This past week investors were rewarded with the three major stock indexes reaching new record all-time highs.  The rally began last Monday following early reports that damages from Hurricane Irma were not as severe as first projected when Irma was classified as a category 5 before slamming into Florida.  Also, the equity markets shrugged off another launch of a ballistic missile by North Korea that flew over the northern Japanese island of Hokkaido on Friday to continue the week’s safe-haven sell off.

 

The week’s most significant economic news arrived Thursday from a Commerce Department report showing the Consumer Price Index (CPI) rising by a greater than expected 0.4% in August resulting in a year-over-year increase of 1.9%.  The consensus estimate had called for a 0.3% increase in the August CPI.  This report led investors to consider the Federal Reserve’s view that the recent weaker than forecast inflation data was temporary might be true.  Expectations are now significantly increasing for another interest rate hike at the Fed’s December 13 FOMC policy meeting.  In fact, the Fed Funds futures market shows the probability of another rate hike by year end has jumped higher to 57.8% from 27.3% last week while the current implied probability for a rate-hike at the June 2018 FOMC meeting increased to 76.9% from last week’s 47.1%.

 

In housing, mortgage application volume increased during the week ending September 8.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 9.9%.  The seasonally adjusted Purchase Index increased 11.0% from the prior week while the Refinance Index advanced 9.0%.

 

Overall, the refinance portion of mortgage activity increased to 51.0% of total applications from 50.9% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.7% of total applications from 7.2%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.03% from 4.06% with points increasing to 0.40 from 0.38.

 

For the week, the FNMA 3.5% coupon bond lost 54.7 basis points to close at $103.28.  The 10-year Treasury yield increased 14.82 basis points to end at 2.2023%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 470.55 points to close at 22,268.34, a new all-time high.  The NASDAQ Composite Index added 88.28 points to close at 6,448.47 and the S&P 500 Index gained 38.80 points to close at 2,500.23.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 12.68%, the NASDAQ Composite Index has advanced 19.79%, and the S&P 500 Index has added 11.68%.

 

This past week, the national average 30-year mortgage rate increased to 3.94% from 3.84%; the 15-year mortgage rate increased to 3.22% from 3.12%; the 5/1 ARM mortgage rate moved higher to 3.20% from 3.10% and the FHA 30-year rate rose to 3.50% from 3.35%.  Jumbo 30-year rates increased to 4.19% from 4.10%.

 

Economic Calendar – for the Week of September 18, 2017

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

 

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.28, -54.7 bp) traded within a 54.7 basis point range between a weekly intraday low of $103.703 on Monday and a weekly intraday high of $103.156 on Thursday before closing the week at $103.28 on Friday.

 

The stock market continued to move higher while bonds sold off in response.  Mortgage bonds fell below last week’s nearest support levels and these now become resistance levels.  The bond is no longer severely “overbought” and the slow stochastic oscillator is now moving toward an “oversold” level, but has not yet reached this position.  Technically it appears the bond will continue a little lower to test support at the 50-day and 100-day moving averages.  As a result, mortgage rates may rise slightly in the coming week.  Also, bond traders will be focusing on this coming week’s Federal Reserve FOMC meeting on Tuesday and Wednesday.  It is widely anticipated Fed Chair Janet Yellen will announce the beginning of a gradual reduction of assets, including mortgage bonds, to shrink its huge balance sheet resulting from its response to the 2008 financial crisis.  While Yellen is unlikely to “upset the apple cart” with such an announcement, you never know how traders will respond to the Fed’s plan for shrinking their balance sheet by selling bonds.

 

 

 

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This past week investors were more focused on macro events than on individual economic reports. Stock market sentiment was negatively impacted by continuing geopolitical troubles with North Korea and its nuclear weapons testing program, the weekend arrival of potentially catastrophic Category 5 hurricane Irma in Florida, and waning confidence in Congress to enact meaningful tax reform that would ignite the US economy.  In particular, reports were circulating that the conservative House Freedom Caucus was beginning to write its own version of a tax reform plan, and the prospect of multiple, competing plans appeared to weigh on sentiment last Thursday.

 

Sentiment may also have been subdued by a speech by Minneapolis Fed President and FOMC member Neel Kashkari.  Considered a Fed “dove,” Kashkari said recent Fed rate hikes have been detrimental to the U.S. economy.  Kashkari’s comments sparked a rally in Treasuries that helped to push long-term Treasury yields lower.

 

Declining long-term Treasury yields and diminished expectations for another short-term rate hike from the Fed in December led to a decline in the U.S. dollar during the week.  The dollar fell to its lowest level against a basket of major foreign currencies since the beginning of 2015 and has fallen 10% against the euro in less than eight months.

The Fed Funds futures market currently shows a probability of another rate hike this year at just 27.3%, down from 40.8% last week.  The current implied probability for a rate-hike at the June 2018 FOMC meeting fell to 47.1% from last week’s 58.3%.

 

In housing, CoreLogic reported their Home Price Index (HPI) showed home prices increased significantly both month-over-month and year-over-year in July.  Nationally, the average cost of a single-family house increased nearly 0.9% from this time last month and 6.7% from this time last year.  The CoreLogic HPI Forecast suggests the trend of higher home prices will continue, leading to another 5% national gain in home prices year-over-year by July 2018.

