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

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

Mortgage Rate Update

Jun 20, 2016

Concerns over the upcoming “Brexit” vote in Great Britain scheduled for June 23 drove much of the week’s investor sentiment, not only on Wall Street, but in many foreign equity and bond markets.  Polls early in the week showed an increase in support for Britain leaving the European Union (EU) and this weighed on equities while providing a rally for bonds.  However, the tragic shooting death of British Parliament member Ms. Jo Cox appeared to heighten the prospects for the “remain” vote as Ms. Cox was an outspoken proponent for Britain remaining in the EU.

 

The bond market also got a shot in the arm from the Federal Reserve’s latest interest rate decision on Wednesday.  Once the Fed’s Federal Open Market Committee (FOMC) announced monetary policy would remain unchanged while downgrading its forecast for 2017 GDP growth, bond prices shot higher and yields fell.  The policy statement was dovish in tone and stated slowing growth in labor markets and persistently low inflation as reasons for leaving rates unchanged.

 

The FOMC is now forecasting 2016 GDP growth of 1.9-2.0% (down from 2.1-2.3% in March); Unemployment at 4.6-4.8% (unchanged from March); PCE inflation between 1.3-1.7% (up from 1.0-1.6% in March); and Core PCE inflation between 1.6-1.8% (up from 1.4-1.7% in March).  The FOMC is also predicting 1-2 rate hikes in 2016, down from 2 hikes in March and 2-4 rate hikes in 2017, down from 4 hikes in March.  Also, the FOMC maintained its dot-plot projection of two interest rate hikes with a target rate of 0.9% by the end of 2016.  Yet, the FOMC lowered its projection for the fed funds rate by the end of 2017 to 1.6% from 1.9% and lowered its projection for 2018 to 2.4% from 3.0%.

 

Other reports during the week showed economic data were mixed.  Industrial Production fell by a larger than forecast 0.4% in May following a downwardly revised 0.6% increase in April while Capacity Utilization declined to 74.9% from a revised 75.3%.  However, the Commerce Department reported May Retail Sales came in higher than expected with an increase of 0.5%, exceeding the consensus forecast of 0.3%.

 

May’s Producer Price Index (PPI) also came in higher than expected at 0.4% in May, rising at its fastest rate in a year.  While this partially reveals the impact of rising energy prices, a strong increase in producer services inflation also suggests companies are successfully passing on higher costs.  However, the Core PPI, which excludes volatile food and energy prices, increased marginally last month by 0.3% and 1% year-on-year to remain well below the Fed’s 2.0% inflation target.

 

Meanwhile, the Consumer Price Index (CPI) rose 0.2% in May after advancing 0.4% in April.  The consensus forecast called for the CPI to rise by 0.3%.  The Core CPI, which excludes food and energy prices, rose 0.2% to match the increase seen in April as well as the consensus forecast.  On an annual basis, CPI growth slowed to 1.0% in May from 1.1% in April while Core CPI growth increased to 2.2% from 2.1%.

 

Elsewhere, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending June 11th showing the overall seasonally adjusted Market Composite Index fell 2.4%.  The seasonally adjusted Purchase Index increased 5.0%, while the Refinance Index decreased 1.0%.  Overall, the refinance portion of mortgage activity increased to 55.3% of total applications from 53.8%.  The adjustable-rate mortgage share of activity increased to 5.3% from 5.0% 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 3.83% to 3.79%, the lowest level since January 2015.

 

Furthermore, the National Association of Home Builders reported a slight improvement in their Housing Market Index with a seasonally adjusted level of 60 in June from May’s reading of 58.  This was the highest reading since January, and indicated builders expect favorable home building conditions to continue as the sales expectations index rose five points to 70, the highest level since last October.  The consensus forecast had called for a reading of 59.

 

Also, the Commerce Department reported Housing Starts fell in May by 0.3% to a 1.164 million annualized rate from a downwardly revised 1.167 million rate in April, but exceeded the consensus forecast of 1.150 million.  Although this was a strong housing report, it may be another sign the economy is beginning to stagnate along with other major sectors, and may be another reason St. Louis Fed President and FOMC voter James Bullard (a noted monetary policy “hawk”) has just slashed his U.S. economic growth projection.  Bullard is now saying that only one rate hike may be appropriate through 2018!  One has to wonder how Bullard can change from being one of the most hawkish FOMC members to one of the most dovish members in about a two week time span.

 

Additionally, Building Permits increased 0.7% in May to a 1.138 million annualized rate versus a consensus forecast of 1.150 million.  Because Building Permit applications trail Housing Starts, it is unlikely we will see additional gains in construction over the next month or two.  Construction of single-family houses increased by 0.3% to a 764,000 rate, the most in three months, but the often volatile multifamily home segment declined by 1.2% to a 400,000 unit rate after a 11.9% jump in April.

 

For the week, the FNMA 3.0% coupon bond gained 9.4 basis points to end at $102.97 while the 10-year Treasury yield fell 3.3 basis points to end at 1.611%.  Stocks ended the week with the Dow Jones Industrial Average losing 190.18 points to end at 17,675.16.  The NASDAQ Composite Index dropped 94.21 points to close at 4,800.34, and the S&P 500 Index fell 24.85 points to close at 2,071.22.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 1.42%, the NASDAQ Composite Index has lost 4.31%, and the S&P 500 Index has gained 1.32%.

This past week, the national average 30-year mortgage rate fell to 3.53% from 3.58% while the 15-year mortgage rate decreased to 2.84% from 2.88%.  The 5/1 ARM mortgage rate fell to 2.96% from 2.97%.  FHA 30-year rates held steady at 3.25% while Jumbo 30-year rates decreased to 3.58% from 3.60%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($103.00, -1.6 bp) traded within a 49 basis point range between a weekly intraday high of $103.33 and a weekly intraday low of $102.84 before closing at $102.97 on Friday.

 

Thursday’s candlestick was a “bearish” shooting star and this negative signal carried over to Friday with another similar candlestick showing a long upper shadow or wick indicating market weakness.  The 103.00 line failed to hold as the bond slipped just below this support level.  Further support is found at the 25-day moving average at $102.58.  Furthermore, the slow stochastic oscillator is showing a negative crossover sell signal from an extremely “overbought” level suggesting further weakness may lie ahead early next week.  Should the bond continue lower this coming week, we could see mortgage rates edge slightly higher.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

#1chart06202016

 

 

Economic Calendar – for the Week of June 20, 2016

 

The economic calendar focuses on the housing sector and durable goods orders this coming week.  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 22 07:00 MBA Mortgage Index 06/18 NA -2.4%
Jun 22 09:00 FHFA Housing Price Index Apr NA 0.7%
Jun 22 10:00 Existing Home Sales May 5.50M 5.45M
Jun 22 10:30 Crude Oil Inventories 06/18 NA -0.933M
Jun 23 08:30 Initial Jobless Claims 06/18 273,000 277,000
Jun 23 08:30 Continuing Jobless Claims 06/11 NA 2,157K
Jun 23 10:00 New Home Sales May 560,000 619,000
Jun 24 08:30 Durable Goods Orders May -0.6% 3.4%
Jun 24 08:30 Durable Goods Orders excluding transportation May 0.1% 0.4%
Jun 24 10:00 Final Univ. of Michigan Consumer Sentiment June 94.0 94.3

 

 

 

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

July 2016 26-27, (Tuesday-Wednesday) 7% Chance
September 2016 20-21, (Tuesday-Wednesday) * 24% Chance
November 2016 1-2, (Tuesday-Wednesday) 24% Chance
December 2016 20-21 (Tuesday-Wednesday)* 23% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 27% 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

 

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

The major stock market indexes ended “mixed” for the week as global economic worries reappeared toward the end of the week to send the indexes lower from their best levels.

