The stock market continued to advance into new record-high territory, boosted by releases from major third quarter corporate earnings reports.  This past week marked the fifth consecutive weekly gain for both the Dow Jones Industrial Average and the S&P 500 Index despite a number of political and geopolitical anxieties among investors.

 

Investor sentiment was influenced by several factors including President Trump’s executive order to revoke certain “Obamacare” regulations allowing health insurance companies to issue less comprehensive and cheaper insurance plans.  Trump’s executive order also put a stop to the former Obama administration’s unconstitutional funding of subsidies that compensated health insurers for reducing premiums for low-income enrollees in state insurance exchanges.  Investors also considered rumors of a potential pullout by the U.S. from the North American Free Trade Agreement (NAFTA), the possibility of another North Korean missile launch, and worried about congressional bungling on tax reform.

 

However, there were several constructive economic reports during the week advancing both stocks and bonds.  Initial Jobless Claims (243,000) fell sharply and were below the consensus forecast of 255,000.  Retail Sales for September (+1.6%) exceeded expectations of +1.5%, bouncing back following August’s -0.1% decline.  The boost in retail sales may be a reflection of consumers feeling better about the economy as the University of Michigan’s preliminary October reading on Consumer Sentiment reached a 13 year high at 101.1 to easily surpass the consensus forecast of 95.6 and last month’s reading of 95.1.  Furthermore, the latest consumer inflation data remains tame with the Consumer Price Index (CPI) coming in below the consensus forecast of 0.6% with an increase of just 0.5% in the month of September.  On a year-over-year basis, CPI increased 2.2%, which is just below expectations of 2.3%.  The Core CPI, which excludes food and energy prices, increased by 0.1%, which was below the consensus forecast of 0.2%.  The bond-friendly inflation data helped to send bond prices higher and yields lower on Friday.

 

In housing, mortgage application volume fell during the week ending October 6.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) declined by 2.1%.  The seasonally adjusted Purchase Index decreased 0.1% from the prior week while the Refinance Index fell 4.0%.

 

Overall, the refinance portion of mortgage activity decreased to 49.0% of total applications from 50.1% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.6% of total applications from 6.0%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.16% from 4.12% with points decreasing to 0.44 from 0.45.

 

For the week, the FNMA 3.5% coupon bond gained 23.40 basis points to close at $103.172.  The 10-year Treasury yield decreased 8.59 basis points to end at 2.2748%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 98.05 points to close at 22,871.72.  The NASDAQ Composite Index increased 15.62 points to close at 6,605.80 and the S&P 500 Index advanced 3.84 points to close at 2,553.17.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 15.73%, the NASDAQ Composite Index has advanced 22.71%, and the S&P 500 Index has added 14.04%.

 

This past week, the national average 30-year mortgage rate fell to 3.93% from 3.99%; the 15-year mortgage rate decreased to 3.23% from 3.27%; the 5/1 ARM mortgage rate fell to 3.19% from 3.22% and the FHA 30-year rate declined to 3.50% from 3.60%.  Jumbo 30-year rates decreased to 4.14% from 4.19%.

 

Economic Calendar – for the Week of October 16, 2017

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.17, +23.40 bp) traded within a 43.8 basis point range between a weekly intraday low of $102.734 on Tuesday and a weekly intraday high of $103.172 on Friday before closing the week at $103.172 on Friday.

 

Mortgage bond prices moved above a couple of resistance levels located at $103 and the 100-day moving average at $103.12 and these now become support levels.  New resistance levels are found at the 25-day and 50-day moving averages at $103.21 and $103.27 respectively.  A new buy signal was triggered on Wednesday with a positive stochastic crossover from an “oversold” position.  The bond is far from “overbought” so we should see prices easily challenge overhead resistance, and a break above the identified resistance levels in the chart would lead to slightly lower mortgage interest rates.

 

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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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The major stock indexes advanced to new all-time highs benefiting from a midweek rally triggered by encouraging corporate earnings reports and greater sentiment for economic growth. The Nasdaq Composite Index led the way with a 1.86% weekly gain, but investor attention was captivated by the Dow Jones Industrial Average finally closing above the 20,000 level.

 

The week’s economic calendar featured December Existing Home Sales and New Home Sales, Advance fourth quarter GDP, and December Durable Goods Orders that were all somewhat disappointing, but the financial markets appeared to largely shrug them off by not showing much reaction.  However, Treasury bond yields reversed their upward trajectory established on Tuesday and Wednesday following Friday’s poor GDP report.  The week ended with the fed funds futures market showing rate hike expectations remain firm with implied probabilities for a 0.25% rate hike of 25.3% on March 15, 42.8% on May 3, and 71.9% on June 14.

 

There were a couple of meaningful reports on the housing sector released during the week.  First, the National Association of Realtors announced sales of Existing Homes fell 2.8% in December to a seasonally adjusted annual rate of 5.49 million units.  This was below the consensus forecast of 5.55 million and was the lowest level since 1999.  However, November’s Existing Home Sales were revised higher to 5.65 million units, the highest sales pace since February 2007, from an initially reported 5.61 million units.  For the year, Existing Home Sales increased to their highest level since 2006, reaching 5.45 million units in 2016 from 5.25 million units in 2015.  Inventory of homes for sale continued to decline falling to its lowest level since 1999.  Instead of a “normal” market with about a six-month supply of homes, there were only 1.65 million homes for sale at the end of December representing a 3 ½ month supply at the current sales pace.