 

CoreLogic CEO Frank Martell stated “Home prices in July continued to rise at a solid pace with no signs of slowing down.  The combination of steadily rising purchase demand along with very tight inventory of unsold homes should keep upward pressure on home prices for the remainder of this year. While mortgage interest rates remain low, affordability cracks are emerging as over a third of U.S. top cities are now overvalued.”

 

As for mortgages, mortgage application volume increased during the week ending September 1.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 3.3%.  The seasonally adjusted Purchase Index increased 1.0% from the prior week while the Refinance Index advanced 5.0%.

 

Overall, the refinance portion of mortgage activity increased to 50.9% of total applications from 49.4% in the prior week.  The adjustable-rate mortgage share of activity increased to 7.2% of total applications from 6.9%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.06% from 4.11% with points decreasing to 0.38 from 0.43.

 

For the week, the FNMA 3.5% coupon bond gained 35.9 basis points to close at $103.828.  The 10-year Treasury yield decreased 11.16 basis points to end at 2.0541%.  The major stock indexes ended the week lower.

 

The Dow Jones Industrial Average lost 189.77 points to close at 21,797.79.  The NASDAQ Composite Index dropped 75.14 points to close at 6,360.19 and the S&P 500 Index fell 15.12 points to close at 2,461.43.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 10.3%, the NASDAQ Composite Index has advanced 18.15%, and the S&P 500 Index has added 9.94%.

 

This past week, the national average 30-year mortgage rate decreased to 3.84% from 3.90%; the 15-year mortgage rate decreased to 3.12% from 3.18%; the 5/1 ARM mortgage rate moved lower to 3.10% from 3.18% and the FHA 30-year rate fell to 3.35% from 3.50%.  Jumbo 30-year rates decreased to 4.10% from 4.18%.

 

Economic Calendar – for the Week of September 11, 2017

 

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.828, +35.6 bp) traded within a 37.5 basis point range between a weekly intraday low of $103.578 on Tuesday and a weekly intraday high of $103.953 on Thursday and Friday before closing the week at $103.828 on Friday.

 

The bond managed to move higher this past week despite very choppy trading and while continuing to be extremely “overbought.”  The holiday-shortened week’s trading action was highlighted by alternating days of the bond moving higher, then lower.  This choppy trading also resulted in alternating daily buy and sell signals from positive and negative crossovers in the slow stochastic oscillator.

 

It is difficult if not impossible to forecast directional movement in such a choppy trading environment.  Given that September is historically the worse performing month for the stock market; we could see mortgage bond and Treasury prices continue to improve slightly resulting in stable to slightly lower rates.  However, from a purely technical perspective, mortgage bonds are not likely to remain at such extremely overbought levels for much longer and will be susceptible to a move lower toward support levels resulting in rates edging a little higher from current levels.

 

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The stock market ended higher for the week while bond prices moved ever so slightly higher resulting in the yield on the 10-year Treasury note to fall by less than one basis point on the week.

Investors were bombarded by a bevy economic reports, the most significant of which were the inflation measuring core PCE Price Index for July and the August Employment Situation Summary.

The inflation data contained within both of these reports helped to alleviate investor concerns of another rate hike by year end as the numbers were below expectations.

 

The core PCE Price Index, which excludes food and energy prices, fell on a year-over-year basis to +1.4% from +1.5% in June to stay well below the Federal Reserve’s year-over-year target of 2.0%.  It now seems unlikely that the Fed will be able to fulfill its forecast of one more rate hike by year-end.  Furthermore, the August Employment Situation Summary (jobs report) also showed no sign of accelerating wage inflation as there was only a weak increase in average hourly earnings of 0.1% when economists were expecting a 0.2% reading.

 

The Fed Funds futures market currently shows a probability of another rate hike this year at just 40.8% while suggesting the June 2018 FOMC meeting as the next most likely time for a rate-hike  with a current implied probability of 58.3%.

 

In housing, Pending Home Sales for July fell for the fourth time in five months with a decrease of 0.8% in the Pending Home Sales Index to 109.1.  Economists were expecting an increase of 0.5%.  Furthermore, June’s initial reading of an increase of 1.5% in Pending Sales was revised lower to 1.3%.  Lawrence Yun, National Association of Realtors (NAR) chief economist, said “With the exception of a minimal gain in the West, pending sales were weaker in most areas in July as house hunters saw limited options for sale and highly competitive market conditions.  The housing market remains stuck in a holding pattern with little signs of breaking through.  The pace of new listings is not catching up with what’s being sold at an astonishingly fast pace.  The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves.”

 

As for mortgages, mortgage application volume decreased during the week ending August 25.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 2.3%.  The seasonally adjusted Purchase Index declined 3.0% from the prior week while the Refinance Index decreased 2.0%.

 

Overall, the refinance portion of mortgage activity increased to 49.4% of total applications from 48.7% in the prior week.  The adjustable-rate mortgage share of activity increased to 6.9% of total applications from 6.4%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.11% from 4.12% with points increasing to 0.43 from 0.39.

 

For the week, the FNMA 3.5% coupon bond gained 6.3 basis points to close at $103.469.  The 10-year Treasury yield decreased 0.37 basis points to end at 2.1657%.  The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average gained 173.89 points to close at 21,987.56.  The NASDAQ Composite Index jumped 169.69 points to close at 6,435.33 and the S&P 500 Index added 33.50 points to close at 2,476.55.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 11.3%, the NASDAQ Composite Index has advanced 19.42%, and the S&P 500 Index has added 10.6%.