Global equity markets fell on Thursday following investor concerns about economic growth in the eurozone.

 

These concerns were triggered by comments made by European Central Bank President Mario Draghi who warned about “lasting economic consequences” after years of weak business output and productivity.  Draghi claimed if structural reforms were not imposed by governments “without undue delay”, the Eurozone economy was at risk of “suffering lasting economic damage.”

 

Investors also showed concern later in the week following a significant drop in European markets that was triggered by growing fears Great Britain would vote on June 23 to leave the European Union.  A decline in oil prices below $50 per barrel on Friday also seemed to weigh on sentiment after oil hit over $51 per barrel on Wednesday and Thursday.

 

However, bond prices improved modestly to send yields lower more in response to falling global yields rather than to the week’s scarce economic data.

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending June 4th showing the overall seasonally adjusted Market Composite Index rose 9.3%.  The seasonally adjusted Purchase Index increased 12.0%, while the Refinance Index increased 7.0%.

 

Overall, the refinance portion of mortgage activity decreased to 53.8% of total applications from 54.3%.  The adjustable-rate mortgage share of activity was unchanged at 5.0% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance decreased from 3.85% to 3.83%.

 

For the week, the FNMA 3.0% coupon bond lost 1.6 basis points to end at $102.88 while the 10-year Treasury yield decreased 5.8 basis points to end at 1.6438%.  Stocks ended the week with the Dow Jones Industrial Average gaining 58.28 points to end at 17,865.34.  The NASDAQ Composite Index lost 47.97 points to close at 4,894.55, and the S&P 500 Index fell 3.06 points to close at 2,096.07.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 2.46%, the NASDAQ Composite Index has lost 2.31%, and the S&P 500 Index has gained 2.49%.

 

This past week, the national average 30-year mortgage rate fell to 3.58% from 3.62% while the 15-year mortgage rate decreased to 2.88% from 2.92%.  The 5/1 ARM mortgage rate fell to 2.97% from 3.00%.  FHA 30-year rates held steady at 3.25% while Jumbo 30-year rates decreased to 3.60% from 3.65%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.88, -1.6 bp) traded within a narrower 44 basis point range between a weekly intraday high of $103.14 and a weekly intraday low of $102.70 before closing at $102.88 on Friday.

 

Thursday’s large red candlestick reflects a monthly FNMA 30-year 3.0% coupon bond rollover of minus 27 basis points that distorts the technical chart and must be disregarded.  Monthly rollovers usually occur on the 9th or 10th of each month.

 

The bond rebounded Friday on stock market weakness and approached the $103.00 resistance level before pulling back.  The doji candlestick formed Friday shows some market indecision among traders.  Support is found at the 25-day moving average at $102.53.  The slow stochastic oscillator continues to show the bond is “overbought” and will be susceptible to a pullback unless the stock market undergoes a correction.

 

This week coming week the economic calendar heats up with several economic releases that could have a meaningful impact on the bond market including the Federal Reserve’s latest interest rate decision and commentary on monetary policy on Wednesday June 15.  Disappointing economic news may propel bond prices higher to challenge overhead resistance at $103.00 and should this happen rates would remain low or improve slightly.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

chart#106132016

 

Economic Calendar – for the Week of June 13, 2016

 

The economic calendar broadens this coming week with a number of reports likely to attract investor attention.  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 14 08:30 Export Prices excluding agriculture May NA 0.5%
Jun 14 08:30 Import Prices excluding oil May NA 0.1%
Jun 14 08:30 Retail Sales May 0.3% 1.3%
Jun 14 08:30 Retail Sales excluding automobiles May 0.4% 0.8%
Jun 14 10:00 Business Inventories Apr 0.2% 0.4%
Jun 15 07:00 MBA Mortgage Index 06/11 NA 9.3%
Jun 15 08:30 Producer Price Index (PPI) May 0.3% 0.2%
Jun 15 08:30 Core PPI May 0.1% 0.1%
Jun 15 08:30 NY Empire State Manufacturing Index Jun -4.7 -9.0
Jun 15 09:15 Capacity Utilization May -0.2% 0.7%
Jun 15 09:15 Industrial Production May 75.2% 75.4%
Jun 15 10:30 Crude Oil Inventories 06/11 NA -3.226M
Jun 15 14:00 FOMC Rate Decision Jun 0.37% 0.37%
Jun 15 16:00 Net Long-Term TIC Flows Apr NA $78.1B
Jun 16 08:30 Consumer Price Index (CPI) May 0.3% 0.4%
Jun 16 08:30 Core CPI May 0.2% 0.2%
Jun 16 08:30 Initial Jobless Claims 06/11 270,000 264,000
Jun 16 08:30 Continuing Jobless Claims 06/04 NA 2,095K
Jun 16 08:30 Philadelphia Fed Manufacturing Index Jun 1.2 -1.8
Jun 16 08:30 Current Account Balance Q1 -$125.0B -$125.3B
Jun 16 10:00 NAHB Housing Market Index Jun 59 58
Jun 17 08:30 Building Permits May 1,155K 1,172K

 

 

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

June 2016 14-15, (Tuesday-Wednesday)* 2% Chance
July 2016 26-27, (Tuesday-Wednesday) 21% Chance
September 2016 20-21, (Tuesday-Wednesday) * 35% Chance
November 2016 1-2, (Tuesday-Wednesday) 36% Chance
December 2016 20-21 (Tuesday-Wednesday)* 54% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 57% 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.

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

The major stock market indexes struggled during the week while the bond market performed well from mid-week on.  Corporate earnings and economic reports were mixed throughout the week and contributed to an increase in bond prices and lower yields as investors sought a safer refuge in lower risk assets.

 

In economic news, New Home Sales were reported softer than expected with a 1.5% decline in March from February to 511,000 annualized units while economists had been looking for a slightly higher reading of 521,000.  This decline isn’t quite as bad as it seems as February’s originally reported 512,000 in new home sales was revised higher to 519,000.  The Western Region led sales lower with a sharp 23.6% decline.  This region has experienced explosive housing growth and is prone to volatile swings in housing sales.  The median New Home Sales price dropped 1.8% from the year ago period to $288,000.

 

However, the National Association of Realtors reported some encouraging news for the housing sector with Pending Home Sales reaching their highest level in almost a year by rising 1.4% in March over February’s level.  The consensus forecast had been for a 0.3% increase.  The sales index rose to 110.5, the highest level since May 2015.  A reading of 100 is equal to the average level of contract activity during 2001.

05022106#1

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending April 22nd showing the overall seasonally adjusted Market Composite Index decreased 4.1%.  The seasonally adjusted Purchase Index fell 2.0%, while the Refinance Index decreased 5.0%.  Overall, the refinance portion of mortgage activity decreased to 54.4% of total applications from 55.4%.  The adjustable-rate mortgage share of activity increased to 5.2% from 5.0% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance increased from 3.83% to 3.85% with 0.35 points paid.

 

Elsewhere, Durable Goods Orders for March were uninspiring with an increase of only 0.8% versus a consensus forecast of 1.7% and would have been flat had it not been for higher defense spending.  Also, the advance estimate for 1st quarter Gross Domestic Product (GDP) was reported at a weak 0.5%.  Initial Jobless Claims rose by 9,000 for the week but remained among the lowest level on record for total claims, with the four-week average of claims at its lowest level in 42 years.

