Bond prices fell and yields rose, predominately on Friday, as a greater number of investors came to the realization that the Federal Reserve’s Federal Open Market Committee (FOMC) could raise interest rates as soon as their next meeting on September 20-21.  The financial markets essentially “tread water” during the week in anticipation of what Fed Chair Janet Yellen would say about future monetary policy during the Fed’s annual Jackson Hole symposium late Friday morning.

 

While Yellen didn’t specify when the FOMC might raise interest rates, she stated the FOMC “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.  Indeed, In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”  She also commented that the Fed still believes future rate increases should be “gradual” and data dependent.

 

Speaking of data dependency, Fed Vice Chair Stanley Fischer previously said the August Employment Situation Summary (Jobs Report) would be a major factor in determining the FOMC’s decision on whether or not to raise rates at their September meeting on September 21.  As a result, the next jobs report scheduled to be released on Friday, September 2 will take on added significance for investors.

 

In housing news, New Home Sales reached their highest level in almost nine years during July by climbing an extremely robust 12.4% to a seasonally adjusted annual rate of 654,000 units.  The consensus forecast had been for a reading of 580,000 homes.  June’s sales rate was revised lower to 582,000 units from the previously reported 592,000 units.  On an annual basis, New Home Sales were 31.3% higher than a year ago.  New home inventory fell 2.9% to 233,000 units, the lowest level since November 2015 and at July’s sales pace it would only take 4.3 months to clear the current supply of new houses on the market.  The median sale price for a new home was reported at $294,600, a 0.5% decline from a year ago.

 

Additionally, the US Federal Housing Finance Agency (FHFA) released their Housing Price Index for June showing a 0.2% increase following a 0.2% gain in May.  Economists had expected a slightly stronger gain of 0.3%.  According to the FHFA, housing prices have gained 5.6% from the second quarter of 2015.

 

Furthermore, the National Association of Realtors reported Existing Home Sales fell 3.2% in July to a seasonally adjusted annual rate of 5.39 million units.  Existing Sales were 1.6% lower than the year ago period and were below the consensus forecast of 5.54 million but still remain strong.  The median home price increased to $244,100, a 5.3% gain from the year ago period.  The dip in sales in July may be temporary however as there may have been a bottleneck in the sales process due to delays with appraisals.  Many real-estate agents have complained about delays with appraisals so if this problem gets resolved, sales going forward could pick up.

chart08292016#1

 

As for mortgage lending, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 19th showing the overall seasonally adjusted Market Composite Index decreased 2.1%.  The seasonally adjusted Purchase Index fell 0.3% from the prior week, while the Refinance Index decreased 3.0%.  Overall, the refinance portion of mortgage activity increased to 62.4% of total applications from 62.6%.  The adjustable-rate mortgage share of activity was unchanged from 4.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.64% to 3.67% with points increasing to 0.34 from 0.31.

 

For the week, the FNMA 3.0% coupon bond lost 1.5 basis points to end at $103.52 while the 10-year Treasury yield increased 4.81 basis points to end at 1.6279%.  Stocks ended the week lower with the Dow Jones Industrial Average losing 157.17 points to end at 18,395.40.  The NASDAQ Composite Index dropped 19.46 points to close at 5,218.92, and the S&P 500 Index fell 14.83 points to close at 2,169.04.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 5.28%, the NASDAQ Composite Index has added 4.05%, and the S&P 500 Index has advanced 5.77%.

 

This past week, the national average 30-year mortgage rate decreased to 3.41% from 3.42% while the 15-year mortgage rate decreased to 2.75% from 2.76%.  The 5/1 ARM mortgage rate rose to 2.86% from 2.85%.  FHA 30-year rates held steady at 3.25% while Jumbo 30-year rates decreased to 3.51% from 3.53%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.52, -1.50 basis points) traded within a wider 44 basis point range between a weekly intraday high of $103.88 on Friday and a weekly intraday low of $103.44, also on Friday, before closing the week at $103.52.

