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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Weaker economic data coupled with declining interest rates overseas resulted in bond prices moving higher and yields moving lower during the week.  The financial markets continued to be linked to the performance of crude oil.  High yield bonds and stocks were given at least a temporary boost when crude oil prices climbed to a three-week high on rumors that a meeting between Russia and OPEC sometime in February could lead to an agreement on production cuts.

OPEC delegates later denied there was a meeting planned with Russia.

 

Wednesday, stocks fell sharply while bond prices rose following the Fed’s FOMC meeting.  Although Fed policymakers left rates unchanged, as widely expected, their accompanying policy statement left open the possibility of a rate increase in March.  While the Fed recognized recent global economic weakness and financial volatility, they also pointed to continuing strength in the U.S. labor market.

 

Weaker U.S. economic data included the Commerce Department’s first reading on 4th Quarter GDP for 2015 at a meager 0.7%.  This was lower than expectations of 0.9% and much lower than the final 3rd Quarter output of 2.0%.  The average quarterly GDP gain for 2015 moved lower to 1.8%, the lowest since 2014.  This report reflected decelerating personal consumption and downturns in nonresidential fixed investment and exports.  Also, Durable Goods were reported down 5.1%.  This was much lower than expectations of +0.2%.  When stripping out transportation durable goods were -1.2%. This report showed that spending remained sluggish due to weak manufacturing and the recent drop in oil.

 

There were several favorable reports for the Housing Sector during the week.  The FHFA House Price Index, which measures prices on single family homes, with conforming loan amounts, was up 0.5% in November.  On a year over year basis, home prices increased by 5.9%.  The Case Shiller Home Price Index, which tracks the changes in the value of residential real estate in 20 metropolitan regions across the US, showed that home prices increased by 0.9% in November.  On a year over year basis, home prices are up 5.8%, the strongest annual read in 16 months.

 

Both of these were “goldilocks” housing reports showing solid gains that were “not too hot,” “not too cold,” “just right.  The reports indicated the underlying fundamentals are very sustainable and should provide a great opportunity for potential borrowers.

 

Furthermore, December New Home Sales were reported up 10.8% to a 544,000 annualized pace.  This was much stronger than estimates of 500,000, and was the third best reading since 2008.  Foot traffic was higher, builder sentiment was strong, and the unusually warm weather likely helped.  The median home price on new homes, which was a bit high, fell about 4% to $288,900.  Inventory levels also improved.

 

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Pending Home Sales, which is a forward looking report since it measures signed contracts and not closings, was reported +0.1%, which was a bit of a miss from the 0.8% increase expected.  This was mostly due to low inventory, and because the number was for December, there may have been a slowdown toward the end of the month.

 

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The latest Mortgage Bankers Association report showed mortgage applications for the week ending January 22nd increased by 9%.  Refinances were up 11% and Purchases rose by 5%.  One thing to note is the adjustment that was added for the Martin Luther King Holiday.  We do not know how big the adjustment was, but it could be overstating applications because a lot of businesses remained open, and it likely did not keep potential homebuyers from looking for homes.  We should expect a decline for the next report, however, because the snow storms that hit the East Coast most likely kept individuals from looking for homes.

 

For the week, the FNMA 3.5% coupon bond gained 64.0 basis points to end at $104.66 while the 10-year Treasury yield decreased 13.5 basis points to end at 1.923%.  Stocks ended the week with the Dow Jones Industrial Average climbing 372.79 points to end at 16,466.30.  The NASDAQ Composite Index added 22.77 points to close at 4,613, and the S&P 500 Index gained 33.34 points to close at 1,940.24.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 5.82%, the NASDAQ Composite Index has lost 8.53%, and the S&P 500 Index has lost 5.34%.  This past week, the national average 30-year mortgage rate decreased to 3.78% from 3.88% while the 15-year mortgage rate fell to 3.09% from 3.15%.  The 5/1 ARM mortgage rate increased to 3.08% from 3.05%.  FHA 30-year rates held steady at 3.50% while Jumbo 30-year rates decreased to 3.61% from 3.72%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($104.66, +64.0 bp) traded within a 75 basis point range between a weekly intraday low of $104.05 and a weekly intraday high of 104.80 before closing at $104.66 on Friday.  The bond enjoyed a steady climb higher on weaker economic news during the week, but traded down from its best level on Friday as the stock market surged higher when the Bank of Japan announced a surprising rate cut to send rates into negative territory.