 

There were a couple of inflation measures reported during the week and both were rather tame.

Core PCE Prices, the Fed’s favorite inflation measurement, was reported at a small 0.1% gain month-over-month to match the consensus estimate.  Furthermore, the year-over-year number fell to 1.6% from 1.7% in a slightly deflationary move.  The Labor Department released another inflation measure, the Employment Cost Index (ECI) for the first quarter of 2016.  This broad measure of workers’ wages and benefits grew at a seasonally adjusted rate of 0.6% to match the consensus forecast.  On a year-over-year basis, total compensation increased 1.9% during the 1st quarter, slowing from the 2% annual gain recorded during each of the prior three quarters.

 

The bond market did not immediately respond to these tame inflation reports, but did favorably react with increased buying activity following the Fed’s FOMC meeting and policy statement on Wednesday.  The Fed left interest rates unchanged in a range between 0.25% and 0.50% as widely anticipated and the accompanying policy statement was nearly a carbon copy of the last one.  However, Wednesday’s policy statement removed all references to global economic risks, suggesting these risks are not strong enough to rule out a rate hike in June.  The FOMC statement noted “labor market conditions have improved further even as growth in economic activity appears to have slowed.”

For the week, the FNMA 3.0% coupon bond gained 40.7 basis points to end at $102.44 while the 10-year Treasury yield decreased 5.6 basis points to end at 1.835%.  Stocks ended the week with the Dow Jones Industrial Average losing 230.11 points to end at 17,773.64.  The NASDAQ Composite Index dropped 130.87 points to close at 4,775.36, and the S&P 500 Index declined 26.28 points to close at 2,065.30.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 1.96%, the NASDAQ Composite Index has lost 4.86%, and the S&P 500 Index has gained 1.03%.  This past week, the national average 30-year mortgage rate fell to 3.67% from 3.75% while the 15-year mortgage rate decreased to 2.95% from 3.02%.  The 5/1 ARM mortgage rate rose to 3.04% from 3.00%.  FHA 30-year rates fell to 3.25% from 3.35% and Jumbo 30-year rates decreased to 3.62% from 3.66%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.44, +40.7 bp) traded within a slightly narrower 66 basis point range between a weekly intraday low of $101.89 and a weekly intraday high of 102.55 before closing at $102.45 on Friday.

 

The bond demonstrated greater volatility for the week by declining on Monday and Tuesday before staging a sharp rally on Wednesday through Friday.  The rally pushed the bond through multiple layers of resistance provided by the 50-day moving average at $102.25, the 23.6% Fibonacci retracement level at $102.36, and the 25-day moving average at $102.43.  The 50-day moving average now reverts to a primary support level.  The slow stochastic oscillator is trending higher from a new buy signal generated last Thursday and is far from “overbought,” so if the stock market continues to falter this coming week we could see bond prices improve and move past resistance to provide a slight improvement in mortgage rates.  The economic news this coming week, headlined by the April Employment Situation Report on Friday, could be a catalyst for a significant bond market move that is hopefully to the upside resulting in an improvement in mortgage rates.

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 05022106#2

Economic Calendar – for the Week of May 02, 2016

 

The economic calendar this week features the April Employment Situation 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
May 02 10:00 ISM Index Apr 51.4 51.8
May 02 10:00 Construction Spending Mar 0.6% -0.5%
May 04 07:00 MBA Mortgage Index 04/30 NA -4.1%
May 04 08:15 ADP Employment Change Apr 196,000 200,000
May 04 08:30 Preliminary Productivity Qtr.1 -1.4% -2.2%
May 04 08:30 Preliminary Unit Labor Costs Qtr.1 2.6% 3.3%
May 04 08:30 Balance of Trade Mar -$41.4B -$47.10B
May 04 10:00 Factory Orders Mar 0.5% -1.7%
May 04 10:00 ISM Services Apr 54.5 54.5
May 04 10:30 Crude Oil Inventories 04/30 NA 1.99M
May 05 07:30 Challenger Job Cuts Apr NA 31.7%
May 05 08:30 Initial Jobless Claims 04/30 259,000 257,000
May 05 08:30 Continuing Jobless Claims 04/23 NA 2,130K
May 06 08:30 Nonfarm Payrolls Apr 207,000 215,000
May 06 08:30 Nonfarm Private Payrolls Apr 191,000 195,000
May 06 08:30 Unemployment Rate Apr 5.0% 5.0%
May 06 08:30 Hourly Earnings Apr 0.3% 0.3%
May 06 08:30 Average Workweek Apr 34.5 34.4
May 06 15:00 Consumer Credit Mar $18.0B $17.3B

 

 

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

June 2016 14-15, (Tuesday-Wednesday)* 11% Chance
July 2016 26-27, (Tuesday-Wednesday) 28% Chance
September 2016 20-21, (Tuesday-Wednesday) * 41% Chance
November 2016 1-2, (Tuesday-Wednesday) 44% Chance
December 2016 20-21 (Tuesday-Wednesday)* 60% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 62% 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.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

The major stock market indexes reversed the prior week’s losses and moved higher for the week to reach their highest levels in several months while bond prices slipped a little lower, though mortgage rates were mostly unchanged for the week.  The large and mid-cap indexes reached new 2016 highs, but the week’s gains were not sufficient to the drive the Nasdaq Composite and small-cap Russell 2000 Indexes into positive territory for the year.

 

The gain in the stock market appeared to be due to three key factors during the week.  First, news of an agreement on Tuesday between Saudi Arabia and Russia to waive Iranian participation (which was unlikely anyway) into any coordinated deal to freeze crude oil production helped send oil and stock prices higher.  Oil prices reached their highest level since early December.  This past Sunday, OPEC members and other major oil producers including Russia met in Doha, Qatar to hammer out an agreement to freeze production at current levels, but doubts still remain about such an agreement’s effectiveness in solving the global oil surplus.

 

The other two factors favorable to stocks were favorable economic data reported from China and better than forecast first-quarter corporate earnings results from investment bank JPMorgan.  China’s reported some inflation data below consensus forecasts raising investor expectations that China’s central bank may well implement another round of monetary stimulus to boost the world’s second largest economy.  Also, China reported their first quarter GDP grew by 6.7% from a year ago to attain China’s official 6.5% to 7.0% growth target established in February.  As for JPMorgan, the bank’s profits fell due to having to add assets to its reserves to offset losses in its energy loan portfolio and on low lending margins, but the profit decline was significantly less than many analysts had feared.

 

In housing, CoreLogic® released its National Foreclosure Report for February showing foreclosure inventory fell 23.9% while completed foreclosures dropped 10% compared with data from February 2015.  The February 2016 foreclosure inventory rate is the lowest for any month since November 2007.  National foreclosure inventory included about 434,000, or 1.1% of all homes with a mortgage compared with 571,000 homes, or 1.5% for February 2015.  The number of mortgages in serious delinquency fell 19.9% from February 2015 to February 2016, with 1.3 million mortgages, or 3.2% remaining in this category, the lowest percentage in eight years.

 

As for mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending April 8th showing the overall seasonally adjusted Market Composite Index increased 10.0%.  The seasonally adjusted Purchase Index increased 8.0%, its second highest level since May 2010, while the Refinance Index increased 11.0%.  Overall, the refinance portion of mortgage activity increased to 54.9% of total applications from 54.5%.  The adjustable-rate mortgage share of activity was 5.0%, an increase of 0.3% from 4.7% the previous week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance fell from 3.86% to 3.82% with 0.33 points paid.