 

 

New Home Sales in December were also disappointing as the Commerce Department reported a decline to a seasonally adjusted annual rate of 536,000.  This was lower than the consensus forecast of 589,000 plus 10.4% lower than an upwardly revised November pace of 598,000 and 0.4% lower than a year earlier.  The median home sale price in December was 4.3% higher than in November and 7.9% higher than in December 2015, rising to $322,500.  The decline in sales increased the new home supply to 5.8 months of available inventory.  However, looking back on the year, an estimated 563,000 new homes were sold in 2016, 12.2% higher than in 2015 and the best year for New Home Sales since 2007.  Mortgage application data suggests New Home Sales should remain close to December’s level for another couple months before rebounding toward 600,000 by April.

 

 

As for mortgages, mortgage application data for the week ending January 20 was released by the Mortgage Bankers Association (MBA) showing their overall seasonally adjusted Market Composite Index (application volume) increased by 4.0%.  The seasonally adjusted Purchase Index rose 6.0% from the prior week, while the Refinance Index edged 0.2% higher.  Overall, the refinance portion of mortgage activity decreased to 50.0% of total applications from 53.0% from the prior week.  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 4.27% to 4.35% with points decreasing to 0.30 from 0.39.

 

For the week, the FNMA 3.5% coupon bond was unchanged at $102.03 while the 10-year Treasury yield increased 1.94 basis points to end at 2.4862%.  Stocks ended the week higher with the Dow Jones Industrial Average gaining 266.53 points to end at 20,093.78.  The NASDAQ Composite Index rose 105.45 points to close at 5,660.78, and the S&P 500 Index advanced 23.38 points to close at 2,294.69.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 1.65%, the NASDAQ Composite Index has advanced 4.90%, and the S&P 500 Index has advanced 1.43%.

 

This past week, the national average 30-year mortgage rate decreased to 4.24% from 4.25% while the 15-year mortgage rate decreased to 3.44% from 3.45%.  The 5/1 ARM mortgage rate fell to 3.05% from 3.08%.  FHA 30-year rates increased to 3.80% from 3.75% and Jumbo 30-year rates increased to 4.35% from 4.30%.

 

Economic Calendar – for the Week of January 30, 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
Jan 30 08:30 Personal Income Dec 0.4% 0.0%
Jan 30 08:30 Personal Spending Dec 0.4% 0.2%
Jan 30 08:30 Core PCE Prices Dec 0.2% 0.0%
Jan 30 10:00 Pending Home Sales Dec 1.3% -2.5%
Jan 31 08:30 Employment Cost Index Qtr. 4 0.6% 0.6%
Jan 31 09:00 S&P Case Shiller Home Price Index Nov 5.0% 5.1%
Jan 31 09:45 Chicago Purchasing Managers Index (PMI) Jan 55.0 54.6
Jan 31 10:00 Consumer Confidence Index Jan 112.5 113.7
Feb 01 07:00 MBA Mortgage Purchase Index 01/28 NA 4.0%
Feb 01 08:15 ADP Employment Change Jan 165,000 153K
Feb 01 10:00 ISM Index Jan 55.0 54.7
Feb 01 10:00 Construction Spending Dec 0.2% 0.9%
Feb 01 10:30 Crude Oil Inventories 01/28 NA +2.840M
Feb 01 14:00 FOMC Rate Decision Feb 0.625% 0.625%
Feb 02 07:30 Challenger Job Cuts Jan NA 42.4%
Feb 02 08:30 Initial Jobless Claims 01/28 250,000 NA
Feb 02 08:30 Continuing Jobless Claims 01/28 NA NA
Feb 02 08:30 Preliminary Productivity Qtr. 4 1.0% 3.1%
Feb 02 08:30 Unit Labor Costs Qtr. 4 1.9% 0.7%
Feb 03 08:30 Nonfarm Payrolls Jan 170,000 156,000
Feb 03 08:30 Nonfarm Private Payrolls Jan 175,000 144,000
Feb 03 08:30 Unemployment Rate Jan 4.7% 4.7%
Feb 03 08:30 Avg. Hourly Earnings Jan 0.3% 0.4%
Feb 03 08:30 Average Workweek Jan 34.3 34.3
Feb 03 10:00 Factory Orders Dec 1.4% -2.4%
Feb 03 10:00 ISM Services Jan 57.0 57.2

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

 

The FNMA 30-year 3.5% coupon bond ($102.03, unchanged) traded within a 101 basis point range between a weekly intraday high of $102.48 on Monday and a weekly intraday low of $101.47 on Thursday before closing the week at $102.03.  The chart shows the bond oscillated around resistance located at the 76.4% Fibonacci retracement level ($102.071) during the past week and is positioned once more to challenge this level.  The major stock indexes are “overbought” and showing signs of weakening so the bond market could benefit this coming week from a stock market consolidation or pause.   Should this occur, we could see a rise in bond prices (lower yields) leading to slightly lower mortgage rates.

