Steven Wieting, Citi Private Bank, provides an outlook for the markets and economy next year.

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by | Categories: The Economy | No Comments

The mortgage bond market saw increased volatility this past week with sizeable moves taking place on Tuesday, Thursday and Friday.

 

On Tuesday, the ISM Manufacturing Index fell to 48.6 in November from 50.1 in October to record its lowest level since June 2009. The consensus forecast had been for a reading of 50.4. A reading below 50 indicates a contraction in manufacturing. The New Orders sub-index dropped 4 points to 48.9%, the lowest reading in more than three years. The bond market made a nice move higher (yields lower) following this release.

 

Thursday, the financial markets were disappointed with the European Central Bank’s (ECB) decision to deliver a very bare minimum of additional monetary stimulus for the Eurozone by cutting their deposit rate by only 10 basis points to -0.30%. Many analysts had expected a greater degree of stimulus from the ECB and this led to bearish sentiment among traders. As a result, the euro surged against the US dollar, stock indexes in Europe and the U.S. declined, Eurozone sovereign debt moved sharply lower, and our Treasury and mortgage bond markets fell in sympathy.

 

Friday, investors received the week’s most significant economic release when the Bureau of Labor Statistics reported Nonfarm Payrolls increased by 211,000 for the month of November, which was well above the consensus forecast of 196,000. Furthermore, October’s reading of 271,000 new jobs was upwardly revised to 298,000. Nonfarm Private Payrolls came in at 197,000 to exceed the consensus forecast of 185,000. The Unemployment Rate remained unchanged at 5.0% and Hourly Earnings edged higher by 0.2%. This release confirms the notion that the U.S. economy is on the mend despite a strong dollar and weaker foreign economies. Moreover, the jobs data is now more likely to persuade the Federal Reserve to hike interest rates at its December 16 meeting.

 

In housing, the National Association of Realtors reported contract signings to purchase previously owned homes climbed less than forecast in October after declining the prior two months. The Pending Home Sales Index edged higher by 0.2% to 107.7 in October from an upwardly revised 107.5 in September. The consensus forecast had been for a 0.7% increase. Pending Home Sales are now 3.9% above the October 2014 level and have increased year-over-year for 14 consecutive months.

 

#1-12072015pendinghomesales

 

Elsewhere, CoreLogic reported their October Home Price Index (HPI) data showing home prices, including distressed sales, increased 6.8% on a year-over-year basis and were 1% higher from September. According to CoreLogic’s HPI Forecast, home prices should increase at a 5.2% rate from October 2015 to October 2016. CoreLogic’s chief economist, Frank Nothaft, stated “A year from now, as we finish out October 2016, we expect the CoreLogic national Home Price Index appreciation to slow to 5.2 percent.”

 

#2-12072015HPI

 

As for mortgages, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending November 27 showing the overall Market Composite Index fell 0.2%. The seasonally adjusted Purchase Index increased 8% from a week earlier while the Refinance Index decreased 6% from the prior week. Overall, the refinance portion of mortgage activity decreased to 56.6% of total applications from 58.7%. The adjustable-rate mortgage segment of activity decreased to 6.1% of total applications from 6.4% the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance fell from 4.14% to 4.12%.

 

For the week, the FNMA 3.5% coupon bond lost 6.3 basis points to end at $103.38 while the 10-year Treasury yield increased 5.1 basis points to end at 2.27%. Stocks ended the week with the NASDAQ Composite gaining 14.74 points to close at 5,142.27. The Dow Jones Industrial Average added 49.14 points to end at 17,847.63, and the S&P 500 increased 1.58 points to close at 2,091.69.

 

Year to date, and exclusive of any dividends, the NASDAQ Composite has gained 7.90%, the Dow Jones Industrial Average has gained 0.138%, and the S&P 500 has added 1.57%. This past week, the national average 30-year mortgage rate increased to 4.03% from 4.00% while the 15-year mortgage rate was unchanged at 3.25%. The 5/1 ARM mortgage rate decreased to 2.98% from 3.00%. FHA 30-year rates fell from 3.75% to 3.72% while Jumbo 30-year rates increased to 3.85% from 3.84%.

 

Mortgage Rate Forecast

 

For the week, the FNMA 30-year 3.5% coupon bond ($103.38, -6.3 bp) traded within a wider 114 basis point range between a weekly intraday high of 103.92 and a weekly intraday low of $102.78 before closing at $103.38 on Friday.

