Mortgage rates improved last week. Here is the week’s review of the news that affected the financial markets during this past week.

 

Monday… It was another one of those rollercoaster days with market volatility. The major equity indexes began trading to the upside only to fade lower before recovering during the last 90 minutes to close near the intraday session highs. The Dow Jones Industrial Average underwent a more than 180-point swing during the day while the NASDAQ experienced a 78 point swing. A mixture of good and bad news created the volatile trading environment. Traders were pleased with better-than-expected Pending Home Sales news and merger and acquisition news of Pfizer’s offer to acquire AstraZeneca. This news was offset by fears of intensifying geopolitical turmoil in Ukraine and the potential negative economic impact additional economic sanctions imposed on Russia by the U.S. and Western Europe could have on world financial and equities markets. Pending Home Sales for March were reported at a much higher 3.4% vs. expectations of 1.0%, and far above February’s reading of -0.5%.

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On the day, the Dow Jones Industrial Average added 87.28 points to close at 16,448.74; the S&P 500 rose 6.03 points to finish at 1,869.43; and the Nasdaq Composite Index fell 1.16 points to close at 4,074.40. In the bond market, interest rates edged higher with the yield on the 10-year Treasury rising by 4.4 basis points to close at 2.708% while the FNMA 30-year 4% coupon bond fell by 14.06 basis points to close at $104.39.

 

Tuesday… The major U.S. equity indexes were able to continue yesterday’s late-day rally with a combination of better-than-expected quarterly earnings reports and reassuring news out of Eastern Europe that somewhat eased investor concerns. In housing news, the Case Shiller Home Price Index for February was reported at a decent 12.9% year-over-year pace. Before considering seasonal adjustments, the 20-city index was unchanged. After seasonal adjustments, the report was up 0.8% or 9.6% higher on an annualized basis.

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In other economic news, the Conference Board, a New York City-based research organization, reported Consumer Confidence for April retreated slightly from an upwardly revised rate of 83.9 in March to 82.3. Although April’s figure was a little weaker than expected, it was still relatively high and suggests the level of business activity going forward could be respectable.

For the day, the Dow Jones Industrial Average gained 86.63 points to close at 16,535.37, the S&P 500 Index added 8.90 points to close at 1,878.33, and the Nasdaq Composite Index rose 29.14 points to end at 4,103.54. The yield on the 10-year Treasury fell 1.5 basis points to 2.69% while the FNMA 30-year 4% coupon bond gained 3.1 basis points to $104.42.

 

Wednesday… The Dow and S&P 500 clawed higher and even the NASDAQ turned positive after the Federal Reserve ignored a dismal initial reading on first-quarter GDP and provided an optimistic assessment of the economy’s prospects. Bonds also had a positive day with falling yields. The Fed stuck to its recent plan of tapering by $10 billion per month leaving Fed purchases of $45 billion per month comprised of $25 billion in Treasuries and $20 billion in mortgage backed securities (MBS). The key statement by the Fed was “The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.”

 

Overall, economic news was mixed today. The ADP Employment Report for April showed 220,000 private sector jobs created vs. expectations of 210,000, plus March’s jobs number was revised from 191,000 to a significantly higher 209,000. This positive report suggested the official Bureau of Labor Statistics jobs number on Friday would be a strong one.

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On the negative side of the news, the Advance 1st Quarter GDP was reported at a very dismal 0.1%, far weaker than the 1.2% forecast and well below the 2.6% reported for the final quarter of 2013. Although weather was being blamed as a culprit for the depressing reading, there seems to be a fundamental, underlying weakness in the U.S. economy.

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In housing news, the Mortgage Bankers Association reported their weekly Market Composite Index,a measure of mortgage loan application volume, was down 5.9% for the week ending April 25th. The Market Composite Index is now at its lowest level since December 2000. The Purchase Index fell 4% and is now 21% lower than the same week one year ago. The Refinance Index dropped 7% from the prior week to the lowest level since 2008. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances remained unchanged at 4.49%, with 0.38 points paid for 80% loan-to-value ratio loans.  The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances decreased to 4.37%, with 0.14 points paid. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.17% from 4.20%, with 0.10 points paid.

 

At the close, the Dow Jones Industrial Average added 45.47 points to reach 16,580.84; the broader S&P 500 Index gained 5.62 points to close at 1,883.95; and the NASDAQ added 11.02 points to end at 4,114.56. The yield on the 10-year Treasury fell 4.6 basis points to 2.647% while the FNMA 30-year 4% coupon bond added 35.94 basis points to close at $104.78.

 

Thursday… Stock market action was choppy and the session end “mixed” with the Dow Industrials and S&P 500 losing some steam while the NASDAQ recorded a moderate gain.

Equities could see some tough sledding in the near term as their recent rally pushes the Dow Industrials and S&P 500 toward prior market peaks where technical resistance resides. Plus, the temporary stock market boost provided by 1st quarter earnings season will soon be winding down at the same time we are entering the month of May. We will have to see whether or not the old stock market adage of “sell in May and go away” will prove true this year as it has so many times in the past.

 

Economic reports were also “mixed” today. Initial Jobless Claims for the week ending April 26 were reported at 344,000, higher than the 315,000 forecast. The four-week moving average for new claims rose only 3,000 to 320,000. A Labor Department analyst said there were no special factors influencing the data and that the jobless claims data has no bearing on Friday’s April employment report, as it falls outside the survey period.

 

Further, construction spending rose only 0.2% in March, while many analysts had been looking for a stronger 0.4% number.  On a positive note, the ISM Manufacturing Index came in at 54.9 in April, which was better than the 54.5 that had been expected. Also, Personal Income and Spending for March was reported with Personal Income rising by 0.5% while Spending increased by 0.9%. Both numbers were higher than forecasts of 0.4% and 0.9% respectively. Personal Spending was the highest number seen since 2009. The Personal Consumption Expenditure (PCE) was also included in this report and is the Fed’s favorite measure of inflation. The PCE came in at 1.1% overall with a core reading of 1.2%. The PCE conveniently does not include an “owners’ equivalent rent” component that makes up about 25% of the Consumer Price Index and this is why the PCE inflation number is much lower than the CPI inflation number.