 

 

 

 

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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

 chart109192016

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Bond prices slipped lower during the week and yields increased slightly while the major stock market indexes ended mixed and little changed.

 

Investors primarily focused their attention on comments made by Federal Reserve officials throughout the week who said they would like to see a rate hike ‘sooner rather than later.”  The potential negative implications a rate hike would have on both stocks and bonds prompted investors to “take some money off of the table” in both stocks and bonds.

 

After the close of trading on Thursday, San Francisco Fed President John Williams echoed the case made earlier in the week by colleagues William Dudley (New York Fed President) and Dennis Lockhart (Atlanta Fed President) for an interest rate hike presumably sometime during the fourth quarter of this year.

 

Williams stated in remarks to the Anchorage Economic Development Corporation “In the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.  If we wait until we see the whites of inflation’s eyes, we don’t just risk having to slam on the monetary policy brakes, we risk having to throw the economy into reverse to undo the damage of overshooting the mark,” he said.  “And that creates its own risks of a hard landing or even a recession.”

 

Although Williams is not an FOMC voter this year, his opinions are highly respected by voting FOMC members due to his longstanding and close relationship with Fed Chair Janet Yellen, his former boss at the San Francisco Fed.  Investors were also cautious ahead of next week’s annual Jackson Hole Symposium hosted by the Federal Reserve Bank of Kansas City where it is anticipated Fed Chair Janet Yellen will present a rationale for gradually increasing interest rates.

 

The week’s economic news continued to provide a mixed view of the economy.  Housing Starts and Industrial Production were reported higher than forecast in July while the New York Empire State Manufacturing Index and the Philadelphia Fed Manufacturing Survey for August disappointed investors.  Inflation measures were benign with the Consumer Price Index (CPI) for July showing inflation growth of 0.0% while the Core CPI, which excludes volatile food and energy prices, grew at a 0.1% pace to come in below the consensus forecast of 0.2%.  However, the shelter sub-index increased 0.2% in July following a 0.4% rise in May and a 0.3% increase in June.  The sub-indexes for rent and owners’ equivalent rent both increased 0.3% in July, while the index for lodging away from home turned lower, falling 2.4% after increasing in May and June.

 

In housing, the National Association of Homebuilders (NAHB) reported homebuilder sentiment improved in August with a reading of 60.0 in their monthly housing market index.  The reading topped the consensus forecast of 59.0 and was above a downwardly revised reading of 58.0 for July.  There were improvements in two of the three index components.  The Current Sales Index climbed two points to 65 and the Future Sales Index, a measure of six-month sales outlook rose to 67 from 66.  The measure of prospective buyer traffic slipped one point to 44 from 45.

 

Elsewhere, the Census Bureau reported Housing Starts reached an annual rate of 1,211,000 homes in July, a 2.1% increase from June’s 1,186 million homes under construction and the highest level since February.  Housing Starts have been above the one million annualized pace for more than a year. The Northeast region led the way with a 15.5% surge in Starts while smaller gains were recorded in the Midwest and Southern regions.  Additionally, Building Permits were little changed in July, coming in just 1,000 less than June’s reading of 1,153K on an annualized basis.  Permits are a more forward-looking metric than Starts and the strength and steadiness seen in Permits attests to the staying power of this long and impressive recovery by the core housing sector.

 

08222016chart#1

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 12th showing the overall seasonally adjusted Market Composite Index decreased 4.0%.  The seasonally adjusted Purchase Index fell 4.0% from the prior week, while the Refinance Index decreased 4.0%.  Overall, the refinance portion of mortgage activity increased to 62.6% of total applications from 62.4%.  The adjustable-rate mortgage share of activity decreased to 4.6% from 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 decreased from 3.65% to 3.64% with points decreasing to 0.31 from 0.34.

 

For the week, the FNMA 3.0% coupon bond lost 25.0 basis points to end at $103.53 while the 10-year Treasury yield decreased 6.97 basis points to end at 1.5798%.  Stocks ended the week mixed with the Dow Jones Industrial Average losing 23.90 points to end at 18,552.57.  The NASDAQ Composite Index advanced 5.48 points to close at 5,238.38, and the S&P 500 Index fell 0.18 of a point to close at 2,183.87.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 6.08%, the NASDAQ Composite Index has added 4.41%, and the S&P 500 Index has advanced 6.41%.

 

This past week, the national average 30-year mortgage rate increased to 3.42% from 3.37% while the 15-year mortgage rate increased to 2.76% from 2.73%.  The 5/1 ARM mortgage rate rose to 2.85% from 2.80%.  FHA 30-year rates increased to 3.25% from 3.15% while Jumbo 30-year rates increased to 3.53% from 3.47%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.53, -23 basis points) traded within a narrower 36 basis point range between a weekly intraday high of $103.81 and a weekly intraday low of $103.45 before closing at $103.53 on Friday.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

08222016chart#2

 

The bond has displayed a sideways consolidation over the past three weeks characterized by choppy trading in and around the 25-day moving average as it converges with the 50-day moving average.  The 25 and 50-day moving averages define closest resistance and support respectively and the bond is getting squeezed between the two to set up the potential for a strong breakout in one direction or the other.