 

The bond initially moved higher ahead of Janet Yellen’s speech Friday morning and continued to trade a little higher immediately afterward.  However, when traders heard subsequent comments made by Vice Chair Stanley Fischer during an interview on CNBC two hours later, they felt there was increased “hawkish” sentiment among Fed officials.  Fischer said the comments in Yellen’s speech “were consistent with the idea there could be a rate hike in September and again later in the year,” and this helped to trigger a sell-off in bonds Friday afternoon.

 

The day’s action resulted in move below the 25 and 50-day moving averages (MA) located at $103.696 and $103.61 respectively.  The 50-day MA reverts to closest resistance while the 38.2% Fibonacci retracement level at $103.15 becomes the next support level.  The slow stochastic oscillator now shows a solid negative crossover sell signal with the %K line falling below the %D line suggesting a continuing move lower in bond prices that may result in slightly higher rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 chart08292016#2

 

Economic Calendar – for the Week of August 29, 2016

 

The economic calendar features several reports on the labor sector highlighted by the August Employment Situation Summary (Jobs Report) on Friday.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Aug 29 08:30 Personal Income July 0.4% 0.2%
Aug 29 08:30 Personal Spending July 0.3% 0.4%
Aug 29 08:30 Core PCE Prices July 0.1% 0.1%
Aug 30 09:00 Case-Shiller 20-city Index June 5.1% 5.2%
Aug 30 10:00 Consumer Confidence Aug 97.0 97.3
Aug 31 07:00 MBA Mortgage Index 08/27 NA NA
Aug 31 08:15 ADP Employment Change Aug 170K 179K
Aug 31 09:45 Chicago Purchasing Managers Index Aug 54.5 55.8
Aug 31 10:00 Pending Home Sales July 0.7% 0.2%
Aug 31 10:30 Crude Oil Inventories 08/27 NA NA
Sep 01 07:30 Challenger Job Cuts Aug NA -57.1%
Sep 01 08:30 Initial Jobless Claims 08/27 265K 261K
Sep 01 08:30 Continuing Jobless Claims 08/20 NA 2145K
Sep 01 08:30 Revised Productivity 2nd Qtr. -0.6% -0.5%
Sep 01 08:30 Unit Labor Costs – Revised 2nd Qtr. 2.1% 2.0%
Sep 01 10:00 Construction Spending July 0.6% -0.6%
Sep 01 10:00 ISM Index Aug 52.2 52.6
Sep 02 08:30 Nonfarm Payrolls Aug 180K 255K
Sep 02 08:30 Nonfarm Private Payrolls Aug 175K 217K
Sep 02 08:30 Unemployment Rate Aug 4.8% 4.9%
Sep 02 08:30 Hourly Earnings Aug 0.2% 0.3%
Sep 02 08:30 Average Workweek Aug 34.5 34.5
Sep 02 08:30 Trade Balance July -$43.0B -$44.5B
Sep 02 10:00 Factory Orders July 2.0% -1.5%

 

 

 

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

September 2016 20-21, (Tuesday-Wednesday) * 36.0% Chance
November 2016 1-2, (Tuesday-Wednesday) 38.3% Chance
December 2016 20-21 (Tuesday-Wednesday)* 46.1% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday) 45.5% Chance
March 2017          14-15 (Tuesday-Wednesday) * 44.0% Chance
May 2017          02-03 (Tuesday-Wednesday) 43.4% Chance
June 2017          13-14 (Tuesday-Wednesday) * 40.6% Chance
July 2017 25-26, (Tuesday-Wednesday) 40.2% Chance

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

08222016chart#1

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 12th showing the overall seasonally adjusted Market Composite Index decreased 4.0%.  The seasonally adjusted Purchase Index fell 4.0% from the prior week, while the Refinance Index decreased 4.0%.  Overall, the refinance portion of mortgage activity increased to 62.6% of total applications from 62.4%.  The adjustable-rate mortgage share of activity decreased to 4.6% from 4.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.65% to 3.64% with points decreasing to 0.31 from 0.34.