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For the session, the Dow Jones Industrial Average closed down 21.97 points to close at 16,558.87. The S&P 500 lost 0.27 of a point to finish at 1,883.68, and the Nasdaq Composite Index added 12.89 points to end at 4,127.45. The yield on the 10-year Treasury fell 3.4 basis points to end at 2.613%. The FNMA 30-year 4% coupon bond jumped 18.75 basis points to finish at $104.95.

 

Friday… The big news for the day was the Labor Department’s April 2014 Employment Situation Report (aka the “Jobs Report”). Although on the surface the headline numbers seemed strong with 288,000 jobs created vs. 210,000 jobs forecast, the unemployment rate falling to 6.3% from 6.7%, and upward job revisions for February (222K from 197K) and March (203K from 192K), in reality this was not a great employment report. Here are several observations after digging deeper into the data:

 

  • The Household Survey employment dropped by 73,000.  The civilian labor force contracted by 806,000 — yes, CONTRACTED!
  • Reverting back to where we were in December, the labor force participation rate fell by 0.4% to 62.8% and is now back to a level last seen in April 1978.
  • “Not in labor force” topped 92 million for the first time ever.
  • Full-time workers went up by 412,000; part-timers fell by 398,000.
  • The economy has added 49,000 temporary jobs in the past two months. Temporary employment continues to hit new all-time highs month after month. This month, the category accounted for 8% of all job growth, though it’s only about 2% of all employment.
  • While, the white teen unemployment rate dropped from 18.3% to 15.9%, the African-American teen rate went up from 36.1% to 36.8%.

 

Other Comments: from Americans for Limited Government – “The unemployment rate dropped by 0.4 percent, but that is owed almost entirely to 1 million people leaving the labor force. 73,000 jobs were lost, according to the Bureau’s household survey. This is not a good report. We’re not creating jobs, and the only reason the rate dropped is because so many people gave up looking for work. This coupled with weak first quarter growth calls into question continued stimulus policies by the Federal Reserve, and Obama’s regulatory stranglehold on job creators.”

 

Hot Air – “Stay tuned for the White House’s ritual spin-doctoring/end zone dancing.”

 

CNBC – “The headline rate tumbled as 806,000 people left the civilian labor force, a development one market strategist called ‘shocking.’”

 

A CNN email – “U.S. stocks get little opening lift from strong jobs report.” That’s because, overall, it wasn’t that good.

 

Zero Hedge – “in the one most important age group for jobs, those workers aged 25-54 which represent the bulk of the US labor force and are also the best and most productive group, the total number of jobs tumbled from 95,360K to 95,151K, a drop of 209K!”

05052014#6The geopolitical situation between Ukraine and Russia continues to remain tenuous at best, and the investment community does not seem to like it. Russia called for an emergency U.N. Security Council meeting on Ukraine at the same time Germany’s Chancellor Angela Merkel was in Washington to meet with President Obama to discuss possible additional sanctions on Russia. This situation deserves close monitoring as it can raise market volatility in the time it takes between a Manhattan traffic light turning green and the guy behind you honking his horn.

 

For the session, the Dow Jones Industrial Average fell 45.98 points to close at 16,512.89. The S&P 500 edged lower by 2.54 points to finish at 1,881.14, and the NASDAQ Composite Index dropped 3.55 points to end at 4,123.90. The yield on the 10-year Treasury fell 2.7 basis points and overall 7.8 basis points for the week to end at 2.586%. The FNMA 30-year 4% coupon bond added another 10.94 basis points on the day and increased 53.1 basis points on the week to finish at $105.06.

 

For the week, stocks ended with the Dow Jones Industrial Average rising 151.43 points, the S&P 500 gaining 17.74 points, and the NASDAQ Composite adding 48.34 points. Year to date for 2014, the Dow Jones Industrial Average has lost 0.38%, the S&P 500 has gained 1.77%, and the NASDAQ Composite has lost 1.26%. The national average 30-year mortgage rate fell from 4.40% to 4.24% while 15-year mortgage rates dropped from 3.47% to 3.35%. FHA 30-year rates dropped from 4.00% to 3.90% and Jumbo 30-year rates declined from 4.16% to 4.00%.

 

Mortgage Rate Forecast with Chart

 

The chart of the FNMA 30-year 4.0% Coupon Bond ($105.06) shows a four-day advance that shot above resistance at the 76.4% Fibonacci retracement level at $104.93 and this now becomes closest technical support. The next overhead resistance level now becomes the 100% Fibonacci retracement level at $105.65. The bond remains operating on a buy signal, but has become technically “overbought” and will be susceptible to a pull-back. It will probably take a correction in the stock market or a military incursion into Ukraine by Russia to trigger a flight to safety into bonds to enable the bond to continue its advance. With a quiet economic news calendar and an unwinding in corporate earnings season this week we could see stocks head lower. This would help bond prices to move higher and pressure interest rates lower, including mortgage rates.

 

Chart: FNMA 30-Year 4.0% Coupon Bond

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Economic Calendar – for the Week of May 5

The economic calendar eases considerably this week with just a couple of releases with any importance. Preliminary 1st Quarter Productivity and Unit Labor Costs will be released Wednesday followed by weekly Initial Jobless Claims on Thursday. Economic reports having the greatest potential impact on the financial markets this week are highlighted in bold.

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Mortgage rates improved last week  by a little more than 1/2 of a discount point.  Here is the week’s review of the news that affected the financial markets during this past week.

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Monday: The major equity indices ended the day with slight gains. Trading volume was feeble with many professional money managers still away from their desks from the Easter holiday. Those investors who were active were looking ahead to corporate earnings releases due later this week when 11 Dow companies and 161 of S&P 500 corporations are scheduled to release quarterly reports. So far, overall earnings for the S&P 500 companies who have reported have been better than forecast with 66% topping forecasts, according to Fact Set Research. Although it was a rather quiet day for economic news, the Conference Board reported that its index of leading economic indicators rose by 0.8% in March after climbing by 0.5% in the prior month. Analysts had forecast an advance of 0.7%. Investors appeared satisfied with the report, and viewed it as another indication that the economy is gaining traction and may ready for a more sustainable advance during the second half of the year.