 

For the week, the FNMA 3.0% coupon bond lost 28.1 basis points to end at $102.63 while the 10-year Treasury yield increased 3.7 basis points to end at 1.7535%.  Stocks ended the week with the Dow Jones Industrial Average gaining 320.50 points to end at 17,897.46.  The NASDAQ Composite Index added 87.53 points to close at 4,938.22, and the S&P 500 Index advanced 33.13 points to close at 2,080.73.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 2.64%, the NASDAQ Composite Index has lost 1.40%, and the S&P 500 Index has gained 1.77%.  This past week, the national average 30-year mortgage rate was unchanged at 3.64% while the 15-year mortgage rate also was unchanged at 2.94%.  The 5/1 ARM mortgage rate remained unchanged at 2.97%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.58% from 3.55%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.63, -28.1 bp) traded within a wider 59 basis point range between a weekly intraday low of $102.41 and a weekly intraday high of 103.00 before closing at $102.63 on Friday.

 

The bond trended lower from Monday through Thursday before bouncing back off of its weekly low on Friday.  On Friday, the bond opened higher in a small “rising window” or upward gap to complete the formation of a three-day Morning Star candlestick pattern, a moderately powerful buy signal.  Follow-through this coming week could send the bond higher for a test of resistance at the $102.92 level which has shown to be a tough ceiling of resistance.  Support remains at the 23.6% Fibonacci retracement level at $102.36.  With Friday’s upward move, the slow stochastic oscillator could be setting up for a potential positive crossover, and should this happen it would be another buy signal for bonds that may lead to a slight improvement in mortgage rates.

 

 

Chart:  FNMA 30-Year 3.0% Coupon Bond

 

04182016#1

 

Economic Calendar – for the Week of April 18, 2016

 

The economic calendar this week features a number of reports focusing on the current status of the Housing Sector.  Other reports of interest include weekly Initial Jobless Claims and the Philadelphia Fed Manufacturing Index.  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
Apr 18 10:00 NAHB Housing Market Index Apr 59 58
Apr 19 08:30 Building Permits Mar 1200K 1167K
Apr 19 08:30 Housing Starts Mar 1170K 1178K
Apr 20 07:00 MBA Mortgage Index 04/16 NA NA
Apr 20 10:00 Existing Home Sales Mar 5.30M 5.08M
Apr 20 10:30 Crude Oil Inventories 04/16 NA 6.634M
Apr 21 08:30 Initial Jobless Claims 04/16 263K 253K
Apr 21 08:30 Continuing Jobless Claims 04/09 NA 2171K
Apr 21 08:30 Philadelphia Fed Manufacturing Index Apr 9.9 12.4
Apr 21 09:00 FHFA Housing Price Index Feb NA 0.5%

 

 

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

April 2016 26-27, (Tuesday-Wednesday) 2% Chance
June 2016 14-15, (Tuesday-Wednesday)* 13% Chance
July 2016 26-27, (Tuesday-Wednesday) 28% Chance
September 2016 20-21, (Tuesday-Wednesday) * 36% Chance
November 2016 1-2, (Tuesday-Wednesday) 40% Chance
December 2016 20-21 (Tuesday-Wednesday)* 52% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 55% 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.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

Mortgage Rate Update

Apr 11, 2016

The stock moved lower for the week while bond prices, including those of mortgage bonds, moved modestly higher.  Although the decline in the major stock market indexes was not severe, the S&P 500 Index suffered its worst weekly performance in over two months, suspending the rally that has been in place since the middle of February.  Trading volumes declined during the week while traders took a wait and see approach toward the arrival of first-quarter corporate earnings reports beginning this week.

 

There were a number of public comments made by Federal Reserve officials throughout the week demonstrating a lack of agreement concerning the number and pace of future interest rate hikes.

These comments led to some extra volatility in the financial and crude oil markets.  Stocks and bonds began the week by slipping lower, when investors were shocked by “hawkish” comments made by Boston Fed President Eric Rosengren on Monday that markets were being too slow in pricing in further rate increases.  This was surprising because Rosengren is widely viewed as one of the more “dovish” members of the Federal Reserve.  Elsewhere, Chicago Fed President Charles Evans said he believes two rate hikes in 2016 will be sufficient.

 

These comments were tempered on Thursday evening when a more “dovish” tone was expressed by Fed Chair Janet Yellen and former Fed Chairman Ben Bernanke.  Yellen and Bernanke voiced their beliefs that the economy is not in a “bubble” and a cautious stance toward future interest rate hikes remains justified.  Furthermore, New York Fed Chair William Dudley said in a speech that he still favors moving slowly in raising rates.

 

Also on Thursday, bond prices moved higher while the stock market struggled on investor concerns about stock valuations, some profit taking triggered by lower oil prices, and renewed worries about global growth – this time from Japan, the world’s third largest economy.  From a more global perspective, investors are now worried about Japan’s economy.  Japan’s index of coincident economic indicators, consisting of readings on industrial output, employment and retail sales data, declined at its swiftest rate during February since the March 2011 earthquake and subsequent nuclear crisis wreaked havoc on the island nation.

 

In the realm of mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending April 1 showing the overall seasonally adjusted Market Composite Index increased 2.7%.  The seasonally adjusted Purchase Index decreased 2.0% from the prior reporting period while the Refinance Index increased 7.0%.  Overall, the refinance portion of mortgage activity increased to 54.5% of total applications from 52.4%.  The adjustable-rate mortgage segment of activity was 4.7%, a decline of 0.2% from 4.9% the previous week.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance fell from 3.94% to 3.86%.

 

For the week, the FNMA 3.0% coupon bond gained 23.4 basis points to end at $102.91 while the 10-year Treasury yield fell 5.7 basis points to end at 1.7167%.  Stocks ended the week with the Dow Jones Industrial Average declining 215.79 points to end at 17,576.96.  The NASDAQ Composite Index lost 63.85 points to close at 4,850.69, and the S&P 500 Index fell 25.18 points to close at 2,047.60.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 0.86%, the NASDAQ Composite Index has lost 3.23%, and the S&P 500 Index has gained 0.18%.  This past week, the national average 30-year mortgage rate decreased to 3.64% from 3.65% while the 15-year mortgage rate was unchanged at 2.94%.  The 5/1 ARM mortgage rate increased to 2.97% from 2.95%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.55% from 3.52%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($102.91, +23.4 bp) traded within a narrower 41 basis point range between a weekly intraday low of $102.56 and a weekly intraday high of 102.97 before closing at $102.91 on Friday.

 

The bond saw some up and down action from Monday through Wednesday, but then moved higher on Thursday and Friday to challenge overhead resistance at $102.92 before pulling back slightly.  The bond still remains extremely overbought with the $102.92 level proving to be a tough ceiling of technical resistance.

 

If the stock market moves lower this week, the bond could make an advance above the $102.92 level toward the next resistance level found at $103.28, and such a scenario would lead to a slight improvement in mortgage rates.  However, if the stock market manages to work its way higher on better than anticipated corporate earnings news, the bond market will likely move lower and this would trigger a new sell signal from an overbought position leading to a slight deterioration in rates.