 

This past week, the national average 30-year mortgage rate decreased to 3.90% from 3.95%; the 15-year mortgage rate decreased to 3.18% from 3.23%; the 5/1 ARM mortgage rate moved lower to 3.18% from 3.20% and the FHA 30-year rate fell to 3.50% from 3.60%.  Jumbo 30-year rates decreased to 4.18% from 4.23%.

 

Economic Calendar – for the Week of September 4, 2017

 

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

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.469, +6.3 bp) traded within a 39.1 basis point range between a weekly intraday low of $103.359 on Monday and a weekly intraday high of $103.750 on Friday before closing the week at $103.469 on Friday.

 

This past week we ended up pretty much with a sideways move although there were a couple of days during the week showing an increase in intra-day volatility, most notably on Tuesday and Friday.  The bond continues to be extremely “overbought” but is now more vulnerable to a turn lower as there is a new sell signal showing from a negative stochastic crossover as a result of Friday’s market action.  The bond closed on support on Friday, but any move lower will likely send prices toward the 25-day moving average leading to minimally higher mortgage rates in the coming week.

 

 

 

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The stock market posted gains for the week largely due to a solid rally on Tuesday that may have been triggered by a report from Politico stating Republican lawmakers were working behind the scenes on tax reform legislation. According to Politico, a consensus is emerging among top administration and congressional officials on ways to pay for individual and corporate tax cuts and reduced tax rates, including capping the mortgage interest deduction and eliminating the deduction for state and local tax payments. Also, businesses would no longer be able to deduct interest payments. Treasury prices increased during the week. The yield on the 10-year Treasury Note fell by 2.80 basis points to end at 2.1694%.

 

The week’s economic and housing data continued to be mixed. Durable Goods Orders declined by 6.8% in July, in sharp contrast to a gain of 6.4% during June. The decline was largely driven by a substantial reduction in aircraft orders. One encouraging piece of data came from the latest reading on core capital goods, a key measure of business investment, showing an increase of 0.4%. Weekly Initial Jobless Claims increased slightly from 232,000 to 234,000, but remained well under market expectations of 237,000 claims.

 

In housing, the Federal Housing Finance Agency (FHFA) House Price Index (HPI) released last Tuesday showed home prices increased by 1.6% during the second quarter of 2017 compared to the first quarter. For June 2017, the FHFA’s seasonally adjusted monthly index rose 0.1% from May. On an annual basis from the second quarter of 2016 to the second quarter of 2017, home prices have risen 6.6%. FHFA Senior Economist William Doerner remarked “U.S. house prices rose in most states during the second quarter. New home sales are climbing but, relative to the overall population, they still remain low from a historical perspective. The tight inventory is a major explanation for why house prices have been increasing every quarter over the last six years.”

 

New Home Sales for July disappointed by missing the consensus forecast of 615,000 with a seasonally adjusted annual reading of 571,000 that was 9.4% lower than an upwardly revised June rate of 630,000 (from an originally reported 610,000). July’s reading was also 8.9% lower from the same period a year ago. However, when taking into account the upward revisions that have taken place over the past three months that have collectively added 46,000 new home sales, the July sales pace was not really as bad as it first appeared.

 

The primary problem for New Home Sales appears to be a limited inventory of lower priced new homes for sale. Also, higher average selling prices continue to act as a constraining factor. The median sales price increased 6.3% year-over-year to $313,700 while the average sales price increased 4.6% to $371,200. Based on the rate of July sales, the inventory of new homes for sale is currently at a 5.8-months’ supply versus 5.2 months for June.

Furthermore, the National Association of Realtors (NAR) reported last Thursday that Existing Home Sales edged 1.3% lower in July to a seasonally adjusted annual rate of 5.44 million versus a consensus forecast of 5.56 million. Although the July’s sales rate was 2.1% above the year ago period, it was the lowest sales pace so far in 2017. NAR Chief Economist Lawrence Yun commented “Homes are selling fast” while Zillow Senior Economist Aaron Terrazas stated “The American housing market is stuck in its own kind of stagflation: Existing home sales have been flat since last fall, while home values are up more than 4% over the same period. For more than two years now, inventory has been has been contracting, pushing the housing market into an inventory crisis.”

 

Strong housing demand in July meant listings went into contract in under 30 days. It also pushed prices higher. The median existing home sales price in July was $258,300, a 6.2% increase compared to a year ago and the 65th straight month of year-over-year gains. Inventory (1.92 million) was 9% lower than a year ago, and has fallen year-over-year for 26 consecutive months. Unsold inventory is now at a 4.2-month supply at the current sales rate, versus 4.8 months a year ago and the 6.0-month supply typically associated with a more balanced real estate market.

 

One positive aspect was an increase in first-time home buyers who comprised 33% of buying volume compared to 32% in June. However, that’s still substantially lower than the 40% market share historically taken by first-time home buyers.

As for mortgages, mortgage application volume decreased during the week ending August 18. The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 0.5%. The seasonally adjusted Purchase Index declined 2.0% from the prior week while the Refinance Index increased 0.3%.

 

Overall, the refinance portion of mortgage activity increased to 48.7% of total applications from 47.8% in the prior week. The adjustable-rate mortgage share of activity decreased to 6.4% of total applications from 6.6%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance was unchanged at 4.12% with points increasing to 0.39 from 0.38.