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On the day, the Dow Jones Industrial Average added 40.71 points to close at 16,449.25; the S&P 500 rose 7.04 points to finish at 1,871.89; and the Nasdaq Composite Index climbed 26.03 points to close at 4,121.55. In the bond market, interest edged lower with the yield on the 10-year Treasury falling by a basis point to close at 2.715% while the FNMA 30-year 4% coupon bond rose by 6.25 basis points to close at $104.03.

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Tuesday: Equities continued their winning ways on earnings and economic news. The day’s economic data were moderately positive, with the number of existing homes sold in March falling less than feared. There have been concerns that rising home prices and higher mortgage rates are discouraging home buyers and are hampering the recovery in the housing market. However, those worries have been discounted by the reasoning that poor weather during the first quarter has accounted for some of the decline in sales. How well the real estate market performs in the spring buying season will be the deciding factor on the strength in the housing recovery.

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The Federal Housing Finance Agency (FHFA) reported a slightly stronger than forecast House Price Index of 0.6% for February. Economists had estimated 0.3%. January’s reading was revised downward from 0.5% to 0.3%. The year-over-year reading was +6.9%, down from the prior month’s number of +7.4%. Overall, this was a better report than many expected due to the extreme weather conditions experienced in January and February.

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For the day, the Dow Jones Industrial Average gained 65.12 points to close at 16,514.37, the S&P 500 Index added 7.66 points to close at 1,879.55, and the Nasdaq Composite Index rose 39.91 points to end at 4,161.46. The yield on the 10-year Treasury fell less than a basis point to 2.711% while the FNMA 30-year 4% coupon bond gained 7.8 basis points to $104.109.
Wednesday: Equities struggled following several consecutive daily advances.

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Technically, the stock market has advanced sharply over the past week and a small pause was in the cards. Investors received limited economic news with new home sales reported at 384,000 units, annualized, for the month of March. This was well short of expectations of 455,000, and was also lower than February’s 440,000.

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At the close, the Dow Jones Industrial Average fell 12.72 points to 16,501.65; the broader S&P 500 Index retreated 4.16 points to 1,875.39; and the NASDAQ dropped a more significant 34.49 points to 4,126.97. The yield on the 10-year Treasury fell 2.4 basis points to 2.687% while the FNMA 30-year 4% coupon bond added 18.75 basis points to close at $104.30.

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Thursday: It turned out to be a choppy session for stocks on mixed earnings news and a rise in hostilities in Ukraine. Russia’s Defense Minister Sergei Shoigu announced Russia had begun military drills along the border with Ukraine, and investors were concerned about the potential for escalation between Russia and Europe and the United States and the negative impact to global trade that would bring. The day’s economic news was mostly positive. While this week’s initial jobless claims rose by a sizable 24,000 to 329,000 claims, some volatility was expected around the Easter holiday. The 4-week moving average was 316,750, an increase of 4,750 from the previous week’s unrevised average of 312,000.

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More encouraging was a report issued by the Commerce Department that durable goods orders climbed by a greater-than-expected 2.6% in March. A more modest increase of 2.0% had been expected. Particularly reassuring in the data was a rise in demand across all sectors. The report confirmed recent signs of acceleration in the economy provided by the latest reports on industrial production and retail sales.

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For the session, the Dow Jones Industrial Average closed unchanged at 16,501.65. The S&P 500 gained 3.22 points to finish at 1,878.61, and the Nasdaq Composite Index added 21.37 points to end at 4,148.34. The yield on the 10-year Treasury fell 1.1 basis points to end at 2.682%. The FNMA 30-year 4% coupon bond jumped 18.75 basis points to finish at $104.422.

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Friday: Equities had a tough day after a few sour earnings reports and escalating tensions between Russia and Ukraine. The turmoil in Eastern Europe is having wide-ranging effects. For example, Visa Corporation (V, $198.93, -10.47, -5.00%) reported today that lower volumes in Russia are weighing on the company’s performance. There were reports of a deadly clash between Ukraine forces and pro-Russia supporters in Ukraine. Russia responded with new military exercises near the Ukraine border and this intimidated investors, especially in Germany. Those events were followed by commentary from the U.S. government that harsher sanctions against Russia will be announced on Monday. The negative performance in stocks in Europe and the U.S. sparked the bond market higher. For the session, the Dow Jones Industrial Average fell 140.19 points to close at 16,361.46. The S&P 500 dropped 15.21 points to finish at 1,863.40, and the NASDAQ Composite Index plunged 72.78 points to end at 4,075.56. The yield on the 10-year Treasury fell 1.8 basis points and overall 5.65 basis points for the week to end at 2.664%. The FNMA 30-year 4% coupon bond added 10.94 basis points on the day and increased 56.3 basis points on the week to finish at $104.531.

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For the week, stocks ended with the Dow Jones Industrial Average dropping 47.08 points, the S&P 500 losing 1.45 points, and the NASDAQ Composite falling 19.96 points. Year to date for 2014, the Dow Jones Industrial Average has lost 1.30%, the S&P 500 has gained 0.81%, and the NASDAQ Composite has lost 2.42%. The national average 30-year mortgage rate fell from 4.44% to 4.40% while 15-year mortgage rates dropped from 3.49% to 3.47%. FHA 30-year rates held steady at 4.00% and Jumbo 30-year rates declined from 4.20% to 4.16%.

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Mortgage Rate Forecast with Chart

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The chart of the FNMA 30-year 4.0% Coupon Bond ($104.53) shows a four-day advance after bouncing off of multiple support levels. The bond price is now above all of its major moving averages and is operating from buy signals generated last Tuesday from a positive stochastic crossover and an engulfing lines candle pattern. The good news is the bond is not yet “overbought” so there is time for further price appreciation. If stocks continue to falter this coming week, and it sure looks like they could, then bonds should move higher in price with mortgage rates sliding a little lower.

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Chart: FNMA 30-Year 4.0% Coupon Bond

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Economic Calendar – for the Week of April 28

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he economic calendar is jam-packed this week with many potentially market-moving releases. Of particular interest to investors will be first quarter GDP on Wednesday along with the Federal Reserve’s FOMC meeting and interest rate decision. Friday brings the Employment Situation (Jobs) report for April. Economic reports having the greatest potential impact on the financial markets this week are highlighted in bold.