 

The direction of the pending breakout is currently unclear but may be triggered by economic news next week, especially news from the annual Jackson Hole Symposium hosted by the Federal Reserve Bank of Kansas City.  The theme of this year’s conference is “designing resilient monetary policy frameworks.”  The Jackson Hole Symposium is widely seen as a prime stage for Fed chairs to deliver important messages, and the speech next Friday from Federal Reserve Chairwoman Janet Yellen could result in a significant market move.

 

Economic Calendar – for the Week of August 22, 2016

 

The economic calendar features several reports on housing on Tuesday and Wednesday in addition to Durable Goods Orders and the 2nd estimate of GDP for the second quarter on Thursday and Friday.  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
Aug 23 10:00 New Home Sales July 580,000 592,000
Aug 24 07:00 MBA Mortgage Index 08/20 NA -4.0%
Aug 24 09:00 FHFA Housing Price Index June NA 0.2%
Aug 24 10:00 Existing Home Sales July 5.54M 5.57M
Aug 24 10:30 Crude Oil Inventories 08/20 NA -2.51M
Aug 25 08:30 Initial Jobless Claims 08/20 265,000 262,000
Aug 25 08:30 Continuing Jobless Claims 08/13 NA 2,175K
Aug 25 08:30 Durable Goods Orders July 3.5% -4.0%
Aug 25 08:30 Durable Goods Orders Excluding Transportation July 0.4% -0.5%
Aug 26 08:30 2nd Estimate GDP Qtr. 2 1.1% 1.2%
Aug 26 08:30 2nd Estimate GDP Deflator Qtr. 2 2.2% 2.2%
Aug 26 08:30 International Trade in Goods July NA -$63.3B
Aug 26 10:00 Final Univ. of Mich. Consumer Sentiment Index Aug 90.6 90.4

 

 

 

Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability **

September 2016 20-21, (Tuesday-Wednesday) * 18.0% Chance
November 2016 1-2, (Tuesday-Wednesday) 23.3% Chance
December 2016 20-21 (Tuesday-Wednesday)* 43.1% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday) 43.2% Chance
March 2017          14-15 (Tuesday-Wednesday) * 43.4% Chance
May 2017          02-03 (Tuesday-Wednesday) 43.2% Chance
June 2017          13-14 (Tuesday-Wednesday) * 42.5% Chance
July 2017 25-26, (Tuesday-Wednesday) 42.2% Chance

 

* Meeting associated with a Summary of Economic Projections and a press conference by the Fed Chairman.

** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.

 

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The stock market logged its fifth consecutive weekly advance while the bond market also scored noteworthy gains.  Crude oil continued to rally helping to boost stocks when news surfaced of a meeting between 15 OPEC and non-OPEC producers planned for April 17 when serious plans to limit oil production are likely to be discussed.  These 15 producers account for about 73% of global output.  The advance in the stock market also resulted in the Dow Jones Industrial Average and the S&P 500 Index closing in positive territory for the first time this year.

 

However, the primary catalyst for the constructive gains in both the stock and bonds markets was the Federal Reserve’s Federal Open Market Committee (FOMC) decision to not raise interest rates at the conclusion of its two-day monetary policy meeting on Wednesday.  Moreover, the FOMC released a rather “dovish” policy statement reducing its forecast of the number of interest rate increases in 2016 from as many as four to only two hikes in 2016.  The FOMC is also forecasting PCE inflation (their favorite inflation measurement) to decline to 1.2% from 1.6% and 2016 GDP growth to fall to 2.2% from 2.4%.

 

Elsewhere, investment bank Morgan Stanley put out a note saying they believe bond markets will see a price surge this year as a result of disappointing economic growth in most major economies.  They believe the 10-year Treasury yield could decline to 1.45% by the end of the third quarter this year.  If Morgan Stanley is correct in their view, we will see mortgage rates improve later this year.

 

In housing, the National Association of Homebuilders (NAHB) reported their Housing Market Index came in at 58 versus a consensus estimate of 59.  The index of current sales was unchanged at 65 while the gauge of sales expectations in the next six months dropped three points to 61.  NAHB chief economist David Crowe remarked “solid job growth, low mortgage rates and improving mortgage availability will help keep the housing market on a gradual upward trajectory in the coming months.”

 

As for mortgages, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending March 11 showing the overall seasonally adjusted Market Composite Index decreased 3.3%.  The seasonally adjusted Purchase Index decreased 0.3% from the prior reporting period while the Refinance Index decreased 6.0%.  Overall, the refinance portion of mortgage activity decreased to 55% of total applications from 56.7%.  The adjustable-rate mortgage segment of activity decreased to 4.9% of total applications from 5.2%.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance increased from 3.89% to 3.94%.