 

For the week, the FNMA 3.5% coupon bond gained 12.5 basis points to close at $103.406. The 10-year Treasury yield decreased 2.80 basis points to end at 2.1694%. The major stock indexes ended the week higher.

 

The Dow Jones Industrial Average added 139.16 points to close at 21,813.67. The NASDAQ Composite Index rose 49.11 points to close at 6,265.64 and the S&P 500 Index gained 17.50 points to close at 2,443.05. Year to date on a total return basis, the Dow Jones Industrial Average has gained 10.38%, the NASDAQ Composite Index has advanced 16.39%, and the S&P 500 Index has added 9.12%.

 

This past week, the national average 30-year mortgage rate increased to 3.95% from 3.94%; the 15-year mortgage rate increased to 3.23% from 3.22%; the 5/1 ARM mortgage rate moved higher to 3.20% from 3.17% and the FHA 30-year rate remained unchanged at 3.60%. Jumbo 30-year rates increased to 4.23% from 4.22%.
Economic Calendar – for the Week of August 28, 2017

 

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

 

 

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

The FNMA 30-year 3.5% coupon bond ($103.406, +12.50 bp) traded within a 26.5 basis point range between a weekly intraday low of $103.188 on Tuesday and a weekly intraday high of $103.453 on Friday before closing the week at $103.406 on Friday.

Last week’s newsletter forecast range-bound trading with a sideways movement in mortgage bonds resulting in relatively stable mortgage rates for the week, and that was what we ended up with. Rates differed on average by just a few basis points from the prior week. At the risk of sounding like a broken record, not much has changed technically since last week. The bond continues to be extremely “overbought” and susceptible to a turn lower, but could continue to be range-bound and trade between the identified support and resistance levels shown in the chart.
Additional sideways movement in the bond should result in stable mortgage rates in the coming week.

 

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Volatility returned to the stock market this past week as geopolitical events exerted noticeable influence on traders.  Concerns about a potential military conflict with North Korea subsided to spark a rally in stocks last Monday that led the S&P 500 Index to record its largest one-day gain in almost four months.  However, these gains were entirely erased on Thursday with the S&P 500 Index’s largest decline in three months following protestor violence in Charlottesville, VA in addition to new terrorist attacks in Spain.  Investors are becoming increasingly worried that President Trump’s ability to move forward on economic and tax policy is being derailed by the constant criticisms voiced by opposing politicians and most of the so-called mainstream media.

 

The week’s economic data were mixed.  Retail Sales were reported stronger than expected and despite numerous negative headlines for retailers over the past several months, July’s Retail Sales were up 0.6% versus a +0.3% forecast.  Further, revisions in the data showed a +0.3% increase in June rather than the originally reported -0.2% decline.  For the trailing 12-month period, Retail Sales were 4.2% higher and near the five-year average.

 

In housing, July’s new Housing Starts and Building Permits were both more than 4% lower than June’s numbers with Starts declining by 4.8% to a seasonally adjusted annual rate of 1.155 million versus 1.217 million expected.  Permits fell by 4.1% to a seasonally adjusted annual rate of 1.223 million compared to expectations for 1.247 million.  Although Housing Starts were 5.6% lower than July of last year, the total for the first seven months of 2017 are about 2.5% ahead of 2016’s pace.  Also, July’s home builder sentiment was four points higher, recovering from an eight-month low in June.

 

As for mortgages, mortgage application volume increased minimally during the week ending August 11.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 0.1%.  The seasonally adjusted Purchase Index declined 2.0% from the prior week while the Refinance Index increased 2%.

 

Overall, the refinance portion of mortgage activity increased to 47.8% of total applications from 46.7% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.6% of total applications from 6.8%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance declined to 4.12% from 4.14% with points unchanged at 0.38.

 

Following this past week’s political turmoil and economic news, the Fed Funds futures market now points to either the May or June 2018 FOMC meetings as the most likely time for the next rate-hike announcement with an implied probability of 50.4% for May and 59.9% for June.  Last week, the market expected the next rate hike to occur in June 2018 with an implied probability of 57.5%.

 

For the week, the FNMA 3.5% coupon bond lost 1.6 basis points to close at $103.281.  The 10-year Treasury yield increased 0.69 basis points to end at 2.1974%.  The major stock indexes ended the week lower.

 

The Dow Jones Industrial Average fell 183.81 points to close at 21,674.51.  The NASDAQ Composite Index dropped 40.03 points to close at 6,216.53 and the S&P 500 Index lost 15.77 points to close at 2,425.55.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 9.67%, the NASDAQ Composite Index has advanced 15.48%, and the S&P 500 Index has risen 8.34%.

 

This past week, the national average 30-year mortgage rate fell to 3.94% from 3.96%; the 15-year mortgage rate decreased to 3.22% from 3.24%; the 5/1 ARM mortgage rate was unchanged at 3.17% and the FHA 30-year rate was also unchanged at 3.60%.  Jumbo 30-year rates decreased to 4.22% from 4.24%.

 

Economic Calendar – for the Week of August 21, 2017

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Aug 22 09:00 FHFA Housing Price Index June NA 0.4%
Aug 23 07:00 MBA Mortgage Purchase Index 08/19 NA 0.1%
Aug 23 10:00 New Home Sales July 615,000 610,000
Aug 23 10:30 Crude Oil Inventories 08/19 NA -8.9M
Aug 24 08:30 Continuing Jobless Claims 08/19 237,000 232,000
Aug 24 08:30 Initial Jobless Claims 08/19 NA 1,953K
Aug 24 10:00 Existing Home Sales July 5.56M 5.52M
Aug 25 08:30 Durable Goods Orders July -6.0% 6.5%
Aug 25 08:30 Durable Goods Orders excluding transportation July 0.5% 0.2%

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.28, -1.60 bp) traded within a 42 basis point range between a weekly intraday low of $103.00 on Tuesday and Wednesday and a weekly intraday high of $103.42 on Friday before closing the week slightly lower at $103.28 on Friday.