 

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Mortgage Market Update

Apr 13, 2014

Last week mortgages rates improved by almost ½ of a discount point.. Here is the week’s review of the news that affected the financial markets this past week.

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Monday: It was a quiet economic news day so investors instead focused their attention on the first quarter corporate earnings calendar that is just a day away from kicking off with a report from S&P 500 member Alcoa. Most analysts are saying first quarter corporate earnings are not going to paint a very bright economic future for the U.S. and this is prompting investors to continue selling previously high-flying momentum stocks. The housing sector, one of the main engines of economic growth, appears to be weakening. FBR Capital Markets published a report stating “The mortgage origination environment is expected to remain weak given weak purchase applications and falling refinancing from an already low base coming off the end of 2013.”

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For the session, the Dow Jones Industrial Average lost 166.84 points to close at 16,245.87; the S&P 500 dropped 20.05 points to finish at 1,845.04; and the Nasdaq Composite Index fell 51.85 points to close at 4,079.75. In the bond market, interest rates retreated with the yield on the 10-year Treasury falling by two and a half basis points to close at 2.70% while the FNMA 30-year 4% coupon bond rose by 27 basis points to close at $104.438.

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Tuesday: The stock market put a halt to a three-day losing streak as investors stepped in to buy oversold technology stocks. Investor sentiment was enhanced with the start of first quarter earnings season. Alcoa got the earnings calendar going after the closing bell, reporting earnings that surpassed analysts’ expectations. Thomson Reuters is reporting S&P 500 companies’ first-quarter earnings are projected to have increased just one percent from a year ago. This is down sharply from the beginning of the year when profit growth was estimated at 6.5 percent.

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The Dow Jones Industrial Average gained 10.27 points to close at 16,245.16, the S&P 500 Index added 6.92 points to close at 1,851.96, and the Nasdaq Composite Index rebounded 33.24 points to end at 4,112.99. The yield on the 10-year Treasury fell 1.8 basis points to 2.683% while the FNMA 30-year 4% coupon bond fell 20.3 basis points to $104.234.

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Wednesday: With the minutes from the Federal Reserve’s last meeting easing concern about the timing of future interest-rate increases, stocks rallied with technology shares making their greatest advance in two months. Investors are closely monitoring earnings reports for signs of how well corporations performed in the first quarter. Analysts are now forecasting profits for S&P 500 companies have gone up one percent in the first quarter after projecting a 6.6 percent rise in January. In economic news, the Mortgage Bankers Association announced their weekly mortgage application data for the week ending April 4th. Their MBA Index was reported at a -1.6% while the Purchase Index gained +3.0%. The Purchase Index is down 14% from this time a year ago but has been improving of late. The Refinance Index fell 5% and made up only 51% of mortgage activity, the lowest level since July 2009.

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The Dow Jones Industrial Average jumped 181.04 points to 16,437.18. The S&P 500 surged 20.22 points to finish at 1,872.18, and the Nasdaq Composite Index jumped 70.91 points to finish at 4,183.90. The yield on the 10-year Treasury fell 1.1 basis points to 2.6935%, and the FNMA 30-year 4% coupon bond added 9.375 basis points to close at $104.328.

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Thursday: Volatility is apparently back after yesterday’s gains provided another opportunity for investors to lock in last year’s profits before they lost them. Heavy selling in biotech and internet media stocks spilled over into the large cap blue chip dividend stocks that have been a safe harbor for many investors this past year. Since last Friday’s record intraday highs in the S&P 500 and Dow Jones Industrial Average, every rally has been aggressively sold into by institutional and retail investors. Market technician extraordinaire, Louise Yamada, says she would become worried about the stock market if the S&P 500 broke below the 1,750 mark. Additionally, the S&P 500 would have to drop down to 1,517 for this market weakness to qualify as an official Bear Market.

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Weekly Initial Jobless Claims for the week ending April 4th showed a drop of 32,000 to 300,000 claims, down from the prior week’s upwardly revised total of 332,000 claims. The forecast was for 318,000. The unexpected decline was the largest drop in more than 10 years and the lowest claims number in almost seven years. Although this is a positive sign for the economy, the drop in jobless claims has not translated into meaningful, quality job growth.

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The Dow Jones Industrial Average plunged 266.96 points to close at 16,170.22. The S&P 500 fell 39.10 points to finish at 1,833.08, and the Nasdaq Composite Index cratered 129.79 points to end at 4,054.11. The yield on the 10-year Treasury decreased 4.7 basis points to 2.647%, and the FNMA 30-year 4% coupon bond climbed 21.88 basis points to finish at $104.547.

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Friday: Investors continued to sell fast-growing, high-valuation “momentum” stocks in favor of defensive stocks with attractive dividends. Biotechnology stocks, which were top performers in 2013, were hit hard once again. The Nasdaq Biotechnology Index has entered bear market territory after a 20% plus decline this year from its price peak. Bonds benefited from the carnage in stocks with Treasury yields declining across the maturity spectrum as the sell-off in technology stocks encouraged investors to move into less-risky assets. In economic news, the Producer Price Index (PPI), a measure of wholesale inflation, was reported at a surprisingly higher reading of 0.5% for March vs. a forecast of 0.1%. The Core PPI, which ignores food and energy prices, increased 0.6%. Year over year, both the PPI and Core PPI increased to 1.4% from the prior month’s levels near 1.0%. Wholesale inflation doesn’t always affect the end consumer if companies do not pass along their input price increases, but it can squeeze corporate profit margins and negatively affect stock valuations. If costs are passed onto consumers, a rise in the Consumer Price Index (CPI) measuring retail or consumer inflation can result. A trend higher in the CPI would then negatively impact both stocks and bonds.

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On the day, the Dow Jones Industrial Average fell 143.47 points to 16,026.75, the S&P 500 Index dropped 17.39 points to 1,815.69, and the NASDAQ Composite Index plunged 54.38 points to close at 3,999.73. For the week, the FNMA 4% bond gained 44 basis points to close at 104.61 while the 10-year Treasury yield dropped 10 basis points to close at 2.626 percent. The national average 30-year mortgage rate fell from 4.48% to 4.34% while 15-year mortgage rates dropped from 3.49% to 3.36%. FHA 30-year rates declined from 4.05% to 3.75% and Jumbo 30-year rates fell from 4.24% to 4.11%.