 

For the week, the FNMA 3.0% coupon bond gained 56.2 basis points to end at $102.00 while the 10-year Treasury yield fell 10.4 basis points to end at 1.8767%.  Stocks ended the week with the Dow Jones Industrial Average increasing 388.99 points to end at 17,602.30.  The NASDAQ Composite Index added 47.18 points to close at 4,795.65, and the S&P 500 Index gained 27.39 points to close at 2,049.58.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 1.01%, the NASDAQ Composite Index has lost 4.42%, and the S&P 500 Index has gained 0.28%.  This past week, the national average 30-year mortgage rate decreased to 3.75% from 3.83% while the 15-year mortgage rate fell to 3.02% from 3.09%.  The 5/1 ARM mortgage rate decreased to 3.02% from 3.06%.  FHA 30-year rates dropped to 3.30% from 3.35% and Jumbo 30-year rates decreased to 3.60% from 3.65%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.00, +56.2 bp) traded within a wider 99 basis point range between a weekly intraday low of $101.17 and a weekly intraday high of 102.16 before closing at $102.00 on Friday.

 

The bond was whipsawed between a weak sell signal on Tuesday and a stronger buy signal on Wednesday that followed the FOMC’s interest rate decision and dovish policy statement.  Wednesday’s new buy signal was generated from a positive stochastic crossover and occurred well below the “overbought” level.  This suggests the bond could make a move higher to challenge resistance, especially if the stock market cools off.

 

The Dow Jones Industrial Average and the S&P 500 Index have both crossed above their respective 200-day moving averages, a sign of technical strength.  However, both indexes are extremely “overbought” and appear ready to take a pause or pull-back.  If stocks consolidate some of their recent gains next week, bond prices should advance with mortgage rates improving slightly. 

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 ratechart103212016

 

 

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The stock market recorded its fourth consecutive weekly gain owing to a late rally on Friday. The broad-based advance resulted in the S&P 500 Index to its highest close so far this year, and within 1.08% of its ending level for 2015. Once again, stocks traded in tandem with the crude oil market during the week.

 

The bond market began the week to the downside as oil prices rallied to their highest level in several weeks on Monday. Tuesday, bond prices made a nice bounce higher when safe-haven assets were bid higher after trade data from China rekindled fears of a global economic slowdown. China’s February trade data showed a horrendous -25.4% decline in exports, the largest drop since May 2009.

 

Unfortunately, bond prices slid lower for the remainder of the week with yields on the 10-year Treasury note rising to just below 2%, their highest level since late January. Bonds sold off in response to the European Central Bank’s (ECB) announcement of an aggressive stimulus package designed to boost Europe’s struggling economy. The widely anticipated stimulus plan included a 20 billion euro expansion of the ECB’s asset purchase program to 80 billion euro per month; an additional 10 basis point cut in the deposit rate to an even greater negative interest rate of -0.40%; a cut in the refinancing rate to 0.00% from 0.05%; and a cut in the marginal lending facility to 0.25% from 0.30%. Additional supply of Treasuries may have also been a factor for lower prices as the Treasury conducted auctions of $24 billion in 3-year notes; $20 billion in 10-year notes; and $12 billion in 30-year bonds during the week.

 

Friday, higher equity markets in Asia overnight, a sharp rally in European stocks, and higher oil prices triggered a broad-based rally in U.S. stocks at the expense of the bond market. Crude oil prices were boosted by a report from the International Energy Agency (IEA) forecasting oil production from Brazil, Colombia, the U.S. and other non-OPEC producers would be lower this year. Also, oil services company Baker Hughes reported the number of active oil and natural gas rigs in the U.S. have plunged to their lowest level on record going back to 1949. Last week there were just 480 rigs drilling for oil and natural gas, down by a striking 57% from the same time in 2015. Traders interpreted these reports as a sign that the bottom may be in for oil prices.

 

In housing news, CoreLogic reported 38,000 home foreclosures were completed during January, down 1.6% month-over-month, and down 16.2% from a total of 46,000 in January 2015. The current foreclosure inventory totals 1.2% of all homes with a mortgage in the U.S., down from 1.5% in January 2015. Homes currently in the process of foreclosure total 456,000, compared to 583,000 in January 2015, representing a decline in the national foreclosure inventory of 21.7% compared with January 2015.

 

As for mortgages, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending March 4 showing the overall seasonally adjusted Market Composite Index increased 0.2%. The seasonally adjusted Purchase Index increased 4% from the prior reporting period while the Refinance Index decreased 2.0%. Overall, the refinance portion of mortgage activity decreased to 56.7% of total applications from 58.6%. The adjustable-rate mortgage segment of activity decreased to 5.2% of total applications from 5.6%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance increased from 3.75% to 3.81%.

 

For the week, the FNMA 3.0% coupon bond lost 67.1 basis points to end at $101.44 while the 10-year Treasury yield increased 10.5 basis points to end at 1.98%. Stocks ended the week with the Dow Jones Industrial Average increasing 206.54 points to end at 17,213.31. The NASDAQ Composite Index added 31.45 points to close at 4,748.47, and the S&P 500 Index gained 22.20 points to close at 2,022.19.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 1.23%, the NASDAQ Composite Index has lost 5.45%, and the S&P 500 Index has lost 1.08%. This past week, the national average 30-year mortgage rate increased to 3.83% from 3.76% while the 15-year mortgage rate rose to 3.09% from 3.04%. The 5/1 ARM mortgage rate increased to 3.06% from 3.02%. FHA 30-year rates rose to 3.35% from 3.25% and Jumbo 30-year rates increased to 3.65% from 3.60%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($101.44, -67.1 bp) traded within a wider 96 basis point range between a weekly intraday low of $101.34 and a weekly intraday high of 102.30 before closing at $101.44 on Friday.