 

The stochastic oscillators are at extremely overbought levels with maximum values of “100” – they can’t move any higher.  A test of support at $104.52 is more likely to take place before a test of resistance at $105.15.  As long as the bond trades between these two levels, mortgage rates should hold steady with minor fluctuations in either direction.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

02012016#3

 

Economic Calendar – for the Week of February 1, 2016

 

The economic calendar expands this coming week with several key releases including Monday’s Personal Income and Spending report with Core PCE Prices for December and the January Employment Situation Summary.  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 01 08:30 Personal Income Dec 0.2% 0.3%
Feb 01 08:30 Personal Spending Dec 0.2% 0.3%
Feb 01 08:30 Core PCE Prices Dec 0.1% 0.1%
Feb 01 10:00 Construction Spending Dec 0.5% -0.4%
Feb 01 10:00 ISM Index Jan 48.3 48.2
Feb 03 07:00 MBA Mortgage Index 01/30 NA +8.8%
Feb 03 08:15 ADP Employment Change Jan 190K 257K
Feb 03 10:00 ISM Services Index Jan 55.0 55.3
Feb 03 10:30 Crude Oil Inventories 01/30 NA 8.383M
Feb 04 07:30 Challenger Job Cuts Jan NA -27.6%
Feb 04 08:30 Initial Jobless Claims 01/30 275K 278K
Feb 04 08:30 Continuing Jobless Claims 01/23 2253K 2268K
Feb 04 08:30 Prelim. 4th Qtr. Productivity Qtr. 4 -1.7% 2.2%
Feb 04 08:30 Prelim. 4th Qtr. Unit Labor Costs Qtr. 4 3.8% 1.8%
Feb 04 10:00 Factory Orders Dec -2.6% -0.2%
Feb 05 08:30 Nonfarm Payrolls Jan 188K 292K
Feb 05 08:30 Nonfarm Private Payrolls Jan 183K 275K
Feb 05 08:30 Unemployment Rate Jan 5.0% 5.0%
Feb 05 08:30 Hourly Earnings Jan 0.3% 0.0%
Feb 05 08:30 Average Workweek Jan 34.5 34.5
Feb 05 08:30 Balance of Trade Dec -$43.5B -$42.4B

 

 

 

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

March 2016 15-16, (Tuesday-Wednesday)* 16% Chance
April 2016 26-27, (Tuesday-Wednesday) 21% Chance
June 2016 14-15, (Tuesday-Wednesday)* 33% Chance
July 2016 26-27, (Tuesday-Wednesday) 35% Chance
September 2016 20-21, (Tuesday-Wednesday) * 43% Chance
November 2016 1-2, (Tuesday-Wednesday) 46% Chance
December 2016 20-21 (Tuesday-Wednesday)* 53% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 56% 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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This past week the stock market rallied during a Christmas holiday-shortened week usually characterized by lower trading volumes.  A sudden rebound in crude oil prices from 11-year lows encouraged investors to buy stocks while reducing demand for safe-haven assets such as bonds.

 

Crude oil for February delivery jumped from under $35 per barrel to just over $38 per barrel after the Energy Information Administration reported crude oil inventories fell 5.877 million barrels in the week ended December 18.  The sudden gains in crude oil prices, which just this past Monday reached their lowest level since 2009, pressured Treasuries lower while sending their yields higher.

 

There were several economic reports released during the week that were, for the most part, favorable for the stock market.  First, the U.S. Commerce Department reported revised data for Gross Domestic Product (GDP).  The third estimate for third quarter GDP showed there was 2% growth, which equaled the consensus forecast.  Also matching the consensus forecast was the third estimate for third quarter GDP Deflator coming at 1.3%.

 

In housing, the Federal Housing Finance Agency (FHFA) reported U.S. home prices increased 0.5% month-over-month in October.  The consensus forecast for October had called for an increase of 0.4%.  Compared to October 2014, the FHFA Housing Price Index has gained 6.1%.  The prior Index reading of a 0.8% gain for September was revised lower to 0.7%.