  

Chart:  FNMA 30-Year 3.0% Coupon Bond

04112016chart#1

 

Economic Calendar – for the Week of April 11, 2016

 

The economic calendar expands this week with several high profile reports highlighted by the March Producer Price Index, Retail Sales, and the Consumer Price.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

 

04112016chart#2

 

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

April 2016 26-27, (Tuesday-Wednesday) 3% Chance
June 2016 14-15, (Tuesday-Wednesday)* 22% Chance
July 2016 26-27, (Tuesday-Wednesday) 35% Chance
September 2016 20-21, (Tuesday-Wednesday) * 42% Chance
November 2016 1-2, (Tuesday-Wednesday) 46% Chance
December 2016 20-21 (Tuesday-Wednesday)* 59% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 61% 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

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

The stock market recorded its fourth consecutive weekly gain owing to a late rally on Friday. The broad-based advance resulted in the S&P 500 Index to its highest close so far this year, and within 1.08% of its ending level for 2015. Once again, stocks traded in tandem with the crude oil market during the week.

 

The bond market began the week to the downside as oil prices rallied to their highest level in several weeks on Monday. Tuesday, bond prices made a nice bounce higher when safe-haven assets were bid higher after trade data from China rekindled fears of a global economic slowdown. China’s February trade data showed a horrendous -25.4% decline in exports, the largest drop since May 2009.

 

Unfortunately, bond prices slid lower for the remainder of the week with yields on the 10-year Treasury note rising to just below 2%, their highest level since late January. Bonds sold off in response to the European Central Bank’s (ECB) announcement of an aggressive stimulus package designed to boost Europe’s struggling economy. The widely anticipated stimulus plan included a 20 billion euro expansion of the ECB’s asset purchase program to 80 billion euro per month; an additional 10 basis point cut in the deposit rate to an even greater negative interest rate of -0.40%; a cut in the refinancing rate to 0.00% from 0.05%; and a cut in the marginal lending facility to 0.25% from 0.30%. Additional supply of Treasuries may have also been a factor for lower prices as the Treasury conducted auctions of $24 billion in 3-year notes; $20 billion in 10-year notes; and $12 billion in 30-year bonds during the week.

 

Friday, higher equity markets in Asia overnight, a sharp rally in European stocks, and higher oil prices triggered a broad-based rally in U.S. stocks at the expense of the bond market. Crude oil prices were boosted by a report from the International Energy Agency (IEA) forecasting oil production from Brazil, Colombia, the U.S. and other non-OPEC producers would be lower this year. Also, oil services company Baker Hughes reported the number of active oil and natural gas rigs in the U.S. have plunged to their lowest level on record going back to 1949. Last week there were just 480 rigs drilling for oil and natural gas, down by a striking 57% from the same time in 2015. Traders interpreted these reports as a sign that the bottom may be in for oil prices.

 

In housing news, CoreLogic reported 38,000 home foreclosures were completed during January, down 1.6% month-over-month, and down 16.2% from a total of 46,000 in January 2015. The current foreclosure inventory totals 1.2% of all homes with a mortgage in the U.S., down from 1.5% in January 2015. Homes currently in the process of foreclosure total 456,000, compared to 583,000 in January 2015, representing a decline in the national foreclosure inventory of 21.7% compared with January 2015.

 

As for mortgages, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending March 4 showing the overall seasonally adjusted Market Composite Index increased 0.2%. The seasonally adjusted Purchase Index increased 4% from the prior reporting period while the Refinance Index decreased 2.0%. Overall, the refinance portion of mortgage activity decreased to 56.7% of total applications from 58.6%. The adjustable-rate mortgage segment of activity decreased to 5.2% of total applications from 5.6%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance increased from 3.75% to 3.81%.

 

For the week, the FNMA 3.0% coupon bond lost 67.1 basis points to end at $101.44 while the 10-year Treasury yield increased 10.5 basis points to end at 1.98%. Stocks ended the week with the Dow Jones Industrial Average increasing 206.54 points to end at 17,213.31. The NASDAQ Composite Index added 31.45 points to close at 4,748.47, and the S&P 500 Index gained 22.20 points to close at 2,022.19.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 1.23%, the NASDAQ Composite Index has lost 5.45%, and the S&P 500 Index has lost 1.08%. This past week, the national average 30-year mortgage rate increased to 3.83% from 3.76% while the 15-year mortgage rate rose to 3.09% from 3.04%. The 5/1 ARM mortgage rate increased to 3.06% from 3.02%. FHA 30-year rates rose to 3.35% from 3.25% and Jumbo 30-year rates increased to 3.65% from 3.60%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.0% coupon bond ($101.44, -67.1 bp) traded within a wider 96 basis point range between a weekly intraday low of $101.34 and a weekly intraday high of 102.30 before closing at $101.44 on Friday.

 

The bond traded lower during the week, falling below a couple of support levels. On Friday, the bond traded in a range spanning support at the 50% Fibonacci retracement level located at $101.37 and resistance at the 50-day moving average at $101.68. The slow stochastic oscillator is showing an extremely “oversold” position with an almost complete loss of momentum. If the bond can remain above current support, we could possibly see a bounce higher toward resistance with a slight improvement in mortgage rates. However, if the bond breaks below primary support next week we could see a continuation lower for a test of secondary support at the 100-day moving average at $101.06 and this could lead to a slight worsening in rates.

 

Chart: FNMA 30-Year 3.0% Coupon Bond

03142016chart#1

 

Economic Calendar – for the Week of March 14, 2016

 

The economic calendar shifts into high gear this week with a mixture of reports on manufacturing, inflation, and housing.

 

Date Time
ET Event /Report /Statistic For Market Expects Prior
Mar 15 08:30 Retail Sales Feb -0.1% 0.2%
Mar 15 08:30 Retail Sales excluding automobiles Feb -0.2% 0.1%
Mar 15 08:30 Producer Price Index (PPI) Feb -0.2% 0.1%
Mar 15 08:30 Core PPI Feb 0.1% 0.4%
Mar 15 08:30 New York Empire State Manufacturing Index Mar -9.5 -16.6
Mar 15 10:00 Business Inventories Jan 0.0% 0.1%
Mar 15 10:00 NAHB Housing Market Index Mar 59 58
Mar 15 16:00 Net Long-Term TIC Flows Jan NA -$29.4B
Mar 16 07:00 MBA Mortgage Index 03/12 NA 0.2%
Mar 16 08:30 Consumer Price Index (CPI) Feb -0.2% 0.0%
Mar 16 08:30 Core CPI Feb 0.1% 0.3%
Mar 16 08:30 Housing Starts Feb 1,137K 1,099K
Mar 16 08:30 Building Permits Feb 1,204K 1,202K
Mar 16 09:15 Industrial Production Feb -0.3% 0.9%
Mar 16 09:15 Capacity Utilization Feb 76.9% 77.1%
Mar 16 10:30 Crude Oil Inventories 03/12 NA 3.88M
Mar 16 14:00 FOMC Rate Decision Mar 0.375% 0.375%
Mar 17 08:30 Initial Jobless Claims 03/12 266,000 259,000
Mar 17 08:30 Continuing Jobless Claims 03/05 NA 2,225K
Mar 17 08:30 Philadelphia Fed Manufacturing Index Mar -1.4 -2.8
Mar 17 08:30 Current Account Balance Q4 -$116.0B -$124.1B
Mar 17 10:00 Index of Leading Economic Indicators Feb 0.2% -0.2%
Mar 18 10:00 University of Michigan Consumer Sentiment Mar 92.2 91.7

 

Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability **
March 2016 15-16, (Tuesday-Wednesday)* 0% Chance
April 2016 26-27, (Tuesday-Wednesday) 20% Chance
June 2016 14-15, (Tuesday-Wednesday)* 43% Chance
July 2016 26-27, (Tuesday-Wednesday) 50% Chance
September 2016 20-21, (Tuesday-Wednesday) * 61% Chance
November 2016 1-2, (Tuesday-Wednesday) 65% Chance
December 2016 20-21 (Tuesday-Wednesday)* 75% Chance
February 2017 01/31-02/01 (Tuesday-Wednesday)* 76% 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.