 

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

 

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

 

Mortgage Rate Forecast with Chart

 

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

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

08222016chart#2

 

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

 

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

 

Economic Calendar – for the Week of August 22, 2016

 

The economic calendar features several reports on housing on Tuesday and Wednesday in addition to Durable Goods Orders and the 2nd estimate of GDP for the second quarter on Thursday and Friday.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Aug 23 10:00 New Home Sales July 580,000 592,000
Aug 24 07:00 MBA Mortgage Index 08/20 NA -4.0%
Aug 24 09:00 FHFA Housing Price Index June NA 0.2%
Aug 24 10:00 Existing Home Sales July 5.54M 5.57M
Aug 24 10:30 Crude Oil Inventories 08/20 NA -2.51M
Aug 25 08:30 Initial Jobless Claims 08/20 265,000 262,000
Aug 25 08:30 Continuing Jobless Claims 08/13 NA 2,175K
Aug 25 08:30 Durable Goods Orders July 3.5% -4.0%
Aug 25 08:30 Durable Goods Orders Excluding Transportation July 0.4% -0.5%
Aug 26 08:30 2nd Estimate GDP Qtr. 2 1.1% 1.2%
Aug 26 08:30 2nd Estimate GDP Deflator Qtr. 2 2.2% 2.2%
Aug 26 08:30 International Trade in Goods July NA -$63.3B
Aug 26 10:00 Final Univ. of Mich. Consumer Sentiment Index Aug 90.6 90.4

 

 

 

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

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

 

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

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

 

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A few factors potentially impacting mortgage rates right now include:

  • Fed Talk
  • Treasury Auctions (5,7,10,30 year securities)
  • Existing Home Sales from National Assoc of Realtors
  • New Home Sales
  • Leading Economic Indicators (LEI) from the Conference Board
  • Durable Goods Orders
  • University of Michigan Consumer Sentiment (Rev)

Read more

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The economic calendar features the February Employment Situation Summary for February.  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 29 09:45 Chicago Purchasing Managers Index Feb 52.0 55.6
Feb 29 10:00 Pending Home Sales Jan +0.7% +0.1%
Mar 01 10:00 Construction Spending Jan +0.5% +0.1%
Mar 01 10:00 ISM Index Feb 49.0 48.2
Mar 02 07:00 MBA Mortgage Index 02/27 NA -4.3%
Mar 02 08:15 ADP Employment Change Feb 190,000 205,000
Mar 02 10:30 Crude Oil Inventories 02/27 3.0M 3.502M
Mar 02 14:00 Fed’s Beige Book Mar NA NA
Mar 03 07:30 Challenger Job Cuts Feb NA 41.6%
Mar 03 08:30 Initial Jobless Claims 02/27 270,000 272,000
Mar 03 08:30 Continuing Jobless Claims 02/27 2,258K 2,253K
Mar 03 08:30 Revised 4th Qtr. Productivity Qtr. 4 -3.3% -3.0%
Mar 03 08:30 Revised 4th Qtr. Unit Labor Costs Qtr. 4 +4.7% +4.5%
Mar 03 10:00 Factory Orders Jan +2.0% -2.9%
Mar 03 10:00 ISM Services Index Feb 53.1 53.5
Mar 04 08:30 Nonfarm Payrolls Feb 190,000 151,000
Mar 04 08:30 Nonfarm Private Payrolls Feb 180,000 158,000
Mar 04 08:30 Unemployment Rate Feb 4.9% 4.9%
Mar 04 08:30 Hourly Earnings Feb +0.2% +0.5%
Mar 04 08:30 Average Workweek Feb 34.6 34.6
Mar 04 08:30 Balance of Trade Jan -$44.0B -$43.4B

 

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Mortgage Rate Review

Feb 15, 2016

This past week was a repeat of the underlying forces impacting the financial markets so far in 2016: volatile oil prices, diverging monetary policy, and concerns about the global economy.  The stock market’s largest daily decline came on Monday, following another sharp decline in oil prices, which reached new multiyear lows by Thursday.  However, renewed prospects for production cuts by OPEC caused U.S. crude oil prices to rally more than 11% in early trading on Friday, helping to trigger a rebound in the stock market to the detriment of the bond market.