 

Also, the National Association of Realtors reported Existing Home Sales fell 10.5% to a seasonally-adjusted annual rate of 4.76 million homes in November following a 3.4% decline in October.  The consensus estimate was for a seasonally-adjusted annual rate of 5.30 million homes.  At first glance, the data appears worse than it probably is, as the underlying business may not be as weak as the headline number suggests.

 

New regulations (TILA-RESPA Integrated Disclosure rule – “Know Before You Owe” rule) designed to give borrowers three business days to review loan documents before the mortgage closes have extended the time that it takes buyers to close on their purchase, going from an average of 36 days to 41.  Consequently, a large percentage of November’s sales were driven into December.  Also on a positive note, buyer foot traffic is higher and properties are generally spending less time on the market.  Housing inventory remains low and has declined 1.9% year-over-year with 2.04 million homes currently for sale.

#1!12282015

 

Furthermore, the Commerce Department reported November New Homes Sales climbed 4.3% to a seasonally adjusted annual rate of 490,000 and by 9.1% on a year-to-year basis.  This helped to soothe investors concerned over the disappointing Existing Home Sales data for November released yesterday.  The housing market is clearly on the rise and should solidly support GDP in 2016.

 

The Census Bureau also reported the median sales price for new homes sold in November increased by more than $23,000 from $281,500 in October to $305,000 with the average sales price climbing almost $9,000 to $374,900.  The number of new homes for sale totaled 232,000 representing a 5.7 month supply at the current sales rate.

 

The Mortgage Bankers Association released their latest Mortgage Application Data for the week ending December 18 showing the overall Market Composite Index increased 7.3%.  The seasonally adjusted Purchase Index increased 4.0% from a week earlier while the Refinance Index increased 11.0% from the prior week.  Overall, the refinance portion of mortgage activity increased to 62.8% of total applications from 60.7%.  The adjustable-rate mortgage segment of activity increased to 6.1% of total applications from 6.0% the prior week.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance increased from 4.14% to 4.16%.

 

For the week, the FNMA 3.5% coupon bond lost 29.7 basis points to end at $102.95 while the 10-year Treasury yield increased 3.9 basis points to end at 2.24%.  Stocks ended the week with the Dow Jones Industrial Average rising 423.62 points to end at 17,552.17.  The NASDAQ Composite Index gained 125.41 points to close at 5,048.49, and the S&P 500 Index added 55.44 points to close at 2,060.99.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 1.54%, the NASDAQ Composite Index has gained 6.19%, and the S&P 500 Index has added 0.10%.  This past week, the national average 30-year mortgage rate increased to 4.10% from 4.02% while the 15-year mortgage rate rose to 3.30% from 3.25%.  The 5/1 ARM mortgage rate increased to 3.00% from 2.97%.  FHA 30-year rates remained unchanged at 3.75% while Jumbo 30-year rates increased to 3.93% from 3.84%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($102.95, -29.7 bp) traded within a narrower 64 basis point range between a weekly intraday high of 103.42 and a weekly intraday low of $102.78 before closing at $102.95 on Thursday.

 

Last Monday, the bond traded into resistance at the 25-day moving average and subsequently moved lower through support at the 38.2% Fibonacci retracement level at $103.16, which now reverts to technical resistance.  Technical support is now found at $102.78.  Thursday, the bond traded to complete a small two-day “Engulfing Lines” candlestick pattern – a buy signal.  The slow stochastic oscillator remains “oversold” following a negative crossover sell signal from Wednesday suggesting the bond will turn higher in the near future.  Should this happen, mortgage rates could improve slightly.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

 #2!12282015

 

 

 

 

Economic Calendar – for the Week of December 28

 

The economic calendar lightens up ahead of this week’s New Year’s holiday.  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 29 09:00 Case-Shiller 20-city Index Oct 5.4% 5.5%
Dec 29 10:00 Consumer Confidence Index Dec 93.5 90.4
Dec 30 07:00 MBA Mortgage Purchase Index 12/26 NA 7.3%
Dec 30 10:00 Pending Home Sales Nov 0.5% 0.2%
Dec 30 10:30 Crude Oil Inventories 12/26 NA -5.877M
Dec 31 08:30 Initial Jobless Claims 12/26 270,000 267,000
Dec 31 08:30 Continuing Jobless Claims 12/19 2,213K 2,195K
Dec 31 09:45 Chicago Purchase Managers Index Dec 50.1 48.7