 

The bond traded lower during the week, falling below a couple of support levels. On Friday, the bond traded in a range spanning support at the 50% Fibonacci retracement level located at $101.37 and resistance at the 50-day moving average at $101.68. The slow stochastic oscillator is showing an extremely “oversold” position with an almost complete loss of momentum. If the bond can remain above current support, we could possibly see a bounce higher toward resistance with a slight improvement in mortgage rates. However, if the bond breaks below primary support next week we could see a continuation lower for a test of secondary support at the 100-day moving average at $101.06 and this could lead to a slight worsening in rates.

 

Chart: FNMA 30-Year 3.0% Coupon Bond

03142016chart#1

 

Economic Calendar – for the Week of March 14, 2016

 

The economic calendar shifts into high gear this week with a mixture of reports on manufacturing, inflation, and housing.

 

Date Time
ET Event /Report /Statistic For Market Expects Prior
Mar 15 08:30 Retail Sales Feb -0.1% 0.2%
Mar 15 08:30 Retail Sales excluding automobiles Feb -0.2% 0.1%
Mar 15 08:30 Producer Price Index (PPI) Feb -0.2% 0.1%
Mar 15 08:30 Core PPI Feb 0.1% 0.4%
Mar 15 08:30 New York Empire State Manufacturing Index Mar -9.5 -16.6
Mar 15 10:00 Business Inventories Jan 0.0% 0.1%
Mar 15 10:00 NAHB Housing Market Index Mar 59 58
Mar 15 16:00 Net Long-Term TIC Flows Jan NA -$29.4B
Mar 16 07:00 MBA Mortgage Index 03/12 NA 0.2%
Mar 16 08:30 Consumer Price Index (CPI) Feb -0.2% 0.0%
Mar 16 08:30 Core CPI Feb 0.1% 0.3%
Mar 16 08:30 Housing Starts Feb 1,137K 1,099K
Mar 16 08:30 Building Permits Feb 1,204K 1,202K
Mar 16 09:15 Industrial Production Feb -0.3% 0.9%
Mar 16 09:15 Capacity Utilization Feb 76.9% 77.1%
Mar 16 10:30 Crude Oil Inventories 03/12 NA 3.88M
Mar 16 14:00 FOMC Rate Decision Mar 0.375% 0.375%
Mar 17 08:30 Initial Jobless Claims 03/12 266,000 259,000
Mar 17 08:30 Continuing Jobless Claims 03/05 NA 2,225K
Mar 17 08:30 Philadelphia Fed Manufacturing Index Mar -1.4 -2.8
Mar 17 08:30 Current Account Balance Q4 -$116.0B -$124.1B
Mar 17 10:00 Index of Leading Economic Indicators Feb 0.2% -0.2%
Mar 18 10:00 University of Michigan Consumer Sentiment Mar 92.2 91.7

 

Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability **
March 2016 15-16, (Tuesday-Wednesday)* 0% Chance
April 2016 26-27, (Tuesday-Wednesday) 20% Chance
June 2016 14-15, (Tuesday-Wednesday)* 43% Chance
July 2016 26-27, (Tuesday-Wednesday) 50% Chance
September 2016 20-21, (Tuesday-Wednesday) * 61% Chance
November 2016 1-2, (Tuesday-Wednesday) 65% Chance
December 2016 20-21 (Tuesday-Wednesday)* 75% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 76% Chance

* Meeting associated with a Summary of Economic Projections and a press conference by the Chairman.
** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.

 

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The stock market turned in a second consecutive week of gains as crude oil prices continued to play a significant role in driving market action in both stocks and bonds.  Lately, there has been close to a 95% positive correlation between how the crude oil and stock markets have been trading.  This means about 95% of the time oil and stocks trade in the same direction while the bond market generally trades in the opposite direction to the stock market.

 

Early in the week bond prices moved modestly lower while crude oil and stocks rallied following the release of the International Energy Agency’s (IEA) latest version of its Medium-Term Oil Market Report.  The IEA report stated the current oversupply in crude oil should gradually diminish through 2016 and should rebalance with demand sometime in 2017.  This was perceived by investors as good news for the energy sector and as a result, energy stocks rallied along with the broader stock market.

 

The week’s economic reports were “mixed,” but the rebound in crude oil and the positive economic data helped keep bond yields close to where they began for the week.  Despite a weak reading on manufacturing activity, durable goods orders jumped a solid 4.9% in January to easily surpass the consensus forecast of 2.0%.

 

Personal income and spending both saw solid increases of 0.5% in January to surpass their consensus estimates of 0.4% and 0.3% respectively.  Investors also noticed a solid 0.3% rise in the Core Personal Consumption Expenditures Index.  This Index, which excludes food and energy prices, is widely recognized as the Federal Reserve’s preferred measure of inflation.  However, most of this increase was in volatile categories such as airfares and hotel room prices and may not be sustainable going forward.