 

Additionally, cautious testimony from Federal Reserve Chair Janet Yellen before the House and Senate Banking Committees concerning the economic outlook also seemed to weigh on investor sentiment.  Yellen recognized tightening financial conditions and uncertainty over China pose risks to the U.S. economic recovery.  Yellen stated “I don’t expect the (Federal Open Market Committee) is going to be soon in the situation where it is necessary to cut rates.  There is always a risk of a recession…and global financial developments could produce a slowing in the economy.  I think we want to be careful not to jump to a premature conclusion about what is in store for the U.S. economy.  I don’t think it is going to be necessary to cut rates.”

 

Yellen also acknowledged that negative interest rates are not off the table as a potential policy tool of accommodation, and the stock market reacted by moving to new weekly lows.

The week’s economic data were generally seen in a positive light.  December job openings increased and both initial and continuing jobless claims declined.  Retail sales increased more than forecast in January, driven by an increase in vehicle sales.  The positive retail sales data on Friday sparked a late sell-off in Treasuries to push yields higher, but not before the benchmark 10-year yield fell on Thursday to 1.529%, a level not seen since August 2012.

 

As for housing, CoreLogic released its December 2015 National Foreclosure Report showing foreclosure inventory fell by 23.8% and completed foreclosures dropped by 22.6% compared to December 2014.  The number of completed foreclosures nationwide fell year-over-year from 41,000 in December 2014 to 32,000 in December 2015.  The number of completed foreclosures in December 2015 was 72.8% lower from the peak of 117,722 in September 2010.

 

Elsewhere, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending February 6 showing the overall seasonally adjusted Market Composite Index increased 9.3%.  On an unadjusted basis, the Composite Index increased by 12% week-over-week.  The seasonally adjusted Purchase Index increased 0.2% from the prior reporting period while the Refinance Index increased 16.0%.  Overall, the refinance portion of mortgage activity increased to 61.2% of total applications from 59.2%.  The adjustable-rate mortgage segment of activity increased to 6.4% of total applications from 5.9%.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance decreased from 3.97% to 3.91%.

 

For the week, the FNMA 3.5% coupon bond lost 9.4 basis points to end at $104.66 while the 10-year Treasury yield decreased 9.6 basis points to end at 1.75%.  Stocks ended the week with the Dow Jones Industrial Average losing 231.13 points to end at 15,973.84.  The NASDAQ Composite Index dropped 25.63 points to close at 4,337.51, and the S&P 500 Index fell 15.27 points to close at 1,864.78.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 9.08%, the NASDAQ Composite Index has lost 15.44%, and the S&P 500 Index has lost 9.61%.  This past week, the national average 30-year mortgage rate decreased to 3.66% from 3.77% while the 15-year mortgage rate fell to 2.98% from 3.05%.  The 5/1 ARM mortgage rate decreased to 2.87% from 2.99%.  FHA 30-year rates fell from 3.35% to 3.25% while Jumbo 30-year rates decreased to 3.48% from 3.58%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($104.66, -9.4 bp) traded within a 75 basis point range between a weekly intraday low of $104.58 and a weekly intraday high of 105.33 before closing at $104.66 on Friday.

 

From a technical viewpoint, there is a clear sign of a reversal with the bond gapping slightly lower and making a solid move toward support at the $104.516 level on Friday while remaining “overbought.”  The stochastic oscillators are showing new sell signals from negative crossovers while the candlestick patterns indicate market weakness.

 

If crude oil can sustain its current level and not sell off again or manage to move higher next week, stocks would likely mirror such performance to put additional selling pressure on bonds.  Under such a scenario, mortgage bonds would move lower for a test of primary support.  A break below the $104.516 support level could send prices toward secondary support at $104.15 resulting in a slight rise in mortgage rates.