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Stocks for the week ended with the Dow Jones Industrial Average falling 385.96 points, the S&P 500 losing 49.40 points, and the NASDAQ Composite retreating 131.87 points. Year to date for 2014, the Dow Jones Industrial Average has lost 3.32%, the S&P 500 has given up 1.77%, and the NASDAQ Composite has lost 4.23%.

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Mortgage Rate Forecast with Chart

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The chart of the FNMA 30-year 4.0% Coupon Bond ($104.1) shows a correction last Monday through Thursday just below support followed by a strong rebound on Friday when stocks stumbled. Friday’s sharp move higher triggered a new buy signal from a positive stochastic crossover and sent the bond to close right at resistance formed by the concurrence of the 25-day moving average and the 50% Fibonacci retracement level. If the bond can continue above this layer of resistance this week, a move to the 61.8% Fibonacci retracement level at 104.48 could be realized resulting in an improvement in mortgage rates.

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Chart: FNMA 30-Year 4.0% Coupon Bond

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Economic Calendar – for the Week of April 14

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The economic calendar this week features Retail Sales on Monday; the inflation measuring Consumer Price Index and New York Empire State Manufacturing Index on Tuesday; the Fed’s Beige Book on Wednesday; and weekly Jobless Claims and the Philadelphia Fed Manufacturing Index on Thursday. Economic reports having the greatest potential impact on the financial markets this week are highlighted in bold.

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Mortgage rates continued an upward trend last week as the cost of a typical 30 year fixed rates conventional mortgage ended the week just over 1/2 a discount point higher than at then end of the previous week. The following is a day by day summary of the news affecting the financial markets this past week.

 

Monday:  There wasn’t much reaction in financial markets to the news that Crimean residents voted to secede from Ukraine and rejoin Russia.  Russia has ignored Western nations’ complaints that the referendum was illegal.  Close to 97% of Crimeans voted to rejoin Russia.  U.S. economic news was modestly better than expected and this helped to drive the stock market higher.  The Empire State Manufacturing Survey, which measures manufacturing in the NY region, came in at 5.61, which was lower than estimates of 6.50, but higher than last month’s weak reading of 4.48.  Industrial Production and Capacity Utilization were both reported slightly higher than expectations.  Capacity Utilization came in at 78.8%, which was stronger than the 78.6% expected.  The National Association of Home Builders (NAHB) Housing Market Index for March came in at 47, which was a little better than last month’s 46, but still quite a ways below 50.  This figure, which is almost in real time, tracks builders’ sentiment.  Sales increased one point to 52, while future sales fell 1 point to 53.  Traffic did jump 2 points to 33, but this figure is still well below 50.  This part of the report is most likely to be affected by weather conditions.

 

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The Dow Jones Industrial Average jumped 181.55 points to close at 16,247.22; the S&P 500 climbed 17.70 points to finish at 1,858.83; and the Nasdaq Composite Index rose 34.55 points to close at 4,279.95.  In the bond market, interest rates rose slightly with the yield on the 10-year Treasury rising by almost four basis points to 2.6938%.

 

Tuesday:  Favorable U.S. economic news continued to have a positive influence on the stock market.  The Consumer Price Index (CPI) was released and as has been the story for a long time, inflation was virtually nonexistent.  The headline and core numbers were both up 0.1%, which was in line with expectations.  On a year over year basis, headline inflation was up 1.1%, while Core was up 1.6%.  Housing Starts for the month of February came in right around expectations at 907,000.  But the previous month’s numbers were revised higher to 909,000.  Building Permits jumped over the 1 Million mark and were stronger than expected.  Overall this was a good report on the present state of the new construction market.

 

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The Dow Jones Industrial Average rose 88.97 points to 16,336.19, the S&P 500 Index added 13.42 points to 1,872.25, and the Nasdaq Composite Index climbed 53.36 points to 4,333.31.  The yield on the 10-year Treasury fell two basis points to 2.6722%.

 

Wednesday:  The financial markets reacted negatively to Janet Yellen’s first meeting as Chair of the Federal Open Market Committee (FOMC).  Yellen announced some unexpected revisions to the “guidance” relating to what to expect from the Fed in the future.  Immediately following the release of the Fed statement, the S&P 500 dove 10 points.  Yellen dropped the 6.5 percent unemployment rate “threshold” that, up to this point, had been viewed as the trigger that would cause the Fed to begin making changes to monetary policy.  Instead, Yellen said the FOMC would now be watching what is being referred to as the “Yellen dashboard,” a set of indicators that will include data on employment, inflation, and overall financial conditions.  When asked how long it would be before the Fed would begin to raise the Fed Funds Rate after QE ended.  Her response was “probably something on the order of around six months, that type of thing.”  Both the Stock and Bond markets continued to sell off on the comment.  So when will the Fed hike rates?  At the current rate and schedule of reduction, the Fed could hike rates anytime between April and June of 2015.

 

In housing news, the Mortgage Bankers Association released their weekly Mortgage Application data for the week ending March 14th, and the index was reported down 1.2%.  The Purchase Index, which fell by 1% last week, was down another 1%.  Purchases are still down 15% from this time last year.  Interest rates decreased 2bp to 4.50% with 0.26 points paid.  This did not help Refinances, which dropped 1%.  The Dow Jones Industrial Average fell 114.02 points to close at 16,222.17, the S&P 500 dropped 11.48 point to finish at 1,860.77, and the Nasdaq Composite Index declined 25.71 points to finish at 4,307.60.  The yield on the 10-year Treasury jumped 10 basis points to 2.7716%.

 

Thursday:  Favorable economic news pushed the broader stock market indices higher today.  Initial Jobless Claims were released for the week ending March 15th, and Claims increased 5,000 to 320,000 from last week’s unrevised figure of 320,000.  This was stronger than estimates of 325,000, and another very good reading.  Claims have been trending lower which is encouraging for the economy.  These Claims results for the week of the 12th are factored into the models for employment figures next month.  It remains to be seen whether these low Claims figures will translate into real job growth.