 

Friday, the bond market was stifled by a favorable second estimate report on fourth quarter GDP showing the economy expanded by 1.0% during the fourth quarter rather than the preliminary estimate of 0.7%.  The second estimate for GDP also easily exceeded the consensus forecast of 0.4%.  Higher inventories and net exports were responsible for the surprisingly higher growth in GDP.  Also, the GDP deflator for the fourth quarter, a measure of inflation, was revised slightly higher to 0.9% from an initially reported 0.8%.  Treasuries sold off sharply following this release.

 

There was a considerable amount of housing news this past week.  The National Association of Realtors reported Existing Home Sales for January increased to a 5.47 million annual rate, exceeding the consensus forecast of 5.30 million while recording the second-highest rate since 2007.  There currently is a 4.0 month supply of unsold homes inventory at the current sales rate.  This is significantly lower than the usual 6.0 month supply that is normally associated with a normal period of buying and selling.  The median home price in January for all housing types was $213,800, rising 8.2% on a year-over-year basis.

Furthermore, the Case-Shiller 20-city Index showed a year-over-year gain of 5.7% in December, the same as November.  The National Home Price Index recorded a slightly higher year-over-year gain of a 5.4% annual increase in December 2015 versus a 5.2% increase in November 2015.  On a month-over-month basis after seasonal adjustment, the National and 20-city Indexes both posted gains of 0.8% in December.

 

Also, the U.S. Census Bureau and the Department of Housing and Urban Development reported New Homes Sales fell to a seasonally adjusted annual rate of 494,000 in January, missing the consensus forecast of 523,000.  This was a decrease of 9.2% from the December reading of 544,000 and a decrease of 5.2% from the January 2015 rate of 521,000.

 

The median new home sales price for homes sold in January declined by more than $10,000 from $288,900 in December to $278,800 while the average sales price fell by $9,200 to $365,700.  The current sales rate at the end of January represents a supply of 5.8 months with 238,000 new homes for sale.

Elsewhere, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending February 19 showing the overall seasonally adjusted Market Composite Index decreased 4.3%.  On an unadjusted basis, the Composite Index decreased by 12% week-over-week.  The seasonally adjusted Purchase Index increased 2% from the prior reporting period while the Refinance Index decreased 8.0%.  Overall, the refinance portion of mortgage activity decreased to 61.0% of total applications from 64.3%.  The adjustable-rate mortgage segment of activity decreased to 5.8% of total applications from 6.7%.

 

For the week, the FNMA 3.0% coupon bond lost 18.8 basis points to end at $102.36 while the 10-year Treasury yield increased 2.1 basis points to end at 1.76%.  Stocks ended the week with the Dow Jones Industrial Average increasing 247.98 points to end at 16,639.97.  The NASDAQ Composite Index added 86.04 points to close at 4,590.47, and the S&P 500 Index gained 30.27 points to close at 1,948.05.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 4.72%, the NASDAQ Composite Index has lost 9.08%, and the S&P 500 Index has lost 4.92%.  This past week, the national average 30-year mortgage rate increased to 3.67% from 3.64% while the 15-year mortgage rate rose to 2.97% from 2.96%.  The 5/1 ARM mortgage rate increased to 2.98% from 2.90%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.51% from 3.48%.

 

Mortgage Rate Forecast with Chart

 

I have switched technical analysis from the FNMA 3.5% coupon bond to the FNMA 3.0% coupon bond to more accurately reflect the Federal Reserve’s mortgage bond buying focus and trading volume.  For the week, the FNMA 30-year 3.0% coupon bond ($102.36, -18.8 bp) traded within a wider 70 basis point range between a weekly intraday low of $102.22 and a weekly intraday high of 102.92 before closing at $102.36 on Friday.

 

As forecast last week, the bond essentially traded in a sideways direction this past week.  The bond did take a step lower on Friday, moving below primary support defined by the 23.6% Fibonacci retracement level at $102.378 toward secondary support at the 25-day moving average at $102.16.

 

The downward move resulted in a new sell signal from a negative crossover in the slow stochastic oscillator, so we could see some downward continuation for a test of support at the 25-day moving average this coming week before hopefully seeing a bounce higher.

 

The February Employment Situation Summary scheduled for release on Friday morning could be a catalyst for a major move in the bond market that could force the bond out of its recent sideways trading pattern.

 

If the Nonfarm Payrolls and Nonfarm Private Payrolls numbers are meaningfully greater than forecast, we could see bond prices move significantly below support levels.  Should this happen, mortgage rates would undoubtedly move slightly higher.  If the payrolls numbers are close to or worse than the consensus estimates, we could see bond prices improve with rates holding steady or slightly improving.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

ratecheart02292016

 Sourece:  MBSHighway

 

 

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Stock market investors suffered a tough week of losses while being bombarded by global economic news that turned out to be a mixed bag.  Some of the news was decent, but most was disappointing, resulting in a degree of market instability.

 

Monday, financial markets got off to a rough beginning for the month of February following weak global manufacturing reports.  Disappointing manufacturing data from the euro zone and China sent equity and crude oil prices lower for most of the session.  China’s data was particularly worrisome as it showed the fastest contraction in China’s enormous manufacturing sector in over three years.  In the U.S., the Institute for Supply Management reported manufacturing activity came in with a reading of 48.2 for January indicating industrial activity is contracting.