 

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

02152016#1

 

Economic Calendar – for the Week of February 15, 2016

 

The economic calendar picks up this coming week with several key reports on inflation and manufacturing.  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 16 08:30 N.Y. Empire State Manufacturing Index Feb -9.9 -19.4
Feb 16 10:00 NAHB Housing Market Index Feb 60 60
Feb 16 16:00 Net Long-Term TIC Flows Dec NA $31.4B
Feb 17 07:00 MBA Mortgage Index 02/13 NA 9.3%
Feb 17 08:30 Producer Price Index (PPI) Jan -0.2% -0.2%
Feb 17 08:30 Core PPI Jan 0.0% 0.1%
Feb 17 08:30 Housing Starts Jan 1,171K 1,149K
Feb 17 08:30 Building Permits Jan 1,200K 1,232K
Feb 17 09:15 Industrial Production Jan 0.3% -0.4%
Feb 17 09:15 Capacity Utilization Jan 76.6% 76.5%
Feb 17 10:30 Crude Oil Inventories 02/13 NA -0.754M
Feb 17 14:00 FOMC Minutes Jan 27 NA NA
Feb 18 08:30 Initial Jobless Claims 02/13 274,000 269,000
Feb 18 08:30 Continuing Jobless Claims 02/06 2,237K 2,239K
Feb 18 08:30 Philadelphia Fed Manufacturing Survey Feb -2.9 -3.5
Feb 19 08:30 Consumer Price Index (CPI) Jan -0.1% -0.1%
Feb 19 08:30 Core CPI Jan 0.1% 0.1%

 

 

 

 

 

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

March 2016 15-16, (Tuesday-Wednesday)* 4% Chance
April 2016 26-27, (Tuesday-Wednesday) 6% Chance
June 2016 14-15, (Tuesday-Wednesday)* 14% Chance
July 2016 26-27, (Tuesday-Wednesday) 16% Chance
September 2016 20-21, (Tuesday-Wednesday) * 21% Chance
November 2016 1-2, (Tuesday-Wednesday) 23% Chance
December 2016 20-21 (Tuesday-Wednesday)* 33% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 39% 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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Job’s Report

Jan 8, 2016

Jobs Report1-8-2016

____________________________________________________

BLS Jobs reprot 01082016

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Today’s ADP report shows strong job growth, this is a positive for the economy.

ADP Employment Report1-6-2016

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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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Mortgage Market Update

Dec 21, 2015

The financial markets experienced an increase in volatility during the past week with traders focusing on sharp fluctuations in the crude oil market and the Federal Reserve’s first interest rate hike since 2006.

 

This past week, West Texas Intermediate crude oil fell to a multi-year low by trading down to $34.37 per barrel over concerns of a global oil glut before fluctuating around $35 per barrel.  The volatility in the oil market not only takes a toll on the stock market, it also affects the bond market as Treasuries tend to selling off when oil rallies.  Also, the persistent weakness in oil prices has been raising anxieties about high-yield debt in the Junk Bond market and this in turn has made equity traders a bit edgy.

 

As expected on Wednesday, the Fed’s Open Market Committee bumped up the Fed Funds rate by 25 basis points to maintain a funds target range of 25-50 basis points from the existing target range of 0-25 basis points.  The vote was unanimous.  In the accompanying policy statement, the FOMC said “economic activity has been expanding at a moderate pace.”  While the unemployment rate of about 5% met one of the Fed’s stated criteria for a rate hike, inflation is well below its 2% to 2.5% target due to low energy and commodity costs plus a strong dollar.

 

The Fed stated their future decisions regarding rate increases will depend on how the economy evolves.  Both the stock and bond markets initially reacted to the Fed announcement by moving higher as a veil of market uncertainty was lifted.  By most accounts, it appears the Fed intends to raise rates four times by 25 basis point increments during the next year with a prediction the ending 2016 Fed funds rate will hit 1.375%.  However, a number of other analysts are predicting a stagnant or declining economy for 2016 that will thwart the Fed’s efforts to raise rates.

 

In housing, the National Association of Home Builders (NAHB)/Wells Fargo housing market index for December fell by one point from a reading of 62 in November to 61.  This reading was a little lower than the consensus forecast of 63.  The current sales conditions sub-index also fell a point in December to 66 while the sub-index estimating prospective buyer traffic fell from 48 to 46.  The sales expectations sub-index dropped two points from 69 to 67.