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

Stocks rebounded from two weeks of losses, with the Standard & Poor’s 500 Index recording solid daily gains of 1.65% on Tuesday and Wednesday, the first two trading days of the holiday-shortened week.  Crude oil prices also moved higher mid-week following news that Saudi Arabia, Russia, and Venezuela had agreed to freeze crude oil output at January levels, but investors were also invigorated by news on Wednesday that Iran might also support the cap on production levels.

 

However, oil prices pulled back on Friday after a report surfaced that U.S. oil inventories had reached a new weekly record high and this helped to also put a damper on stocks.  The week’s economic news was mixed.  On a positive note, Industrial Production increased 0.9% in January, with the manufacturing component rising 0.5%, the first increase in manufacturing output since last July.  Utilities saw their production increase by 5.4%, their largest improvement since December 2009.

 

In Housing, the February NAHB/Wells Fargo Housing Market Index fell three points to 58 from January’s upwardly revised level of 61.  The Index was lower than the consensus forecast of 60.  The current sales conditions sub-index dropped three points to 65 while the prospective buyer traffic sub-index fell from 44 to 39.  The sales expectations sub-index for the next six months increased a point to 65.

The Census Bureau reported Housing Starts were down 3.8% in January to a seasonally adjusted annual rate of 1,099,000, versus expectations of 1,171,000.  Nasty winter weather primarily in the Northeast region likely had a negative impact in interrupting building activity suggesting this will be a temporary slowdown.  Single-family Housing Starts fell to an annualized rate of 731,000 in January, down 3.9% from the revised December rate of 761,000.  Conversely, Building Permits showed more resilience, declining only 0.2% last month to 1,202,000, but just above the consensus forecast of 1,200,000.

 

In the world of mortgages, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending February 12 showing the overall seasonally adjusted Market Composite Index increased 8.2%.  On an unadjusted basis, the Composite Index increased by 10% week-over-week.  The seasonally adjusted Purchase Index decreased 4% from the prior reporting period while the Refinance Index increased 16.0%.  Overall, the refinance portion of mortgage activity increased to 64.3% of total applications from 61.2%.  The adjustable-rate mortgage segment of activity increased to 6.7% of total applications from 6.4%.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance decreased from 3.91% to 3.83%.

 

On Friday, the stock market turned in a mixed performance, crude oil traded 3.8% lower, and bonds pulled back following the release of the Consumer Price Index (CPI) for January.  The Labor Department reported the Core CPI, which excludes volatile food and energy components, increased 0.3% last month for its largest gain since August 2011.  The consensus forecast had been for a 0.1% rise in the Core CPI.

 

Rising year-over-years rents and medical care costs reinforced underlying inflation signaling an uptick in price pressures that may prompt the Federal Reserve to gradually raise interest rates this year.  Although the Fed favors the PCE Price Index when evaluating inflation trends, they will certainly view the CPI data as an indicator that progress is being made toward achieving its inflation target.

 

For the week, the FNMA 3.5% coupon bond gained 14.1 basis points to end at $104.80 while the 10-year Treasury yield decreased 0.3 of a basis point to end at 1.74%.  Stocks ended the week with the Dow Jones Industrial Average increasing 418.15 points to end at 16,391.99.  The NASDAQ Composite Index added 166.92 points to close at 4,504.43, and the S&P 500 Index gained 53.00 points to close at 1,917.78.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 6.30%, the NASDAQ Composite Index has lost 11.17%, and the S&P 500 Index has lost 6.58%.  This past week, the national average 30-year mortgage rate decreased to 3.64% from 3.66% while the 15-year mortgage rate fell to 2.96% from 2.98%.  The 5/1 ARM mortgage rate increased to 2.90% from 2.87%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates also held steady at 3.48%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($104.80, +14.1 bp) traded within a narrower 44 basis point range between a weekly intraday low of $104.45 and a weekly intraday high of 104.89 before closing at $104.80 on Friday.

 

After successfully undergoing a test of technical support last Tuesday and Wednesday, the bond made a nice move higher on Thursday only to stumble slightly on Friday despite a mixed performance in stocks and a declining crude oil market.

 

The bond is currently range-bound between support at $104.516 and resistance at $105.15.  Friday’s candlestick indicates a degree of market indecision among traders while the slow stochastic oscillator shows a slight positive crossover just below the “overbought” level indicating minor strengthening in market momentum.

 

The bond may trade sideways this coming week, and as long as it remains range-bound between support and resistance, we should see mortgage rates remain stable.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

 cahrt02222016#1

 

Economic Calendar – for the Week of February 22, 2016

 

The economic calendar features several key reports on housing and inflation.  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 23 09:00 Case-Shiller 20-city Index Dec 5.8% 5.8%
Feb 23 10:00 Consumer Confidence Feb 97.3 98.1
Feb 23 10:00 Existing Home Sales Jan 5.30M 5.46M
Feb 24 07:00 MBA Mortgage Index 02/20 NA 8.2%
Feb 24 10:00 New Home Sales Jan 523,000 544,000
Feb 24 10:30 Crude Oil Inventories 02/20 NA 2.150M
Feb 25 08:30 Initial Jobless Claims 02/20 270,000 262,000
Feb 25 08:30 Continuing Jobless Claims 02/13 2,268K 2,273K
Feb 25 08:30 Durable Goods Orders Jan 2.0% -5.0%
Feb 25 08:30 Durable Goods Orders excluding transportation Jan 0.4% -1.0%
Feb 25 09:00 FHFA Housing Price Index Dec NA 0.5%
Feb 26 08:30 GDP – 2nd Estimate Qtr. 4 0.4% 0.7%
Feb 26 08:30 GDP Deflator – 2nd Estimate Qtr. 4 0.8% 0.8%
Feb 26 08:30 Personal Income Jan 0.4% 0.3%
Feb 26 08:30 Personal Spending Jan 0.3% 0.0%
Feb 26 08:30 Core PCE Prices Jan 0.1% 0.0%
Feb 26 10:00 Michigan Sentiment – Final Estimate Feb 91.0 92.0

 

 

 

 

 

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

March 2016 15-16, (Tuesday-Wednesday)* 2% Chance
April 2016 26-27, (Tuesday-Wednesday) 11% Chance
June 2016 14-15, (Tuesday-Wednesday)* 18% Chance
July 2016 26-27, (Tuesday-Wednesday) 20% Chance
September 2016 20-21, (Tuesday-Wednesday) * 25% Chance
November 2016 1-2, (Tuesday-Wednesday) 28% Chance
December 2016 20-21 (Tuesday-Wednesday)* 38% 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.

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

The stock and crude oil markets traded in lockstep with one another during the week while the bond market mostly traded in the opposite direction to these markets.  The bond market rose early in the week when oil and equity markets headed lower, but bond prices then fell on Thursday and Friday as crude oil and equities rebounded.   Crude oil was volatile during the week.  West Texas Intermediate crude fell from over $31 per barrel on Tuesday to reach $26.19 a barrel on Wednesday, its lowest level since September 2003, before bouncing back over $32 per barrel by Friday’s close.

 

A report from the International Energy Agency (IEA) citing persistent oversupply suggested crude oil prices will remain volatile.  The IEA stated unseasonably warm weather and rising supply will keep the crude oil market oversupplied until at least late 2016 and could push the price below its current 12-year lows.  The International Energy Agency went on to state “the world is drowning in oil, and weak demand has failed to match relentless pumping by the world’s biggest oil producers.  The oil market faces the prospect of a third successive year when supply will exceed demand by one million barrels a day and there will be enormous strain on the ability of the oil system to absorb it efficiently.”