 

Elsewhere, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending January 29 showing the overall seasonally adjusted Market Composite Index decreased 2.6%.  On an unadjusted basis, the Composite Index decreased by 11% week-over-week.  The seasonally adjusted Purchase Index decreased 7.0% from the prior reporting period while the Refinance Index increased 0.3%.  Overall, the refinance portion of mortgage activity increased to 59.2% of total applications from 59.0%.  The adjustable-rate mortgage segment of activity decreased to 5.9% of total applications from 6.9%.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance decreased from 4.02% to 3.97%.

 

The week’s most significant economic report was released Friday when the stock and bond markets both moved lower following the Labor Department’s release of their Employment Situation Summary for January.  The January jobs report saw Nonfarm Payrolls increase by 151,000 and Nonfarm Private Payrolls increase by 158,000.  Those numbers missed the mark as the consensus forecast had called for the creation of 188,000 jobs in Nonfarm Payrolls and 183,000 in Nonfarm Private Payrolls.  Furthermore, the jobs numbers for these two categories were both revised lower for December with Nonfarm Payrolls revised down to 262,000 from 292,000 and Nonfarm Private Payrolls revised lower to 251,000 from 275,000.

 

While these were sizeable misses, the markets were more concerned about signs of wage inflation as Average Hourly Earnings rose 0.5% or 12 cents per hour and the Average Workweek crept higher to 34.6 hours from 34.5 hours.  The consensus estimate had been for a 0.3% rise in Average Hourly Earnings.

 

The Unemployment Rate edged lower to 4.9%, an eight-year low, as more workers dropped out of the labor force.  The labor force participation rate, or the segment of working-age Americans who are employed or at least looking for a job, remained at near four-decade lows at 62.7%.

 

However, the overall data suggests the labor market recovery remains firm as the manufacturing sector surprisingly added 29,000 positions, the most since August 2013.  The jobs report also supports the notion that another rate hike will be “on the table” when the Federal Reserve conducts their next FOMC meeting on March 15-16.  Expectations are now increasing that the Fed will raise rates by midyear or early in the second half of the year.

 

In response to the report, the dollar rose against a basket of currencies as traders saw a greater probability for more rate hikes this year.  With the strength in the dollar in the currency markets, crude oil prices retreated as did Treasuries and the major stock market indexes.

 

For the week, the FNMA 3.5% coupon bond gained 9.4 basis points to end at $104.75 while the 10-year Treasury yield decreased 8.0 basis points to end at 1.843%.  Stocks ended the week with the Dow Jones Industrial Average losing 261.33 points to end at 16,204.97.  The NASDAQ Composite Index dropped 250.81 points to close at 4,363.14, and the S&P 500 Index fell 60.19 points to close at 1,880.05.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 7.53%, the NASDAQ Composite Index has lost 14.77%, and the S&P 500 Index has lost 8.72%.  This past week, the national average 30-year mortgage rate decreased to 3.77% from 3.78% while the 15-year mortgage rate fell to 3.05% from 3.09%.  The 5/1 ARM mortgage rate decreased to 2.99% from 3.08%.  FHA 30-year rates fell from 3.50% to 3.35% while Jumbo 30-year rates decreased to 3.58% from 3.61%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($104.75, +9.4 bp) traded within a 56 basis point range between a weekly intraday low of $104.41 and a weekly intraday high of 104.97 before closing at $104.75 on Friday.

 

The bond appears to building out a sideways consolidation between support at $104.516 and resistance at $105.15.  Earlier in the week, the 25-day moving average crossed above the 100 and 200-day moving averages and this is a sign of market strength.  This is tempered however with the extreme “overbought” values in the stochastic oscillators.  These values have been extremely high over the past three weeks during the bond’s strong upward trend.  It is rather unusual to see such a sustained move higher while under extreme overbought conditions over this length of time.  As long as the bond remains above technical support, mortgage rates should hold relatively steady.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

02082016#1

Economic Calendar – for the Week of February 8, 2016

 

The economic calendar shrinks this coming week with half of the releases taking place on Friday.  Crude Oil Inventories on Wednesday, Initial Jobless Claims on Thursday, and Retail Sales on Friday will attract the most scrutiny among investors.  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
Feb 09 10:00 Wholesale Inventories Dec 0.0% -0.3%
Feb 10 07:00 MBA Mortgage Index 02/06 NA -2.6%
Feb 10 10:30 Crude Oil Inventories 02/06 NA +7.79M
Feb 10 14:00 Treasury Budget Jan NA -$14.4B
Feb 11 08:30 Initial Jobless Claims 02/06 280,000 277,000
Feb 11 08:30 Continuing Jobless Claims 01/30 NA 2,255K
Feb 12 08:30 Import Prices excluding oil Jan NA -0.4%
Feb 12 08:30 Export Prices excluding agriculture Jan NA -1.0%
Feb 12 08:30 Retail Sales Jan +0.2% -0.1%
Feb 12 08:30 Retail Sales excluding automobiles Jan 0.0% -0.1%
Feb 12 10:00 Business Inventories Dec +0.1% -0.2%
Feb 12 10:00 Univ. of Michigan Consumer Sentiment Index Feb 92.7 93.3

 

 

 

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