 

Following a week of increased volatility in the financial markets the bond ended the week very nearly where it began with a loss of less than two basis points.  Technically, not much has changed since the last newsletter.  The next level of overhead resistance remains at $103.53.  It will take a further stock market correction for the bond to reach this target as the bond continues to be extremely “overbought” and susceptible to a turn lower.  With an expansion in the range between support and resistance as identified in the chart below, the bond could continue to be range-bound in the coming week.  Mortgage rates should hold at relatively stable levels in the coming.

 

 

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Although the stock market once again ended the week in a “mixed” fashion, the Dow Jones Industrial Average continued its march higher by setting consecutive new all-time highs during the week.  In fact, the Dow has set new all-time highs during each of the last eight trading days while crossing another 1,000 point milestone at 22,000 to close the week at 22,092.81.  Bond prices also gained some ground to send Treasury yields marginally lower.

 

The financial markets continue to be buoyed by mostly favorable economic data.  This past week

Personal Income was reported unchanged at 0.0% for July versus a consensus forecast of a 0.3% increase, while Personal (consumer) Spending ticked higher by 0.1% in June after an upwardly revised 0.2% gain in May.  On the inflation front, the Core Personal Consumption Expenditures (PCE) Price Index, which excludes food and energy, increased by 0.1% in June to match expectations while the 12-month reading recorded a 1.5% increase.

 

Although the July ADP Employment data was weaker than expected with a reading of 178,000 new jobs created compared to 187,000 predicted by economists, the Employment Situation Summary (Jobs Report) for July was better than economic forecasts.  The Labor Department reported Non-farm Payrolls at 209,000, which was higher than the 181,000 expected.  The Unemployment Rate fell back to 4.3% from June’s reading of 4.4% to matching the reading for May, its lowest rate in 16 years.  Average Hourly Earnings rose 0.3% or by 9 cents to $26.36 to match the consensus forecast and is now up by 2.5% on the year.  Overall, both stock and bond participants liked what they saw in the jobs data with the strong job creation while wage inflation remained restrained.  The jobs data resulted in a slight increase in rate hike expectations for the Fed’s December FOMC meeting with the fed funds futures market now showing a 48.0% likelihood of a rate hike in December.  This is up from last Thursday’s closing reading of 46.8%.

 

In housing, the National Association of Realtors (NAR) reported their Pending Home Sales Index (PHSI) snapped a three month losing streak by posting a 1.5% gain in June to reach a reading of 110.2, up from May’s level of 108.6.  Lawrence Yun, chief NAR economist, remarked “The first half of 2017 ended with a nearly identical number of contract signings as one year ago, even as the economy added 2.2 million net new jobs.  “Market conditions in many areas continue to be fast-paced, with few properties to choose from, which are forcing buyers to act almost immediately on an available home that fits their criteria.  Low supply is an ongoing issue holding back activity. Housing inventory declined last month and is a staggering 7.1% lower than a year ago.  It appears the ongoing run-up in price growth in many areas and less homes for sale at bargain prices are forcing some investors to step away from the market.  Fewer investors paying in cash is good news as it could mean a little less competition for the homes first-time buyers can afford.”

 

Mortgage application volume decreased during the week ending July 28.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 2.8%.  The seasonally adjusted Purchase Index fell 2.0% from the prior week while the Refinance Index decreased 4%.

 

Overall, the refinance portion of mortgage activity decreased to 45.5% of total applications from 46.0% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.6% of total applications from 6.8%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance were unchanged at 4.17% with points decreasing to 0.36 from 0.40.

 

For the week, the FNMA 3.5% coupon bond gained 25.0 basis points to close at $103.17.  The 10-year Treasury yield decreased 2.69 basis points to end at 2.2637%.  Stocks ended the week mixed with the NASDAQ Composite Index edging lower while the S&P 500 Index and Dow Jones Industrial Average moved higher.

 

The Dow Jones Industrial Average gained 262.50 points to close at 22,092.81.  The NASDAQ Composite Index fell 23.12 points to close at 6,351.56 and the S&P 500 Index added 4.73 points to close at 2,476.83.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 11.96%, the NASDAQ Composite Index has advanced 19.13%, and the S&P 500 Index has risen 11.67%.

 

This past week, the national average 30-year mortgage rate fell to 3.99% from 4.04%; the 15-year mortgage rate decreased to 3.29% from 3.33%; the 5/1 ARM mortgage rate increased to 3.18% from 3.17%; and the FHA 30-year rate fell to 3.65% from 3.75%.  Jumbo 30-year rates decreased to 4.28% from 4.33%.