 

In the housing sector, the NAHB/Wells Fargo Housing Market Index came in at 60 for January, just missing the consensus forecast for 61.  Furthermore, the December reading of 61 was revised lower to 60.  The traffic component measuring interest from first-time buyers dropped two points to 44 while the component for future sales fell 3 points to 63.  A combination of worse weather in early January, a declining stock market, and the beginning of the Fed’s cycle of hiking interest rates were cited as reasons for the lower number.

#101252016

 

Moreover, the Census Bureau reported the rate of Housing Starts and Building Permits fell during December.  Housing Starts declined by 2.5% to an annualized rate of 1.15 million homes while Building Permits fell 3.9% to an annualized pace of 1.23 million.  Consensus expectations were for Housing Starts to increase 2.3% in December to an annualized rate of 1.197 million homes and Building Permits were expected to fall 6.4% to an annualized pace of 1.2 million.

 

This housing data is a little surprising because most of the country has had a mild winter so far and weather such as this tends to boost home building activity.  Plus, construction employment numbers increased by a net 93,000 during November and December so one has to wonder what these workers are building.

 

Additionally, the National Association of Realtors reported Existing Home Sales shot higher by a record 14.7% in December to an annual rate of 5.46 million units.  Sales rebounded following stifled sales in November due to the introduction of new mortgage disclosure rules that caused delays in the closing of contracts.

 

December’s sales number exceeded the consensus forecast of 5.12 million units.  Unseasonably warm weather resulting from this year’s El Niño also helped to raise home buyer interest.  November’s sales rate was left unrevised at 4.76 million units.  On an annual basis, Existing Home Sales increased 6.5%, the strongest since 2006.

 

 

Elsewhere, the Mortgage Bankers Association released their latest Mortgage Application Data for the two weeks ending January 8 showing the overall seasonally adjusted Market Composite Index increased 9%.  On an unadjusted basis, the Composite Index increased by 12% week-over-week.  The seasonally adjusted Purchase Index decreased 2.0% from the prior reporting period while the Refinance Index increased 19.0%.  Overall, the refinance portion of mortgage activity increased to 59.1% of total applications from 55.8%.  The adjustable-rate mortgage segment of activity increased to 6% of total applications from 5.1%.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance decreased from 4.12% to 4.06%.

 

For the week, the FNMA 3.5% coupon bond gained 1.6 basis points to end at $104.02 while the 10-year Treasury yield increased 2.1 basis points to end at 2.057%.  Stocks ended the week with the Dow Jones Industrial Average rising 105.43 points to end at 16,093.51.  The NASDAQ Composite Index gained 102.76 points to close at 4,591.18, and the S&P 500 Index added 26.57 points to close at 1,906.90.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 8.27%, the NASDAQ Composite Index has lost 9.07%, and the S&P 500 Index has lost 7.19%.  This past week, the national average 30-year mortgage rate increased to 3.88% from 3.84% while the 15-year mortgage rate rose to 3.15% from 3.12%.  The 5/1 ARM mortgage rate remained unchanged at 3.05%.  FHA 30-year rates were unchanged at 3.50% and Jumbo 30-year rates increased to 3.72% from 3.68%.

 

Mortgage Rate Forecast with Chart

#201252016

 

For the week, the FNMA 30-year 3.5% coupon bond ($104.02, +1.6 bp) traded within a 52 basis point range between a weekly intraday high of 104.36 and a weekly intraday low of $103.84 before closing at $104.02 on Friday.

 

After making a dramatic move higher on Wednesday, the bond failed to hold above technical support on Thursday and gapped lower in a “falling window” on Friday as the stock market rebounded.  The bond is now positioned between the 200-day moving average support level at $103.73 and resistance located at the 23.6% Fibonacci retracement level at $104.15.  Friday’s “spinning top” candlestick shows indecision and uncertainty among traders while both the fast and slow stochastic oscillators show negative crossover sell signals.  If the crude oil market stabilizes and the stock market continues to rebound this coming week, we could see bond prices move lower to test support causing mortgage rates to edge slightly higher.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

 

Economic Calendar – for the Week of January 25, 2016

 

The economic calendar features several reports on the housing sector with the Case-Shiller 20-city Index and the FHFA Housing Price Index on Tuesday; New Home Sales on Wednesday; and Pending Home Sales on Thursday.  Of particular interest will be the Federal Reserve’s latest interest rate decision on Wednesday.  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
Jan 26 09:00 Case-Shiller 20-city Index Nov 5.8% 5.5%
Jan 26 09:00 FHFA Housing Price Index Nov NA 0.5%
Jan 26 10:00 Consumer Confidence Index Jan 96.8 96.5
Jan 27 07:00 MBA Mortgage Index 01/23 NA +9.0%
Jan 27 10:00 New Home Sales Dec 506,000 490,000
Jan 27 10:30 Crude Oil Inventories 01/23 NA 3.979M
Jan 27 14:00 FOMC Interest Rate Decision Jan 0.5% 0.5%
Jan 28 08:30 Initial Jobless Claims 01/23 285,000 293,000
Jan 28 08:30 Continuing Jobless Claims 01/23 2,230K NA
Jan 28 08:30 Durable Goods Orders Dec -0.5% 0.0%
Jan 28 08:30 Durable Goods excluding transportation Dec -0.1% 0.0%
Jan 28 10:00 Pending Home Sales Dec 0.8% -0.9%
Jan 29 08:30 Advance GDP Qtr. 4 0.9% 2.0%
Jan 29 08:30 Advance GDP Deflator Qtr. 4 0.9% 1.3%
Jan 29 08:30 Employment Cost Index Qtr. 4 0.6% 0.6%
Jan 29 09:45 Chicago Purchase Managers Index (PMI) Jan 45.0 42.9
Jan 29 10:00 Final Univ. of Michigan Consumer Sentiment Jan 93.2 92.6

 

 

 

 

 

 

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

January 2016 26-27, (Tuesday-Wednesday) 12% Chance
March 2016 15-16, (Tuesday-Wednesday)* 32% Chance
April 2016 26-27, (Tuesday-Wednesday) 39% Chance
June 2016 14-15, (Tuesday-Wednesday)* 52% Chance
July 2016 26-27, (Tuesday-Wednesday) 57% Chance
September 2016 20-21, (Tuesday-Wednesday) * 62% Chance
November 2016 1-2, (Tuesday-Wednesday) 66% Chance
December 2016 20-21 (Tuesday-Wednesday)* 72% 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

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

Like a broken record, investors continue to focus on the impact of slower economic growth and falling equity markets in China as China’s Shanghai Index fell into bear-market territory with a 20% decline.

 

A slowing Chinese economy also results in less demand for oil, and lower consumption of crude oil in China coupled with the current global oversupply is a recipe for lower oil prices, a weaker stock market, and a more fragile junk bond market.  Crude prices continued to fall with a decline below $30 to close at $29.70 per barrel on Friday and this is weighing on the debt of energy companies.

 

The Wall Street Journal is reporting that as many as one-third of all U.S. oil and gas producers could be in danger of declaring bankruptcy by the middle of 2017 if crude oil doesn’t soon rebound to at least $50 per barrel.  A number of investment banks have said crude oil could continue lower to near $20 per barrel before eventually moving higher.