 

 

 

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

January 2016 26-27, (Tuesday-Wednesday) 10% Chance
March 2016 15-16, (Tuesday-Wednesday)* 55% Chance
April 2016 26-27, (Tuesday-Wednesday) 62% Chance
June 2016 14-15, (Tuesday-Wednesday)* 76% Chance
July 2016 26-27, (Tuesday-Wednesday) 82% Chance
September 2016 20-21, (Tuesday-Wednesday) * 87% Chance
November 2016 1-2, (Tuesday-Wednesday) 90% Chance
December 2016 20-21 (Tuesday-Wednesday)* 92% 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.

 

 

source:  mbshighway

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The crude oil market was the underlying force driving the financial markets this past week. West Texas Intermediate crude oil prices declined throughout the week moving from close to $40 per barrel to almost $35 a barrel for the first time since 2009. The selling in crude oil was especially brutal on Friday after the International Energy Agency (IEA) forecast a further decline in oil prices during 2016 on over-supply concerns. About 20 percent of the stock market is directly tied to crude oil prices so this precipitous fall in oil prices drove the stock market lower while providing a modest boost for the bond market.

 

Oil prices have now plummeted over 65% since the middle of last year to create considerable turmoil within the energy sector. Other industries within the commodities arena are also in financial trouble as prices for raw materials like copper, iron ore, aluminum, and platinum have recently plunged to crisis levels.

 

When the world economy was booming, many energy, mining and metals companies financed their expanding operations with debt from the “junk bond market.” Now, Standard & Poor’s rating service is saying 72% of these bonds are “distressed” and this high level of distressed bonds is an indicator that a greater number of corporate defaults are on the near horizon.

 

The junk bond market environment has been “terrible” lately, and for good reason. About $180 billion of debt is classified as distressed, the highest such level since the end of the Great Recession and much of it is in energy companies. Corporate defaults recently surpassed the 100 level for the year with about one-third coming from oil, gas or energy companies. Below is a chart of West Texas Intermediate crude since November of this year showing the sharp decline in oil prices.

 

12142015chart1

 

In housing, CoreLogic reported foreclosure inventory fell 21.5% in October and completed foreclosures were down 27.1% compared with a year ago. Approximately 463,000 homes made up the national foreclosure inventory in October representing 1.2% of all mortgaged homes. The percentage of mortgages in serious delinquency including those in foreclosure or owned by lenders, hit an almost eight-year low of 3.4%.

 

In the world of mortgages, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending December 4 showing the overall Market Composite Index increased 1.2%. The seasonally adjusted Purchase Index increased 0.04% from a week earlier while the Refinance Index increased 4.0% from the prior week. Overall, the refinance portion of mortgage activity increased to 58.7% of total applications from 56.6%. The adjustable-rate mortgage segment of activity increased to 6.2% of total applications from 6.1% the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance increased to 4.14% from 4.12%.

 

For the week, the FNMA 3.5% coupon bond gained 12.5 basis points to end at $103.50 while the 10-year Treasury yield decreased 14.1 basis points to end at 2.13%. Stocks ended the week with the NASDAQ Composite losing 208.80 points to close at 4,933.47. The Dow Jones Industrial Average fell 582.42 points to end at 17,265.21, and the S&P 500 lost 79.32 points to close at 2,012.37.

 

Year to date, and exclusive of any dividends, the NASDAQ Composite has gained 4.00%, the Dow Jones Industrial Average has lost 3.231%, and the S&P 500 has declined 2.31%. This past week, the national average 30-year mortgage rate decreased to 3.98% from 4.03% while the 15-year mortgage rate fell to 3.23% from 3.25%. The 5/1 ARM mortgage rate increased to 3.02% from 2.98%. FHA 30-year rates fell from 3.72% to 3.65% while Jumbo 30-year rates decreased to 3.82% from 3.85%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($103.50, +12.5 bp) traded within a 61 basis point range between a weekly intraday high of 103.69 and a weekly intraday low of $103.08 before closing at $103.50 on Friday.