 

Economic Calendar – for the Week of August 8, 2017

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Aug 07 15:00 Consumer Credit Jun $16.2B $18.4B
Aug 08 10:00 JOLTS – Job Openings Jun NA 5.666M
Aug 09 07:00 MBA Mortgage Applications Index 08/05 NA -2.8%
Aug 09 08:30 Preliminary 2nd Qtr. Productivity Qtr. 2 0.5% 0.0%
Aug 09 08:30 Preliminary 2nd Qtr. Unit Labor Costs Qtr. 2 1.5% 2.2%
Aug 09 10:00 Wholesale Inventories Jun 0.6% 0.4%
Aug 09 10:30 Crude Oil Inventories 08/05 NA -1.5M
Aug 10 08:30 Producer Price Index (PPI) Jul 0.2% 0.1%
Aug 10 08:30 Core PPI Jul 0.2% 0.1%
Aug 10 08:30 Initial Jobless Claims 08/05 240,000 240,000
Aug 10 08:30 Continuing Jobless Claims 07/29 NA 1,968K
Aug 11 08:30 Consumer Price Index (CPI) Jul 0.2% 0.0%
Aug 11 08:30 Core CPI Jul 0.2% 0.1%

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.17, +25.0 bp) traded within a 51.5 basis point range between a weekly intraday low of $102.81 on Tuesday and a weekly intraday high of $103.328 on Thursday before closing the week higher at $103.17 on Friday.

 

Bond prices ended notably higher on Tuesday and Thursday before giving back some of the gains on Friday in reaction to the Jobs Report.  Still, the bond was able to break above a couple of resistance levels before falling back below resistance at the $103.20 level on Friday.  Friday’s reactionary trading resulted in a Hanging Man candlestick.  The Hanging Man is a bearish signal appearing in an uptrend and is a warning of a potential trend reversal lower.  However, the long lower shadow or wick of the Hanging Man is also a potentially a bullish signal, indicating that demand for the bond forced the price into the upper third of the price range for the day.  Therefore, confirmation of a trend reversal should be watched for.  Confirmation would be Monday’s candlestick closing below the real body of Friday’s Hanging Man candlestick.

 

Also, the bond is showing a sell signal from a negative stochastic crossover while extremely “overbought.”  This suggests the next move is lower toward support, and we could see a slight deterioration in mortgage rates this coming week.

 

 

 

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The stock market resumed its bullish ways to end the week higher on firming oil prices and softer than anticipated inflation news.  The feeble inflation data coupled with disappointing economic news also helped to push Treasury prices higher and yields lower for the week.

 

Retail Sales for June fell for the second straight month, coming in below expectations at -0.2%. Economists had forecast June sales growth of 0.1%.  This weaker consumer spending will also have a negative influence on upcoming GDP models for the second quarter.  The Atlanta Fed’s GDPNow model forecast moved lower on Friday to 2.4% from 2.6% on Tuesday following the Retail Sales report.  Consumer sentiment is also sliding lower with the preliminary July reading of the University of Michigan’s Consumer Sentiment Index falling to 93.1 when analysts were expecting 95.1.

 

Core inflation at both the producer and consumer levels was reported below consensus forecasts at 0.1%.  Economists had expected core inflation at 0.2% for both.  This may cause the Federal Reserve to think twice about raising interest rates in December when Fed watchers next expect a rate hike.  In fact, Fed Chair Janet Yellen during her Wednesday testimony before the House Financial Services Committee referred to the recent weakness seen in inflation data by stating “monetary policy is not on a preset course” and “the Committee will be monitoring inflation developments closely in the months ahead.”  Also, Dallas Fed President and FOMC voting member Robert Kaplan stated he wants “greater evidence” of rising inflation before hiking rates again.

 

There were no economic reports from the housing sector other than the latest mortgage application data.  Application volume decreased during the week ending July 7.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 7.4%.  The seasonally adjusted Purchase Index decreased 3.0% from the prior week while the Refinance Index decreased 13% to its lowest level since last January.

 

Overall, the refinance portion of mortgage activity decreased to 42.1% of total applications from 44.9% in the prior week.  The adjustable-rate mortgage share of activity decreased to 6.7% of total applications from 7.2%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.22% from 4.20% with points increasing to 0.40 from 0.31.

 

For the week, the FNMA 3.5% coupon bond gained 21.9 basis points to close at $102.63.  The 10-year Treasury yield decreased 5.37 basis points to end at 2.3319%.  Stocks ended the week moderately higher.

 

The Dow Jones Industrial Average rose 223.40 points to close at 21,637.74.  The NASDAQ Composite Index advanced 159.39 points to close at 6,312.47 and the S&P 500 Index gained 34.09 points to close at 2,459.27.  Year to date on a total return basis, the Dow Jones Industrial Average has gained 9.49%, the NASDAQ Composite Index has advanced 17.26%, and the S&P 500 Index has risen 9.85%.

 

This past week, the national average 30-year mortgage rate fell to 4.06% from 4.13%; the 15-year mortgage rate decreased to 3.34% from 3.38%; the 5/1 ARM mortgage rate increased to 3.22% from 3.20%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates decreased to 4.35% from 4.40%.

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The stock market traded in a rather subdued fashion on Tuesday and Wednesday in a holiday shortened week before jumping higher on Thursday and Friday.  Stocks advanced Thursday following news the U.S. is pulling out of the Paris Climate Accord that was seen as having a destructive impact on the U.S. economy while bond prices modestly declined.  On Friday, both stocks and bonds reacted positively to the May Employment Situation Summary (jobs report).  The Goldilocks report was not too “hot” and not too “cold” – it was just right enough to pacify the bears.