 

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The index of Leading Economic Indicators and the Philadelphia Fed Manufacturing Survey both came in stronger than expected.  This helped the Stock market turn positive and push Mortgage Bonds lower.  Existing Home Sales for February were reported down 0.4%.  This was in line with expectations and a decent report.  All of the regions did better, expect for the Northeast, where weather was a problem.  Median Home Prices were reported at $189,000, up 9.1% year over year.  The supply of homes increased to a 5.5 month supply.

 

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The Dow Jones Industrial Average rose 108.88 points to close at 16,331.05; the S&P 500 added 11.24 points to 1,872.01 and the Nasdaq Composite Index gained 11.69 points to reach 4,319.29.  The yield on the 10-year Treasury increased by just one half of a basis point to 2.7771%.

 

Friday:  After achieving early gains, including a new intraday high for the S&P 500 Index, the stock market battled to a dismal finish during a quarterly quadruple “witching day” that led to a significant increase in market volatility.  This is a day when contracts for stock index futures, stock index options, stock options and single stock futures all expire at the same time.  Traders sold momentum stocks to lock in gains ahead of the weekend, and sold the biotech stocks in particular after Rep. Henry A. Waxman (D-Beverly Hills) and two other Democratic lawmakers asked Gilead Sciences, Inc. Chief Executive John C. Martin to explain the rationale for selling their new drug for hepatitis C (Sovaldi) for $1,000 per pill.  The NASDAQ biotech index (^NBI) fell 119.18 points or 4.4 percent on the day.  Mortgage bonds finished the day 14 basis points higher with the 10-year US Treasury yield falling by three basis points to 2.74%.

 

For the week, the FNMA 4% bond lost 58 basis points to close at 103.83, and the GNMA 30-year 4.0% coupon bond lost 63 basis points to end at 104.90.  The 10-year Treasury yield increased 9 basis points for the week to close at 2.74 percent.  The national average 30-year mortgage rate rose from 4.39% to 4.53% while 15-year mortgage rates increased from 3.42% to 3.52%.  FHA 30-year rates held steady at 4.00% and Jumbo 30-year rates increased from 4.24% to 4.33%.

 

The Dow Jones Industrial Average rebounded 232.83 points to close at 16,298.50; the S&P 500 rose 24.76 points to close at 1,865.89; and the NASDAQ Composite climbed 28.31 points to close at 4,273.71.  Year to date for 2014, the Dow Jones Industrial Average has lost 1.65%, the S&P 500 has gained 0.98%, and the NASDAQ Composite has gained 2.40%.

 

Mortgage Rate Forecast with Chart

 

The chart of the FNMA 30-year 4.0% Coupon Bond ($103.83) shows the price lying between the 38.2% and 50% Fibonacci retracement levels that define nearest support ($103.75) and resistance ($104.11) respectively.  The technical signals are currently “mixed” with the slow stochastic oscillator showing a sell signal but “oversold” condition while a candle pattern over the past three sessions shows a variant of a Morning Star Candle Pattern, a buy signal.  The technical picture favors a move higher toward resistance, and should this happen, mortgage rates would improve slightly.

 

Chart:  FNMA 30-Year 4.0% Coupon Bond

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Economic Calendar – for the Week of March 24

 

The economic calendar features a variety of housing reports throughout the week along with Consumer Confidence for March on Tuesday; Durable Goods for February on Wednesday; weekly Jobless Claims on Thursday; and February Personal Income and Spending with PCE Core inflation on Friday.  Economic reports having the greatest potential impact on the financial markets this week are highlighted in bold.

 

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Mortgage rates ended higher last week, the following is a day by day summary of the news affecting the financial markets last week.

 

Monday:  Bond prices rose while stock prices sank in response to Russia’s move into Ukraine’s Crimean Peninsula.  This geopolitical crisis triggered a flight to safety out of equities and into bonds and gold.  In economic news, the Federal Reserve’s favorite measure of inflation, the Personal Consumption Expenditures (PCE) Index increased by 0.3% with the Core PCE, which ignores food and energy costs, rising by 0.01%.  Year over year, core inflation remains very subdued at 1.1%.  Additionally, the ISM Manufacturing Index was reported at a surprisingly strong 53.2 versus a forecast of 51.9.

 

Tuesday:  Tensions between Russia and Ukraine eased after Vladimir Putin of Russia announced Russia’s military in the Crimean Peninsula would essentially be standing down for now and that military violence would be a last option in this geopolitical conflict.  Stocks moved sharply higher while bond prices fell abruptly lower as the flight to safety trade evaporated as quickly as it began on Monday.

 

Wednesday:  Stocks and bonds took a breather and finished the day nearly unchanged from Tuesday after the ADP Employment Report showed there were only 139,000 jobs created in the private sector during February compared to a forecast of 150,000 jobs.  Making matters worse was a downward revision in January’s report to 127,000 jobs created from an initially reported 175,000 jobs.

 

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There was some encouraging mortgage news released on Wednesday.  The Mortgage Bankers Association reported their Mortgage Application Index for the week ending February 28 increased by 9.4% with the Purchase Index rising by 9.0%.  While this was encouraging to see, the bounce higher was from depressed levels and purchase applications are still down 19% from this time last year.  Interest rates dipped during the week to help refinances rise by 10%.

 

Thursday:  Stock prices ended the day marginally higher and bonds lower ahead of Friday’s anticipated market moving jobs report from the Bureau of Labor Statistics.  The weekly Initial Jobless Claims for the week ending March 1st was reported at a far better than expected 323,000 claims.  This was 26,000 below the 338,000 forecast.  Weekly jobless claims are always volatile, but this decline was a welcome sight and the best number seen since last December.

 

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Friday:  The Bureau of Labor Statistics released “mixed” jobs numbers with the economy creating 175,000 jobs in February versus 150,000 expected while the unemployment rate ticked higher to 6.7% from 6.6% in January.  The labor force participation rate was reported at 63%, unchanged from January.  The employment-population ratio was also consistent at 58.8%.  January employment numbers were revised higher by 16,000 while December was revised up 9,000 from 75,000 to 84,000.  Job growth has averaged 189,000 in the prior 12 months.  While these numbers are marginally better, they are not all that great.  The unemployment rate is going down not because people are getting jobs, but because people are giving up finding work.  The number of long term unemployed has risen, which is a real problem for the economy moving forward.  Plus, the labor force to population ratio continues to drop and is now at 58.8%, meaning that only 58.8% of the working-age population is currently employed.