 

The bond reversed course on Friday as the stock market sold off to move above technical resistance from the 25-day moving average at $103.34. The fast stochastic oscillator is showing a positive crossover buy signal while the slow stochastic oscillator is making a turn higher and looks to provide a confirming buy signal in the next session or two. The next higher resistance level is found at the 100-day moving average at $103.76. With Friday’s strong upward reversal, we could see interest rates improve slightly by the end of the week.

 

12142015chart2

 

 

 

The economic calendar picks up some steam this week with reports on inflation, manufacturing, housing, and the latest Federal Reserve monetary policy decision. 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 15 08:30 Consumer Price Index (CPI) Nov 0.0% 0.2%
Dec 15 08:30 Core Consumer Price Index Nov 0.2% 0.2%
Dec 15 08:30 N.Y. Empire State Manufacturing Index Dec -5.9 -10.7
Dec 15 10:00 NAHB Housing Market Index Dec 63 62
Dec 15 16:00 Net Long-Term TIC Flows Oct NA $33.6B
Dec 16 07:00 MBA Mortgage Purchase Index 12/12 NA 1.2%
Dec 16 08:30 Building Permits Nov 1150K 1150K
Dec 16 08:30 Housing Starts Nov 1135K 1060K
Dec 16 09:15 Industrial Production Nov -0.1% -0.2%
Dec 16 09:15 Capacity Utilization Nov 77.5% 77.5%
Dec 16 10:30 Crude Oil Inventories 12/12 NA -3.568M
Dec 16 14:00 FOMC Rate Decision Dec 0.50% 0.25%
Dec 17 08:30 Initial Jobless Claims 12/12 276K 282K
Dec 17 08:30 Continuing Jobless Claims 12/12 2211K 2243K
Dec 17 08:30 Philadelphia Fed Manufacturing Index Dec 2.0 1.9
Dec 17 08:30 Current Account Balance Qtr. 3 -$114.2B -$109.7B
Dec 17 10:00 Index of Leading Economic Indicators Nov NA 0.6%

 

 

from:  MBSHighway

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Along with Wednesday’s release of the minutes from the Federal Reserve’s FOMC meeting from October 27-28, a string of noteworthy economic indicators and closely watched statements by Fed officials caused Treasury yields and bond prices to fluctuate through the week.

 

The FOMC minutes showed a clear majority of Fed officials were agreeable to a December rate hike while a dovish minority of FOMC members believed the use of the phrase “next meeting” in the policy statement could have been misinterpreted by financial markets as too strong of a signal for a rate hike.

 

Bond yields rallied early in the week, as the Consumer Price Index (CPI) increased for the first time in three months with a gain of 0.2% in October to match the consensus forecast. An additional 0.2% gain was recorded for the year-over-year headline CPI while the Core CPI reading, which excludes food and energy, was 0.2% higher on the monthly reading and was at 1.9% on the year-over-year reading for October.

 

Housing Starts declined 11% during October to a seasonally adjusted annual rate of 1.06 million units, the lowest level since March. Yet, October Starts remained above one million units for the seventh straight month, the longest consecutive monthly run since 2007. This suggests a sustainable housing market recovery remains intact.

 

Meanwhile, Building Permits, a much more forward-looking metric, increased 4.1% to a 1.150 million unit rate last month, exceeding the consensus forecast of 1.137 million. Single family building permits increased 2.4% in October to their highest level since December 2007. Multi-family building permits increased 6.8%. September’s rate of 1,105,000 permits was revised higher from 1,103,000.

 

Also, the November National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index fell 3 points from an upwardly revised reading of 65 in October to 62. Although the November reading was lower than the consensus forecast of 64.5, the revised October reading was the highest since the end of the housing boom in late 2005.

 

As for mortgages, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending November 13 showing the overall Market Composite Index increased 6.2%. The Refinance Index increased 2.0% from the prior week, while the seasonally adjusted Purchase Index increased by 12% from a week earlier. Overall, the refinance portion of mortgage activity decreased to 58.6% of total applications from 59.8%. The adjustable-rate mortgage segment of activity decreased to 6.3% of total applications from 6.6% the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance rose from 4.12% to 4.18%, its highest level since July 2015.

 

On Friday, the bond market stalled with the yield curve flattening in anticipation of the Fed raising rates in December. Bond traders believe a rate hike within the current environment of low inflation and weakening commodity prices will push yields in shorter-term treasuries higher relative to longer-term Treasuries. This was evident when the yield gap or spread between the two and ten-year Treasuries and the yield gap between five-year and 30-year Treasuries contracted to their tightest levels since August.

 

For the week, the FNMA 3.5% coupon bond gained 12.5 basis points to end at $103.31 while the 10-year Treasury yield decreased 1.1 basis points to end at 2.26%. Stocks ended the week with the NASDAQ Composite gaining 177.04 points to close at 5,104.92. The Dow Jones Industrial Average added 578.57 points to end at 17,823.81, and the S&P 500 increased 66.13 points to close at 2,089.17.

 

Year to date, and exclusive of any dividends, the NASDAQ Composite has gained 7.23%, the Dow Jones Industrial Average has gained 0.004%, and the S&P 500 has added 1.45%. This past week, the national average 30-year mortgage rate decreased to 4.00% from 4.03% while the 15-year mortgage rate remained unchanged at 3.24%. The 5/1 ARM mortgage rate decreased to 2.97% from 3.00%. FHA 30-year rates remained unchanged at 3.75% while Jumbo 30-year rates decreased to 3.83% from 3.84%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($103.31, +12.5 bp) traded within a narrower 44 basis point range between a weekly intraday high of 103.52 and a weekly intraday low of $103.08 before closing at $103.31 on Friday. After trending higher Monday through Thursday, the bond reversed course on Friday in a move toward support located at the 38.2% Fibonacci retracement level at $103.16. Friday’s negative action sent the bond lower to touch its ascending lower trend line. This line is formed by connecting the intra-day lows from the low on November 10 onward to form the lower trend line. A break below this line would be considered a bearish event. The slow stochastic oscillator is showing a loss of momentum and is flattening out, suggesting the bond could subsequently trade sideways and be range-bound between support and resistance located at the 100-day moving average at $103.67. As a result, we shouldn’t see much change in rates this coming Thanksgiving holiday week that will be characterized by lower than average trading volume

 

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 mortgage rates

from: mbshighway

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The financial markets were stunned this past week when China announced a surprise devaluation of their currency, the yuan. On Tuesday, traders woke up to overnight news that China devalued its currency by a record 1.9%. This surprising move threw a wrench into most global currency and equity markets, including ours. The currency move by China resulted in the sharpest selloff among Asian currencies in almost seven years. Meanwhile, the U.S. dollar strengthened against most other country’s currencies and there were fears that China’s devaluation could ignite a global currency war. The move by China drove stock prices lower and bond prices higher.

 

China’s move to devalue its currency is considered a sign of economic weakness and supports China’s exporters by making the products of the rest of the world less competitive with China’s. Some market mavens believe the Chinese government’s move toward a freely-floating yuan will result in the Federal Reserve postponing an interest rate hike. A rate hike in the U.S. would make the U.S. dollar stronger than it already is against the yuan. An even stronger dollar would be a further hindrance for U.S. multinational corporations that rely on foreign sales for a significant portion of their sales and profits.

 

However, the surprise devaluation of China’s currency may have an indirect but important influence on our residential mortgage market. China’s devaluation signals growth in the world’s second largest economy is dwindling and this might be triggering a flight of capital from China. When investors see such signals, they tend to pull money out of equities and invest more in bonds and that would help to sustain lower mortgage rates. Rumors are circulating that China’s currency may be overvalued by as much as 10% and will continue to slide lower. By the end of trading on Friday, forces within international currency markets pushed China’s currency three percent lower for the week.

 

In housing news, CoreLogic reported that 472,000 homes were in some form of foreclosure compared to 664,000 last year, a decline of 28.9%. The seriously delinquent rate is 3.5%, the lowest level since January 2008.

 

Mortgage news included the Mortgage Bankers Association release of their Mortgage Application Data for the week ending August 7, 2015. Overall the Index increased +0.1%. The Refinance Index increased 3.0% from the prior week to its highest level since May, while the seasonally adjusted Purchase Index fell by 4.0% from a week earlier and is now 20% higher year-over-year.

 

Overall, the refinance portion of mortgage activity rose to 53.1% of total applications from 51.3% the previous week and was the highest the refinancing share has been since April. The adjustable-rate mortgage segment of activity increased to 6.8% of total applications and was unchanged from the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance remained unchanged 4.13%.

 

A couple of Treasury auctions on Wednesday and Thursday helped to drive bond prices lower. On Wednesday, the Treasury conducted a $24 billion 10-year note auction that was met with very weak demand as indicated by a bid-to-cover ratio of 2.40, the lowest such ratio since March 2009. CNBC’s Rick Santelli graded the 10-year Treasury note auction a “D”. As a result of the weak demand, the Treasury complex sold off with the 10-year note yield moving higher from 2.0857% to 2.1445%.

 

On Thursday, the Treasury conducted a $16 billion 30-year Treasury bond auction that, like Wednesday’s 10-year note auction, was met with lower demand with a bid-to-cover ratio below the low end of the average range. The bid-to-cover ratio was a rather paltry 2.26 versus the prior 12-auction average of 2.39. CNBC’s Rick Santelli graded the 30-year bond auction a “D+”. Bond prices fell after the auction results were released.

 

Also Thursday, the Commerce Department reported Retail Sales rose 0.6% in July following an upwardly revised flat reading for June. Robust back to school sales provided an overall boost to sales. Excluding auto sales, Retail Sales increased 0.4% for the month. Over the trailing 12 month period, Retail Sales have increased 2.4% while the average hourly wage growth has grown by just 2.1%, an indication that consumers are beginning to open their pocketbooks a little wider after a prolonged period of caution during uncertain economic times. Although consumer spending accounts for 70% of the economy, Retail Sales account for only about 33% of spending.

 

On Friday, the economic news was supportive for the stock market. Specifically, the Producer Price Index (PPI) edged 0.2% higher during July, which slightly surpassed the consensus forecast of 0.1%. The Core PPI, which excludes food and energy prices, also moved a little higher at 0.3% versus the consensus estimate of 0.1%. However, these figures are still quite mild, and do not suggest inflationary pressures, at least at the wholesale level, are becoming a problem. We will get a better view of inflation at the consumer level on Wednesday when the consumer price index will be reported.

 

Meanwhile, Industrial Production increased 0.6% in July, which was better than the consensus forecast of 0.3%. The gain was partly due to strong automobile production during the month. Elsewhere, the University of Michigan’s Consumer Sentiment Index showed a preliminary reading of 92.9 for August, which was down slightly from July’s reading of 93.1, and just short of the consensus expectation of 93.7.

 

For the week, the FNMA 3.5% coupon bond lost 42.2 basis points to end at $103.34 while the 10-year Treasury yield gained 2.5 basis points to end at 2.20%. Stocks ended the week with the NASDAQ Composite adding 4.70 points to close at 5,048.24. The Dow Jones Industrial Average gained 104.02 points to end at 17,477.40, and the S&P 500 rose 13.97 points to close at 2,091.54.

 

To date for 2015, and exclusive of any dividends, the NASDAQ Composite has gained 6.18%, the Dow Jones Industrial Average has lost 1.98%, and the S&P 500 has increased 1.56%. The national average 30-year mortgage rate moved to 4.00% from 3.98% while the 15-year mortgage rate increased to 3.25% from 3.23%. The 5/1 ARM mortgage rate fell to 2.97% from 3.00%. FHA 30-year rates also held steady at 3.75% while Jumbo 30-year rates rose to 3.80% from 3.77%.

 

For the week, the FNMA 30-year 3.5% coupon bond ($103.34, -42.2 bp) traded within an 85 basis point range between a weekly intraday high of 104.13 and a weekly intraday low of $103.28 before closing at $103.34 on Friday. After a down day last Monday, the bond popped higher on Tuesday only to give way to some selling from Wednesday through Friday. There was a new sell signal on Wednesday from a negative stochastic crossover and the bond’s price continued lower on Thursday and Friday.

 

On Friday, the bond was pressured lower from the open and subsequently embarked on a test of support at the 25-day moving average at $103.29 before pulling up from the day’s low price. The day’s negative performance resulted in a bearish engulfing lines candlestick pattern, typically a sell signal.

 

However, there are a couple of additional technical support levels lying just below the 25-day moving average that may prevent a follow-through decline this week. The 61.8% Fibonacci retracement level at $103.16 and the 50-day moving average at $103.09 should provide a solid secondary layer of support. Overhead resistance continues at the 100-day moving average at $103.85.

 

This coming week we could see the bond’s price continue to move a little lower to test the previously mentioned support levels. We should see a test of support with a subsequent bounce higher. If we can get a bounce higher from this triple layer of support, we should continue to see stable mortgage rates during the week.

from MBSHighway

 

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Mortgage rate update

Jul 7, 2014
Mortgage rates ended last week worse by about a half a discount point than they started.

 

What’s on the agenda for this week?

Quiet today after the holiday; there is not much this week in terms of economic reports. Treasury will auction $61B of notes and bonds this week, 3 yrs, 10 yrs and 30 yr bond. Markets should have time to digest the June employment report that looked very good on the headlines but still not as good as the headlines would suggest. Businesses added 288K jobs in June, better than what had been expected, the unemployment rate fell to 6.1%, getting close to what some economists see as full employment. The labor participation rate didn’t change, at 62.8%, meaning about 38% of the possible employment sector have simply quit looking. The U-6 number continued to show about 24% of the work force are employed part-time but want a full time job. Overall employment is increasing but the dollars earned in many of the jobs are not enough to increase discretionary spending.

 

The well-worn adage that characterizes investing, “climbing a wall of worry”, is definitely alive and well in this run-up of equity market prices. The stock market continues to increase and as the indexes continue to make new highs, the worry factor seems to increase. Yet no matter the debate about wages too low, housing markets struggling, and health care costs taking away potential consumer spending; it is onward and upward for stocks. As you know, we have been one of those questioning the drive higher in stocks, but still we have stayed fully vested in stock indexes (personally). Never try to trade against the trend no matter how worrisome it is. Relax; looks like the stock market will continue to increase as long as the Fed forces investors into it. Low interest rates leave little choice other than stocks. Not throwing in the towel, just recognizing the momentary reality.

 

There are no normal economic reports today, and not much this week. The weekly claims on Thursday, May consumer credit tomorrow, the FOMC minutes on Wednesday and Treasury auctions is about it. At 9:30 this morning the DJIA -65, NASDAQ -11, S&P -6; 10 yr note 2.63% -1 bps. 30 yr MBS price unchanged.

 

Gallup US consumer spending measure declined in June; Americans’ self-reports of daily spending fell back slightly in June, averaging $91 for the month. This is down slightly from a six-year high of $98 in May, but is similar to the $90 average found in June 2013. This $91 figure for June suggests a mixed bag for the economy. While it represents a much higher level of consumer spending than the $60 to $70 averages found for much of 2009 to 2012, it also represents the first decline in the monthly average since January of this year.

 

This Week’s Calendar:

 

Tuesday,

10:00 am May JOLTS job openings report (4.4 mil frm 4.455 mil in April)

1:00 pm $27B 3 yr note auction

3:00 PM May consumer credit (+$17.5B frm +$26.8B in April)

Wednesday,

7:00 am weekly MBA mortgage applications

1:00 pm $21B 10 yr auction (re-open frm May’s 10 yr)

2:00 pm FOMC minutes frm 6/18 meeting

Thursday,

8:30 weekly jobless claims (315K unch)

10:00 am May wholesale inventories (+0.6%)

1:00 pm $13B 30 yr bond auction (re-open frm May’s 30 yr bond)

Friday,

2:00 pm June Treasury budget (+$86.5B frm -$130B in April)

 

So far this morning the bond and mortgage markets are flat with little change frm last Thursday; the 10 -1 bp at 2.63% but MBS prices unchanged. Technically, bearish; as long as the stock market is in favor it is unlikely interest rates will decline. The bellwether 10 yr is managing to hold below its 100 day average on its yield.

 

 

 

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