 

While the headline nonfarm payrolls number was reported at 138,000, it easily missed the consensus forecast of 185,000 as did nonfarm private payrolls at 147,000 versus 172,000 expected.  Furthermore, each of the last two monthly job gains were downwardly revised with March’s payroll growth losing 29,000 while April’s gains dropped by 37,000 jobs.  Average hourly earnings also missed the consensus forecast with a 0.2% increase versus expectations of 0.3%.

 

The one encouraging piece of data was the unemployment rate falling to a 16-year low of 4.3%.  Also, the underemployment rate, which adds those who are working part-time but would prefer full-time work, fell to 8.4% from April’s reading of 8.6%.  Gary Cohn, President Trump’s chief economic advisor, has stated in recent months that the administration is concentrating on bringing the underemployment rate lower.

 

There were no housing reports released during the week other than the latest mortgage data.

Mortgage application volume declined during the week ending May 26.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) fell 3.4%.  The seasonally adjusted Purchase Index dropped 1.0% from the prior week, while the Refinance Index decreased 6.0%.

 

Overall, the refinance portion of mortgage activity decreased to 43.2% total applications from 43.9% from the prior week.  The adjustable-rate mortgage share of activity decreased to 7.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance remained unchanged at 4.17% with points decreasing to 0.32 from 0.39.

 

For the week, the FNMA 3.5% coupon bond gained 31.2 basis points to close at $103.38 while the 10-year Treasury yield decreased 9.09 basis points to end at 2.159%.  Stocks ended the week higher.

 

The Dow Jones Industrial Average added 126.01 points to end at 21,206.29.  The NASDAQ Composite Index advanced 95.61 points to close at 6,305.80 and the S&P 500 Index gained 23.25 points to close at 2,439.07.

 

Year to date on a total return basis, the Dow Jones Industrial Average has gained 7.31%, the NASDAQ Composite Index has advanced 17.14%, and the S&P 500 Index has risen 8.94%.

 

This past week, the national average 30-year mortgage rate fell to 3.98% from 4.02%; the 15-year mortgage rate declined to 3.24% from 3.28%; the 5/1 ARM mortgage rate dropped to 3.04% from 3.09%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates decreased to 4.27% from 4.30%.

 

Economic Calendar – for the Week of June 5, 2017

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
Jun 05 08:30 Revised 1st Quarter Productivity Qtr. 1 -0.2% -0.6%
Jun 05 08:30 Revised 1st Quarter Unit Labor Costs Qtr. 1 2.4% 3.0%
Jun 05 10:00 Factory Orders Apr -0.2% 0.2%
Jun 05 10:00 ISM Services Index May 57.0 57.5
Jun 06 10:00 JOLTS Job Openings Apr NA 5.743M
Jun 07 07:00 MBA Mortgage Applications Index 06/03 NA -3.4%
Jun 07 10:30 Crude Oil Inventories 06/03 NA -6.43M
Jun 07 15:00 Consumer Credit Apr $15.0B $16.4B
Jun 08 08:30 Initial Jobless Claims 06/03 240,000 248,000
Jun 08 08:30 Continuing Jobless Claims 05/27 NA 1,915K
Jun 09 10:00 Wholesale Inventories Apr -0.1% 0.2%

 

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

 

The FNMA 30-year 3.5% coupon bond ($103.38, +31.2 bp) traded within a narrow 47 basis point range between a weekly intraday high of $103.47 on Friday and a weekly intraday low of $103.00 on Thursday before closing the week at $103.38.

 

The bond moved only eight basis points higher from Tuesday through Thursday until jumping 24 basis points higher on Friday following a rather benign May Situation Summary (Jobs Report).  Friday’s trading powered the bond above a tough dual layer of overhead resistance at the 200-day moving average (103.24) and prior resistance at 103.297.  These levels should serve as nearest technical support.  If these support levels can manage to hold in the coming week, the bond could take out resistance at Friday’s intraday high of 103.469.  Further resistance lies considerably higher at the 23.6% Fibonacci retracement level at 103.967.  However, further movement to the upside will be difficult as the slow stochastic oscillator is at an extreme level suggesting a pending pullback in upward momentum.  Mortgage rates should hold fairly steady in the coming week.

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May 1, 2017

The stock market continued to march ever higher, especially early in the week when both the small-cap Russell 2000 and the technology-laden Nasdaq Composite Indexes reached record highs.  In fact, the Nasdaq Composite broke above the 6,000 mark for the first time ever.  Investor sentiment was enhanced in response to the election results in France when pro-European Union globalist Emmanuel Macron received more votes than anti- European Union nationalist Marine Le Pen during the first round of presidential elections.  The two candidates will now square off in a runoff election on May 7.

 

However, other political developments both here and abroad managed to keep investors wary.  President Trump’s proposal for meaningful tax reform, threats to pull out of NAFTA, a revised plan repeal and replace Obamacare (The Affordable Care Act), and escalating tensions between the U.S. and North Korea over the North Korean’s ballistic missile testing all combined to impact investor sentiment.

 

Bond yields crept higher as talk of potential tax cuts negatively impacted Treasury prices early in the week.  The yield on the 10-year Treasury reached its highest level in over two weeks on Wednesday, before pulling back as investors contemplated the possibility of a potential government shutdown.