 

Should crude oil continue on its journey toward $20 per barrel, it would continue to put a huge strain on a junk bond market that holds a substantial amount of debt from independent oil and gas companies.  The junk bond ETFs, the SPDR® Barclays High Yield Bond ETF and the iShares iBoxx High Yield Corporate Bond ETF, both traded to multi-year lows on Friday.

Historically, the junk bond market has acted like a canary in a coal mine as far as the stock market is concerned.  Declines in the junk bond market often warn of an impending selloff in the stock market.  Below is a November 2015 chart comparing junk bonds to the NASDAQ Composite (from Bloomberg).  The divergence seen between junk bonds and stocks posed a somber warning to equity investors who took a look at this.  As we now know, divergences such as these do not end well.

 

Chart 1: SPDR Barclays High Yield Bond ETF vs NASDAQ Composite Index

#101182016

 

In a back-loaded week of economic news, the Producer Price Index, the N.Y. Empire State Manufacturing Index, Retails Sales, Industrial Production, and Consumer Sentiment were all reported on Friday.

 

The Producer Price Index (PPI), which measures inflation before it reaches consumers, fell 0.2% in December after a 0.3% increase in November.  Over the past 12 months, the PPI has declined 1%.  When excluding volatile food and energy costs, the so-called Core PPI crept 0.1% higher in December.  Over the past 12 months, the Core PPI is up a miniscule 0.3%.  This absence in inflationary pressures may delay future Fed rate hikes.

 

The Federal Reserve Bank of New York released a disaster of a manufacturing survey for the New York Region.  The N.Y. Empire State Manufacturing Index plunged to -19.4 in January indicating manufacturing production in the region has contracted rather severely, and calls into question the health of the economy.  The index has been below zero since July and this reading is the lowest since the last recession in March 2009.

 

Retail Sales fell a seasonally adjusted 0.1% during December to $448.1 billion after having grown by a solid 0.4% during November.  The consensus forecast called for a +0.1% increase in sales.  For the entire year, Retail Sales recorded a modest 2.1% gain, its lowest gain since 2009.

 

Industrial Production declined 0.4% in December compared to an expected reading of -0.2%.  The decline was attributed to cutbacks in mining and utilities.  For the fourth quarter, Industrial Production declined at a 3.4% annual rate.  Meanwhile, Capacity Utilization for December was reported at 76.5% and was lower than the consensus forecast of 76.9%.fell more than expected, declining for the third month in a row in connection with the unusually warm temperatures and low commodity prices.

 

The University of Michigan’s Consumer Sentiment Index rose to a greater than expected reading of 93.3 in January from 92.6 in the preliminary January reading as lower inflation lifted consumer spending plans.  The consensus had been for a reading of 92.6.  The Current Conditions sub-index dropped 3 points possibly pressured by China’s gloomy outlook.  The survey showed consumers expected the lowest wage gains in a year, but this was offset by expectations of a lower inflation rate.

 

Elsewhere, the Mortgage Bankers Association released their latest Mortgage Application Data for the two weeks ending January 1 showing the overall seasonally adjusted Market Composite Index increased 21.3%.  On an unadjusted basis, the Composite Index increased by 76% week over week.  The seasonally adjusted Purchase Index increased 18.0% from the prior reporting period while the Refinance Index increased 24.0%.  Overall, the refinance portion of mortgage activity increased to 55.8% of total applications from 55.4%.  The adjustable-rate mortgage segment of activity increased to 5.1% of total applications from 4.7%.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance decreased from 4.20% to 4.12%.

 

For the week, the FNMA 3.5% coupon bond gained 7.8 basis points to end at $104.00 while the 10-year Treasury yield decreased 7.8 basis points to end at 2.037%.  Stocks ended the week with the Dow Jones Industrial Average falling 358.37 points to end at 15,988.08.  The NASDAQ Composite Index dropped 155.22 points to close at 4,488.42, and the S&P 500 Index lost 41.70 points to close at 1,880.33.

 

Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 8.99%, the NASDAQ Composite Index has lost 11.56%, and the S&P 500 Index has lost 8.70%.  This past week, the national average 30-year mortgage rate decreased to 3.84% from 3.94% while the 15-year mortgage rate fell to 3.12% from 3.19%.  The 5/1 ARM mortgage rate decreased to 3.05% from 3.07%.  FHA 30-year rates fell to 3.50% from 3.63% while Jumbo 30-year rates decreased to 3.68% from 3.75%.

 

Mortgage Rate Forecast with Chart

 

For the week, the FNMA 30-year 3.5% coupon bond ($104.00, +7.8 bp) traded within a 77 basis point range between a weekly intraday high of 104.19 and a weekly intraday low of $103.42 before closing at $104.00 on Friday.

 

After a monthly coupon re-pricing on Monday, the bond stepped its way higher throughout the rest of the week culminating in an upward gap or “rising window” opening on Friday as panic selling gripped the stock market.  The bond then traded above resistance at the 23.6% Fibonacci retracement level located at $104.15 before pulling back.  The pull-back from Friday’s intraday high price created a “shooting star” candlestick, a potential reversal signal indicating lower prices in the near future.  Support is now located at the 200-day moving average at $103.75.

 

The slow stochastic oscillator is showing the bond is “overbought” and susceptible to a turn lower in price.  Unless the stock market continues to sell-off this coming week, we could see bonds pull back toward support as traders lock in some profits.  Should this happen, we could see mortgage rates edge slightly lower.

 

Chart:  FNMA 30-Year 3.5% Coupon Bond

#201182016

 

Economic Calendar – for the Week of January 18, 2016

 

The economic calendar provides us the latest insight into the housing sector with the release of the NAHB Housing Market Index on Tuesday; the MBA Mortgage Index, Housing Starts, and Building Permits on Wednesday; and Existing Home Sales on Friday.  Of particular interest to the markets will be the Consumer Price Index and Crude Oil Inventories reports on Wednesday and the Philadelphia Fed Manufacturing Index on Thursday.  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
Jan 19 10:00 NAHB Housing Market Index Jan 61 61
Jan 19 16:00 Net Long-Term TIC Flows Nov NA -$16.6B
Jan 20 07:00 MBA Mortgage Index 01/16 NA +21.3%
Jan 20 08:30 Consumer Price Index (CPI) Dec 0.0% 0.0%
Jan 20 08:30 Core CPI Dec 0.2% 0.2%
Jan 20 08:30 Housing Starts Dec 1,197K 1,173K
Jan 20 08:30 Building Permits Dec 1,200K 1,289K
Jan 20 10:30 Crude Oil Inventories 01/16 NA 0.234M
Jan 21 08:30 Initial Jobless Claims 01/16 280,000 284,000
Jan 21 08:30 Continuing Jobless Claims 01/09 NA 2,263K
Jan 21 08:30 Philadelphia Fed Manufacturing Index Jan -4.0 -5.9
Jan 22 10:00 Existing Home Sales Dec 5.12M 4.76M
Jan 22 10:00 Index of Leading Economic Indicators Dec -0.1% 0.4%

 

 

 

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

January 2016 26-27, (Tuesday-Wednesday) 10% Chance
March 2016 15-16, (Tuesday-Wednesday)* 31% Chance
April 2016 26-27, (Tuesday-Wednesday) 35% Chance
June 2016 14-15, (Tuesday-Wednesday)* 50% Chance
July 2016 26-27, (Tuesday-Wednesday) 54% Chance
September 2016 20-21, (Tuesday-Wednesday) * 56% Chance
November 2016 1-2, (Tuesday-Wednesday) 60% Chance
December 2016 20-21 (Tuesday-Wednesday)* 66% 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.

 

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter