from 3.75%.  Jumbo 30-year rates rose from 4.32% to 4.35%.

 

Economic Calendar – for the Week of May 1, 2017

 

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
May 01 08:30 Personal Income Mar 0.3% 0.4%
May 01 08:30 Personal Spending Mar 0.1% 0.1%
May 01 08:30 PCE Prices Mar NA 0.1%
May 01 08:30 Core PCE Prices Mar 0.0% 0.2%
May 01 10:00 Construction Spending Mar 0.4% 0.8%
May 01 10:00 ISM Index Apr 56.5 57.2
May 03 07:00 MBA Mortgage Applications Index 04/29 NA +2.7%
May 03 08:15 ADP Employment Change Apr 170,000 263,000
May 03 10:00 ISM Services Index Apr 55.8 55.2
May 03 10:30 Crude Oil Inventories 04/29 NA -3.64mln
May 03 14:00 FOMC Rate Decision May 0.875 0.875
May 04 07:30 Challenger Job Cuts Apr NA -2.0%
May 04 08:30 Balance of Trade Mar -$44.4B -$43.6B
May 04 08:30 Initial Jobless Claims 04/29 246,000 257,000
May 04 08:30 Continuing Jobless Claims 04/22 NA 1,988K
May 04 08:30 Preliminary Productivity Qtr. 1 0.1% 1.3
May 04 08:30 Unit Labor Costs Qtr. 1 2.6% 1.7%
May 04 10:00 Factory Orders Mar 0.4% 1.0%
May 05 08:30 Nonfarm Payrolls Apr 180,000 98,000
May 05 08:30 Nonfarm Private Payrolls Apr 175,000 89,000
May 05 08:30 Unemployment Rate Apr 4.6% 4.5%
May 05 08:30 Average Hourly Earnings Apr 0.3% 0.2%
May 05 08:30 Average Workweek Apr 34.4 34.3
May 05 15:00 Consumer Credit Mar $16.0B $15.2B

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.80, -7.8 bp) traded within a narrower 47 basis point range between a weekly intraday high of $102.86 on Friday and a weekly intraday low of $102.39 on Wednesday before closing the week at $102.80.  Mortgage bonds initially traded down to test support at the 25-day moving average early in the week before bouncing higher for a test of nearest resistance at the 38.2% Fibonacci retracement level ($102.806).  This bounce higher in the later portion of the week resulted in a positive stochastic crossover buy signal.  If the bond manages to break above resistance during this coming week that features numerous potential market-moving economic reports, we could see higher prices and lower yields resulting in a slight improvement in rates.

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The stock market closed moderately lower in an Easter Holiday-shortened the week characterized by lower than usual trading volumes.  In fact, Monday’s trading saw fewer shares changing hands than on any day so far this year.  Economic news seemed to take a back seat to geopolitical events during the week, events that weighed on equity investor sentiment while producing a boost for bond prices and lowing yields and interest rates.

 

Stocks were pressured lower on Monday following unconfirmed reports China was positioning troops along its border with North Korea.  Although this troop movement may have been an outcome from President Trump’s recent meeting with Chinese President Xi Jinping to put pressure on North Korea to stop its nuclear weapons testing, concerns over intensifying tensions in the Korean peninsula continued to be negative for investor sentiment throughout the week.

 

Furthermore, the ongoing civil war in Syria and how it is impacting relations between the U.S. and Russia also kept investors on edge.  Thursday, news that the U.S. had dropped the “Mother of All Bombs,” otherwise known as the GBU-43/B Massive Ordnance Air Burst bomb – the most powerful non-nuclear bomb in the US arsenal, on an ISIS target in Afghanistan also appeared to ignite a sharp decline in stocks prices to end the week.  This first-ever use of the 21,000 lb. GBU-43/B bomb was also meant to send a clear signal to North Korea to cease its nuclear missile testing.

 

Wednesday afternoon, stocks moved lower and bond prices higher in response to President Trump’s remarks to an interviewer with The Wall Street Journal when he stated the U.S. dollar is “getting too strong” and he hoped the Federal Reserve would keep interest rates low.  Trump “talking down the dollar” helped push the yield on the 10-year Treasury note to new five-month lows the following Thursday morning.

 

In housing, Mortgage application volume increased slightly during the week ending April 7.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 1.5%.  The seasonally adjusted Purchase Index increased 3.0% from the prior week, while the Refinance Index remained unchanged at 4.0%.  Overall, the refinance portion of mortgage activity decreased to 41.6% of total applications from 42.6% from the prior week, falling to its lowest level since September 2008.  The adjustable-rate mortgage share of activity remained unchanged at 8.5% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.28% from 4.34% with points increasing to 0.38 from 0.31.

 

For the week, the FNMA 3.5% coupon bond gained 56.2 basis points to close at $103.00 while the 10-year Treasury yield decreased 15.02 basis points to end at 2.232%.  Stocks ended the week lower.  The Dow Jones Industrial Average fell 202.85 points to end at 20,453.25.  The NASDAQ Composite Index dropped 72.66 points to close at 5,805.15 and the S&P 500 Index lost 26.59 points to close at 2,328.95.  Year to date, the Dow Jones Industrial Average has gained 3.49%, the NASDAQ Composite Index has advanced 7.84%, and the S&P 500 Index has risen 4.03%.

 

This past week, the national average 30-year mortgage rate fell to 4.04% from 4.17%; the 15-year mortgage rate decreased to 3.27% from 3.38%; the 5/1 ARM mortgage rate decreased to 3.07% from 3.13%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates fell from 4.39% to 4.31%.

 

Economic Calendar – for the Week of April 17, 2017

 

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
Apr 17 08:30 New York Empire State Manufacturing Index Apr 13.0 16.4
Apr 17 10:00 NAHB Housing Market Index Apr 70 71
Apr 17 16:00 Net Long-Term TIC Flows Apr NA $6.3B
Apr 18 08:30 Housing Starts Mar 1260K 1288K
Apr 18 08:30 Building Permits Mar 1240K 1213K
Apr 18 09:15 Industrial Production Mar 0.4% 0.0%
Apr 18 09:15 Capacity Utilization Mar 76.2% 75.4%
Apr 19 07:00 MBA Mortgage Applications Index 04/15 NA +1.5%
Apr 19 10:30 Crude Oil Inventories 04/15 NA -2.17M
Apr 19 14:00 Fed’s Beige Book Apr NA NA
Apr 20 08:30 Initial Jobless Claims 04/15 241K 234K
Apr 20 08:30 Continuing Jobless Claims 04/8 NA 2028K
Apr 20 08:30 Philadelphia Fed Manufacturing Index Apr 21.8 32.8
Apr 20 10:00 Index of Leading Economic Indicators Mar 0.3% 0.6%
Apr 21 10:00 Existing Home Sales Mar 5.55M 5.48M

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.00, +56.2 bp) traded within a 73 basis point range between a weekly intraday low of $102.297 on Monday and a weekly intraday high of $103.031 on Friday before closing the week at $103.00.  Geopolitical events during the week “trumped” technical signals and economic news (no pun intended) to send stocks lower while triggering a “flight to safety” for investors into bonds.  Mortgage bonds broke above resistance at the 38.2% Fibonacci retracement level ($102.806) and this level now becomes nearest support.  Although substantially “overbought,” the bond will set its sights on the next resistance level at $103.13.  If stocks continue to slide lower this coming week, we could see bond prices improve with mortgage rates slipping slightly lower.

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