 

In housing, the spring home selling season got off to a great beginning as New Home Sales soared to an 8-month high in March.  The Commerce Department reported New Home Sales at a seasonally-adjusted annual rate of 621,000 for March, easily exceeding the consensus forecast of 590,000.  March sales were the second-strongest since early 2008, and were just slightly lower than last July’s reading of 622,000 while being 15.6% higher than a year ago.  The median home sales price increased 1.2% to $315,000 and is 1.2% higher compared to a year ago while the average sales price increased 5.6% to $388,200.  Inventory continues to slide and at the current rate of sales, it would take just 5.2 months to exhaust available supply.

 

Home prices continue to march steadily higher and this was confirmed by both the Federal Housing Finance Agency (FHFA) and S&P/Case-Shiller.  The FHFA monthly House Price Index (HPI) for February showed home prices rose 0.8% in February and 6.4% annually in addition to an upward revision in January’s index to 0.2%.  The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Because of this, the selection excludes high-end homes bought with jumbo loans or cash sales.  Meanwhile, the S&P/Case-Shiller National Home Price Index soared 5.8% in February, the largest gain in 32 months, when analysts had predicted a 5.7% increase.  This is further evidence strong home buyer demand continues to outweigh supply in the housing market.

 

Furthermore, the National Association of Realtors reported March Pending Home Sales, based upon contract signings, retreated 0.8% to 111.4 from 112.3 in February.  This slight loss in sales momentum was due to the scarcity of available inventory.  Despite the decrease in March, the index is 0.8% above a year ago and was the third best reading in the past year.

 

In the realm of mortgages, mortgage application volume increased slightly during the week ending April 21.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 2.7%.  The seasonally adjusted Purchase Index decreased 1.0% from the prior week, while the Refinance Index increased 7.0%.  Overall, the refinance portion of mortgage activity increased to 44.0% total applications from 42.4% from the prior week.  The adjustable-rate mortgage share of activity increased to 8.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.20% from 4.22%, its lowest level since November 2016, with points increasing to 0.37 from 0.35.

 

For the week, the FNMA 3.5% coupon bond dropped 7.8 basis points to close at $102.797 while the 10-year Treasury yield increased 4.29 basis points to end at 2.289%.  Stocks ended the week higher.  The Dow Jones Industrial Average rose 392.75 points to end at 20,940.51.  The NASDAQ Composite Index advanced 137.09 points to close at 6,047.61 and the S&P 500 Index added 35.51 points to close at 2,384.20.  Year to date, the Dow Jones Industrial Average has gained 5.96%, the NASDAQ Composite Index has advanced 12.34%, and the S&P 500 Index has risen 6.49%.

 

This past week, the national average 30-year mortgage rate rose to 4.09% from 4.05%; the 15-year mortgage rate increased to 3.34% from 3.29%; the 5/1 ARM mortgage rate increased to 3.08% from 3.04%; and the FHA 30-year rate increased to 3.80% from 3.75%.  Jumbo 30-year rates rose from 4.32% to 4.35%.

 

Economic Calendar – for the Week of May 1, 2017

 

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

 

Date Time

ET

Event /Report /Statistic For Market Expects Prior
May 01 08:30 Personal Income Mar 0.3% 0.4%
May 01 08:30 Personal Spending Mar 0.1% 0.1%
May 01 08:30 PCE Prices Mar NA 0.1%
May 01 08:30 Core PCE Prices Mar 0.0% 0.2%
May 01 10:00 Construction Spending Mar 0.4% 0.8%
May 01 10:00 ISM Index Apr 56.5 57.2
May 03 07:00 MBA Mortgage Applications Index 04/29 NA +2.7%
May 03 08:15 ADP Employment Change Apr 170,000 263,000
May 03 10:00 ISM Services Index Apr 55.8 55.2
May 03 10:30 Crude Oil Inventories 04/29 NA -3.64mln
May 03 14:00 FOMC Rate Decision May 0.875 0.875
May 04 07:30 Challenger Job Cuts Apr NA -2.0%
May 04 08:30 Balance of Trade Mar -$44.4B -$43.6B
May 04 08:30 Initial Jobless Claims 04/29 246,000 257,000
May 04 08:30 Continuing Jobless Claims 04/22 NA 1,988K
May 04 08:30 Preliminary Productivity Qtr. 1 0.1% 1.3
May 04 08:30 Unit Labor Costs Qtr. 1 2.6% 1.7%
May 04 10:00 Factory Orders Mar 0.4% 1.0%
May 05 08:30 Nonfarm Payrolls Apr 180,000 98,000
May 05 08:30 Nonfarm Private Payrolls Apr 175,000 89,000
May 05 08:30 Unemployment Rate Apr 4.6% 4.5%
May 05 08:30 Average Hourly Earnings Apr 0.3% 0.2%
May 05 08:30 Average Workweek Apr 34.4 34.3
May 05 15:00 Consumer Credit Mar $16.0B $15.2B

 

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

 

The FNMA 30-year 3.5% coupon bond ($102.80, -7.8 bp) traded within a narrower 47 basis point range between a weekly intraday high of $102.86 on Friday and a weekly intraday low of $102.39 on Wednesday before closing the week at $102.80.  Mortgage bonds initially traded down to test support at the 25-day moving average early in the week before bouncing higher for a test of nearest resistance at the 38.2% Fibonacci retracement level ($102.806).  This bounce higher in the later portion of the week resulted in a positive stochastic crossover buy signal.  If the bond manages to break above resistance during this coming week that features numerous potential market-moving economic reports, we could see higher prices and lower yields resulting in a slight improvement in rates.

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