 

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The stock market turned in a “mixed” performance following the release with the Dow Jones Industrial Average and the S&P 500 moving 0.19% and 0.05% higher respectively while the NASDAQ Composite Index fell -0.37%.  Bond prices, including mortgage bonds, moved lower during the day.

 

For the week, the FNMA 4% bond lost 64 basis points to close at 104.17, and the GNMA 30-year 4.0% coupon bond fell 73 basis points to end at 105.47.  The 10-year Treasury yield increased 14 basis points during the week to close at 2.79 percent.  The national average 30-year mortgage rate rose from 4.38% to 4.53% while 15-year mortgage rates increased from 3.40% to 3.54%.  FHA 30-year rates rose from 3.75% to 4.00% and Jumbo 30-year rates dropped from 4.24% to 4.38%.

 

For stocks, the Dow Jones Industrial Average gained 131.01 points to close at 16,452.72; the S&P 500 added 18.59 points to close at 1,878.04; and the NASDAQ Composite gained 28.10 points to close at 4,336.22.  Year to date for 2014, the Dow Jones Industrial Average has lost 0.75%, the S&P 500 has gained of 1.61%, and the NASDAQ Composite has gained 3.82%.

 

Mortgage Rate Forecast with Chart

 

The chart of the FNMA 30-year 4.0% Coupon Bond ($104.17) shows price moving higher last Monday from a “flight to safety” trade followed by a sharp retreat during the remainder of the week when political and military tensions between Russia and the Ukraine were reduced.  The bond found support at the juncture of its 200-day moving average and the 50% Fibonacci retracement level and if the bond price can hold this level this coming week it may move toward overhead resistance at the 61.8% Fibonacci retracement level near $104.50 and this would help stabilize current interest rates.  However, the bond is now operating from a sell signal from last Tuesday and is not yet “oversold,” suggesting the possibility for further price weakness and slightly higher mortgage rates this coming week.  If present support fails, the next support level is found at the 38.2% Fibonacci retracement level at $103.75.  The “wild card” for the bond market this coming week may well be the ongoing crisis between Russia and the Ukraine and depending upon what happens in the Crimean Peninsula, the bond market could make an explosive move in either direction.

 

Chart:  FNMA 30-Year 4.0% Coupon Bond

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Economic Calendar – for the Week of March 10

 

The economic calendar this coming week features weekly jobless claims on Thursday along with retail sales.  Friday brings an inflation report, the producer price index, plus the University of Michigan’s measure of consumer sentiment.   These economic reports have the greatest potential impact on the financial markets this week and are highlighted in bold.

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Weekly Review

Disappointing economic data this past week resulted in a mixed stock market, a largely flat bond market, and slightly higher mortgage rates.  The weakness seen in the data was mostly blamed on the unusually cold winter weather that has gripped most of our nation.

Last Tuesday, the National Association of Home Builders (NAHB) Housing Market Index for February was reported at a shockingly low 46 points, which represents a drop of 10 points from last month’s 56.  This is the largest one month decline in the history of the report, which began in 2006.  Additionally, this is the first negative reading (below 50) since last May.  This figure, which is almost in real time, tracks builders’ sentiment.  Builders attributed the weakness in the report to a shortage of build able lots, labor concerns, and weather.

 

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On Wednesday, the Census Bureau released Housing Starts for January at 880,000.  This was a pretty large miss with the market looking for 950,000 Starts.  This was a drop of almost 16% from last month’s figure, which was revised much higher to 1.048 million.  Permits were only marginally lower, down 5.4% to 937,000.  Weather may have again played a big factor because you cannot start new construction in bad weather conditions, but you can still sign a permit.  Additionally, the numbers for November and December, when weather was better, were very strong.

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On Thursday, Initial Jobless Claims were released for the week ending February 15th, and the number was pretty much in line with expectations at 336,000.  This was a decrease of 3,000 from last week’s unrevised 339,000.  Jobless Claims, which have been extremely volatile, seem to be settling in at around this 330,000 range.

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On Friday, Existing Home Sales for January were reported below market expectations at a minus 5.1%, the softest number seen in 18 months.  The Existing Home Sales report is based on closings, so it measures activity in advance of those closings.  When we take that into consideration, we can’t blame the weather for this slowdown.  The report cites tighter affordability and credit, and weakness amongst first time homebuyers.  Sales on the lower end of the price spectrum were predominately the cause for the weaker report.  Medium and higher price range categories held up well.  Year over year price appreciation was still strong at 10.7%.  I expect home price appreciation to slow, but not turn negative.  It’s likely that the next couple of Existing Home Sales reports will also be soft as effects of the weather will begin to show up in the numbers.

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For the week, the FNMA 4% bond added one basis point to close at 104.17, and the GNMA 30-year 4.0% coupon bond gained five basis points to end at 105.48.  The 10-year Treasury yield lost one basis point on the week to close at 2.73 percent.  The average 30-year mortgage rate increased from 4.43% to 4.49% while 15-year mortgage rates moved from 3.44% to 3.50%.  FHA 30-year rates rose from 4.00% to 4.25% and Jumbo 30-year rates climbed from 4.32% to 4.36%.

For stocks, the Dow Jones Industrial Average fell 51.09 points, to close at 16,103.30; the S&P 500 dropped 2.38 points to close at 1,836.25; and the NASDAQ Composite gained 19.38 points to close at 4,263.41.  Year to date for 2014, the Dow Jones Industrial Average has lost 2.86%, the S&P 500 has lost 0.66%, and the NASDAQ Composite has gained 2.08%.

 

Mortgage Rate Forecast with Chart

The chart of the FNMA 30-year 4.0% Coupon Bond shows it is once again at a critical juncture.  Last the week the bond fell below a critical area of support at the convergence of the 50% Fibonacci retracement level and the 200-day moving average.  This level now becomes overhead resistance.  A break above this resistance level could result in a move toward the next higher resistance level at the 61.8% Fibonacci retracement level near 104.50 producing a slight improvement in mortgage rates.  However, a failure to move above this level could foreshadow a continued move lower toward the next support level at the 38.2% Fibonacci retracement level at 103.75 resulting in slightly higher mortgage rates.  Unfortunately, the slow stochastic oscillator is not yet “oversold” so the probabilities favor lower mortgage bond prices and a slight worsening in rates this week.