 

Of note, Housing Starts were reported at 1.173 million units, annualized, while Building Permits came in at 1.289 million for the month of November.  Both housing numbers exceeded consensus forecasts of 1.135 and 1.150 million respectively and suggest the housing market remains in decent shape.

 

The Mortgage Bankers Association released their latest Mortgage Application Data for the week ending December 11 showing the overall Market Composite Index decreased 1.1%.  The seasonally adjusted Purchase Index decreased 3.0% from a week earlier while the Refinance Index increased 1.0% from the prior week.  Overall, the refinance portion of mortgage activity increased to 60.7% of total applications from 58.7%.  The adjustable-rate mortgage segment of activity decreased to 6.0% of total applications from 6.2% the prior week.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance remained unchanged at 4.14%.

 

For the week, the FNMA 3.5% coupon bond lost 25.0 basis points to end at $103.25 while the 10-year Treasury yield increased 7.2 basis points to end at 2.20%.  Stocks ended the week with the Dow Jones Industrial Average falling 136.66 points to end at 17,128.55.  The NASDAQ Composite Index dropped 10.39 points to close at 4,923.08, and the S&P 500 Index lost 6.82 points to close at 2,005.55.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 4.05%, the NASDAQ Composite Index has gained 3.80%, and the S&P 500 Index has declined 2.66%.  This past week, the national average 30-year mortgage rate increased to 4.02% from 3.98% while the 15-year mortgage rate rose to 3.25% from 3.23%.  The 5/1 ARM mortgage rate decreased to 2.97% from 3.02%.  FHA 30-year rates increased to 3.75% from 3.65% while Jumbo 30-year rates increased to 3.84% from 3.82%.

 

Mortgage Rate Forecast with Chart

#112212015ratechart

 

For the week, the FNMA 30-year 3.5% coupon bond ($103.25, -25.0 bp) traded within a 69 basis point range between a weekly intraday high of 103.41 and a weekly intraday low of $102.72 before closing at $103.25 on Friday.

 

During the week, the bond traded in a deep “V-shaped” pattern while bouncing higher off of a support level at $102.78.  This action completed a three-day Morning Star candlestick pattern from Tuesday through Thursday, which is a moderately strong buy signal.  On Friday, the bond gapped open higher to power above nearest resistance at the 38.2% Fibonacci retracement level at $103.16.  This level now becomes closest technical support.  The next level of resistance is found at the 25-day moving average at $103.30.  The bond is well positioned to challenge this level this week as the slow stochastic oscillator turned higher and is showing a new buy signal from a positive stochastic crossover.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

 

Economic Calendar – for the Week of December 21

 

The economic calendar features the third estimate for third quarter GDP as well as reports on housing, inflation, and jobless claims.  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 22 08:30 3rd Estimate for 3rd Qtr. GDP Qtr. 3 2.0% 2.1%
Dec 22 08:30 3rd Estimate for 3rd Qtr. GDP Deflator Qtr. 3 1.3% 1.3%
Dec 22 09:00 FHFA Housing Price Index Oct NA 0.8%
Dec 22 10:00 Existing Home Sales Nov 5.30M 5.36M
Dec 23 07:00 MBA Mortgage Purchase Index 12/19 NA -1.1%
Dec 23 08:30 Durable Goods Orders Nov 0.3% 0.1%
Dec 23 08:30 Durable Goods Orders excluding transportation Nov 0.3% 0.4%
Dec 23 08:30 Personal Income Nov -0.7% 3.0%
Dec 23 08:30 Personal Spending Nov 0.0% 0.5%
Dec 23 08:30 Core PCE Prices Nov 0.2% 0.0%
Dec 23 10:00 Final Univ. of Michigan Consumer Sentiment Index Dec 92.0 91.8
Dec 23 10:00 New Home Sales Nov 505,000 495,000
Dec 23 10:30 Crude Oil Inventories 12/19 NA 4.800M
Dec 24 08:30 Initial Jobless Claims 12/19 271,000 271,000
Dec 24 08:30 Continuing Jobless Claims 12/19 2,228K 2,238K

 

from:  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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