 

The bond was whipsawed over the Thursday and Friday trading sessions. After opening higher on Friday just below technical resistance at the 38.2% Fibonacci retracement level ($103.16), the bond fell to test support at the $102.81 level. The bond then strongly rebounded above the previously identified resistance level at $103.16 to its best levels of the day. With Friday’s strong upward reversal, we could see a slight improvement in interest rates this coming week

 

from MBSHighway

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The economic calendar features a blend of housing and inflation reports in addition to the weekly Initial Jobless Claims report. Economic reports having the greatest potential impact on the financial markets are highlighted in bold:

 

Nov 23 10:00 Existing Home Sales Oct 5.50M 5.55M
Nov 24 08:30 2nd Estimate GDP Q3 2.0% 1.5%
Nov 24 08:30 2nd Estimate for GDP Deflator Q3 1.2% 1.3%
Nov 24 09:00 Case-Shiller 20-city Index Sept 5.2% 5.1%
Nov 24 10:00 Consumer Confidence Index Nov 99.6 97.6
Nov 25 07:00 MBA Mortgage Index 11/21 NA +6.2%
Nov 25 08:30 Initial Jobless Claims 11/21 272,000 271,000
Nov 25 08:30 Continuing Jobless Claims 11/14 2,164K 2,175K
Nov 25 08:30 Personal Income Oct 0.4% -0.1%
Nov 25 08:30 Personal Spending Oct 0.3% 0.1%
Nov 25 08:30 Core PCE Prices Oct 0.2% 0.1%
Nov 25 08:30 Durable Goods Orders Oct 1.5% -1.2%
Nov 25 08:30 Durable Goods excluding transportation Oct 0.5% -0.6%
Nov 25 09:00 FHFA Housing Price Index Sept NA 0.3%
Nov 25 10:00 Final Univ. of Michigan Consumer Sentiment Nov 93.1 93.1
Nov 25 10:00 New Home Sales Oct 504,000 468,000
Nov 25 10:30 Crude Oil Inventories 11/21 NA 0.252M

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Mortgage Rate Forecast with Chart

 

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

 

fnma30yrmbscahrtfor11232015

 mortgage rates

from: mbshighway

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The economic calendar features a couple of manufacturing reports, the weekly Initial Jobless Claims report, and the Consumer Price Index in addition to the Fed’s FOMC Minutes from their October 28 meeting. 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
Nov 16 08:30 New York Empire State Manufacturing Index Nov -6.0 -11.4
Nov 17 08:30 Consumer Price Index (CPI) Oct 0.2% -0.2%
Nov 17 08:30 Core CPI Oct 0.2% 0.2%
Nov 17 09:15 Industrial Production Oct 0.1% -0.2%
Nov 17 09:15 Capacity Utilization Oct 77.5% 77.5%
Nov 17 10:00 NAHB Housing Market Index Nov 64.5 64
Nov 17 16:00 Net Long-Term TIC Flows Sept NA $20.4B
Nov 18 07:00 MBA Mortgage Index 11/14 NA -1.3%
Nov 18 08:30 Housing Starts Oct 1,173K 1206K
Nov 18 08:30 Building Permits Oct 1,137K 1103K
Nov 18 10:30 Crude Oil Inventories 11/14 NA 4.22M
Nov 18 14:00 FOMC Minutes 10/28    
Nov 19 08:30 Initial Jobless Claims 11/14 272,000 276,000
Nov 19 08:30 Continuing Jobless Claims 11/07 2,164K 2,174K
Nov 19 08:30 Philadelphia Fed Manufacturing Index Nov -1.0 -4.5
Nov 19 10:00 Index of Leading Economic Indicators Oct 0.6% -0.2%

 

 

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The economic calendar strengthens this coming week with a greater number of reports having a potential market impact.

lock rate?

econ10132015

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by | Categories: main, The Economy | No Comments

Jobs, jobs, jobs.

Sep 9, 2015

We know that when peoples have good jobs they are more likely to buy things, including houses.  The most recent employment data shows a low unemployment rate of 5.1%.  The unemployment rate is great but the Labor Force Participation Rate, folks able to be employed but are not seeking employment, remains at historic lows.  The economy  is improving just not as quickly as economist would like.

mbshsep2015jobs

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Monthly Housing data

Sep 2, 2015

housing-infographic-8-28-15

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Rate hike expectations

Jan 13, 2015

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Rate hike expectations:
Atlanta Fed President Dennis Lockhart is sticking to his mid-2015 rate liftoff forecast, but inflation readings will be pivotal in deciding the time.
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James Galbraith, economist and professor at the University of Texas tells Yahoo Finance the Fed has a dilemma: There may not be a good way out of current low-rate environment

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