 

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Economic Calendar – for the Week of February 24

The economic calendar this coming week features a mixture of reports on housing, consumer confidence, manufacturing, and jobless claims.  Reports having the greatest potential impact on the financial markets are highlighted in bold.

02242014econcal

 

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Weekly Review

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Stock markets around the globe took a severe beating this past week following a surprise contraction in manufacturing output in China.  Rumors of a possible multi-billion dollar default in a Chinese investment trust by a leading Chinese bank by the end of January and an enormous currency sell-off in a number of emerging market countries such as Argentina also sent concerned investors rushing for an exit.  Argentina’s central bank removed its support for the peso to protect its foreign exchange reserves.  As a result, the currency lost about 16% against the U.S. dollar last Thursday.  Also, the Turkish lira continued to fall against the dollar despite Turkey’s central bank moving to try to tighten monetary policy through unconventional networks.

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The S&P 500 Index suffered its largest weekly loss in well over a year as investors moved out of stocks into perceived safe-haven assets, such as the Japanese yen and U.S. Treasuries.  U.S. Treasuries benefited from the stock market’s decline with a flight-to-quality trade lowering the yield on the benchmark 10-year Treasury note to levels not seen since early December.

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For the week, the FNMA 4% bond added 45 basis points to close at 104.50 and the 10-year Treasury yield fell by 10 basis points on the week to close at 2.72 percent.  The average 30-year mortgage rate declined from 4.47% to 4.43% while 15-year mortgage rates moved from 3.49% to 3.45%.  FHA 30-year rates fell from 4.25% to 4.12% and Jumbo 30-year rates edged lower from 4.35% to 4.34%.

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For stocks, the Dow Jones Industrial Average cratered 579.45 points, to close at 15,879.11; the S&P 500 tumbled 48.41 points to close at 1,709.29; and the NASDAQ Composite plunged 69.41 points to close at 4,128.17.  Year to date for 2014, the Dow Jones Industrial Average has lost 4.21%, the S&P 500 has lost 3.14%, and the NASDAQ Composite has retreated 1.16%.

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Mortgage Rate Forecast

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The chart of the FNMA 30-year 4.0% Coupon Bond shows a new feature showing natural support and resistance levels known as Fibonacci Retracement Levels.  Fibonacci Retracement Levels are widely used by market technicians and show the potential retracement of a financial asset’s original move in price. Fibonacci retracements use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before it continues in the original direction.  These levels are created by drawing a trend line between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, 76.4%, and 100%.

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Fibonacci retracement is a very popular tool used by many technical traders to help identify strategic places for transactions to be placed, target prices or stop losses.  The notion of retracement is used in many other technical indicators such as Tirone levels, Gartley patterns, Elliott Wave theory and more.  After a significant price movement up or down, the new support and resistance levels are often found at or near these lines.  The Fibonacci retracement levels for the FNMA 4.0% bond shown in the accompanying chart are drawn between the high and low market peaks made on October 23, 2013 and December 19, 2013 respectively.

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Last Friday’s nice move higher carried the FNMA 4.0% bond price through overhead resistance at both the 50% and 61.8% Fibonacci retracement levels as well as the 200-day moving average.  These levels now become closest technical support.  This was a very bullish move even though it took place with the bond being significantly “overbought” as shown by the slow stochastic graph at the bottom of the chart.  When a market is “overbought,” it can be susceptible to a pull-back or correction, but can also continue higher while remaining overbought for quite some time.  The next level of overhead resistance is found at the 76.4% retracement level at $104.93.  With the stock market under pressure from fears of a global economic slowdown and currency devaluations, we could continue to see a “flight to safety” in bonds with mortgage bonds continuing higher in price this week.  If this were to happen, we would see a continuing move higher toward the $104.93 level resulting in an improvement in mortgage rates.

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Chart 1:  FNMA 30-Year 4.0% Coupon Bond

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Economic Calendar – for the Week of January 27

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This coming week brings us a smorgasbord of meaningful economic reports with a variety of inflation indicators, a Federal Reserve (FOMC) interest rate decision, consumer sentiment, housing sector numbers, and manufacturing data.

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

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It’s been a good couple of weeks for mortgage rates. Pricing has improved from the start of the year it may be a good time to look at how these improved rates impact your unique situation.

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Mortgage rates climbed last week on the release of positive economic news and the Fed’s decision that they will begin tapering bond purchases.

This holiday week it is expected mortgage rates will remain mostly unchanged; however longer term it appears rates most likely will continue their slow rise.

 econ-12232013

 

Last week more talk about a HARP 3 program had resurfaced.  If such a program is announced it would allow underwater homeowners with non-Fannie Mae and not-Freddie-Mac mortgages to refinance at lower rates.  Another possible provision of a HARP 3 program would allow homeowners to take advantage of a HARP loan on the same property more than once.

 Homeowners and homebuyers should consider locking a rate and eliminate any future risk of rate increases.

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Mortgage rates started last week in positive territory but ended the week slightly higher. Wednesday afternoon the release of the October Fed Minutes, mortgage markets cratered.  Much of the loss was recovered later in the week and some this morning.

Lots of housing data will be released this holiday week.

 econ11252013

 For today’s refinancing households and home buyers, home loan rates are changing quickly making shopping difficult

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For the first time since October mortgage rates improved week over week last week.  The cost of 30 year fixed rate conventional home loans including HARP loans improved about 70 Basis points during the week last week.  Rates steadily improved as the week moved forward.

Last week both the stock and bond markets liked what they heard during the confirmation hearing for Janet Yellen before the Senate banking committee.  Coupled with weaker than expected economic data, there was little to no indication that the Federal Reserve would begin tapering their bond purchases any time soon.

 

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This week we will get a read on inflation with the release of the Consumer Price Index (CPI) on the wholesale level with the release of the Producer Price Index (PPI).  However the biggest impact on mortgage rates may come from one of the daily Fed speeches.

It is a good idea to keep a eye on the markets this week, as volatility is likely to continue.  Keep in mind mortgage rate remain at historic lows.

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