January 2018

January 1st, 2018

Below is the news for the month when it happened and the market’s reaction.  For a full view of the month start at the bottom and work your way up. If want to know what just happened start at the top. All Times are Eastern Standard Time.  When the price of Mortgage Backed Securities (MBS) goes down rates go up, and when the price goes up rates come down. Remember in the bond market Bad News is Good News and Good News is Bad news.

Wednesday - January 31  


The Fed left interest rates unchanged at today's FOMC meeting but the statement painted a somewhat hawkish tone. Employment is strong while economic activity has been rising at a solid rate. In addition, inflation and inflation excluding food and energy is expected to rise in the next 12 months. MBS had another seesaw session. The Fannie Mae 30-yr 3.5% coupon opened at 101, traded to 101.09 then fell to 102.75 after the Fed statement only to close at 101.0, +6bp. Stocks also experienced a roller coaster ride trading well into positive territory, then fell into the red before closing with gains. The Dow rose 72.50 points to 26,149.39, the S&P 500 was up 1.38 points to 2,823.81, while the NASDAQ gained 9 points to end at 7,411.48. WTI oil settled at $64.73/barrel, +$0.23. 10-yr yield 2.71%. Tomorrow's economic data includes Weekly Initial Jobless Claims, Productivity and the ISM Manufacturing Index.


Late Morning Review:

A low supply of homes for sale on the market continued to plague home buyers in December. The National Association of REALTORS® reports that Pending Home Sales in December rose 0.5% from November, which was just below the 0.6% expected. Year-over-year Pending Home Sales are up 0.5%. Sales slowed in all four major regions of the country. Lawrence Yun, NAR chief economist, says, "Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices — especially at the lower end of the market."

After two straight days of losses, Stocks are higher being buoyed by strong earnings reports and after President Trump delivered a mostly controversy-free State of the Union last night. The president called for a $1.5 billion infrastructure spending bill. U.S. Stocks are on track for their best January in decades. The closely watched S&P 500 is up 5.7%, its best January gain since 1997 fueled by positive economic data, strong earnings and the recent tax cuts.

Private employers added more new workers than expected in January as the job markets continue to grow. ADP Private Payrolls in January rose by 234,000, well above the 190,000 expected while December was revised lower to 242,000 from 250,000. Within the report it revealed that small businesses added 58,000 workers; medium size businesses 91,000; and large companies 85,000. Mark Zandi, chief economist of Moody’s Analytics, said, “The job market juggernaut marches on. Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.”

Tuesday - January 30


Stocks plunged today leading to the largest two-day sell-off for the Dow since June 2016 due in part to rising yields and as health care shares weighed on the market after Amazon, Warren Buffet and JPMorgan announced they would form a health care alliance to lower costs. The Fannie Mae 30-yr 3.5% coupon saw a small 6bp loss closing at 100.97. The Dow fell by 362.59 to 26,076.89, the S&P 500 lost 31.10 points to 2,822.43 while the NASDAQ declined by 64.02 points to end the session at 7,402.48. WTI oil at $64.50/barrel, -$1.06. 10-yr yield 2.72%. President Trump will deliver his first State of the Union address tonight at 9:00 p.m. ET. Tomorrow's economic data includes Chicago PMI, Pending Home Sales, Employment Cost Index and ADP Private Payrolls. The Fed decision will be released at 2:00 p.m. ET. There is a zero percent chance of a hike to rates but the statement may be on the hawkish side.

Late Morning Review:

The S&P Case-Shiller 20-City Home Price Index rose 6.4 percent year over year, which was in line with estimates. National home prices were up 6.2% in November year over year and are 6 percent higher than their 2006 peak. (See chart below) Those in the top 20 cities are still 1.1% lower, however. “Home prices continue to rise three times faster than the rate of inflation,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Without more supply, home prices may continue to substantially outpace inflation.”

The Conference Board announced on Tuesday that consumers felt more confident about the U.S. economy in January after a decline in December. The Consumer Confidence Index increased to 125.4 this month after the decline in December from November. The Conference Board said consumers’ assessment of current conditions decreased slightly, but remains at historically strong levels. Overall, consumers remain quite confident that the solid pace of growth seen in late 2017 will continue into 2018.

A new health care alliance is in the making in an effort to lower costs and would be free from profit-making incentives and constraints. Amazon's Jeff Bezos, Warren Buffet and JPMorgan will band together to address the health care costs to their employees and maybe, eventually, for the entire country. The headlines sent shares of health care companies lower across the board. Given the state of health care costs in the U.S., any improvement in premium prices would be welcome. 

Monday - January 29  


Talk of global central banks cutting QE programs sent Bond prices lower this morning and yields higher but prices did manage to bounce off the lows and end with smaller losses than what we saw this morning. Inflation (Core PCE) remained tame in December and was somewhat a support for the debt markets. The Fannie Mae 30-yr 3.5% coupon closed at 101.03 after having hit 100.81 early on. Stocks fell on the central bank headlines and as Apple shares weighed due to slowing sales for the iPhone X. The Dow lost 177.23 points to 26,439.48, the S&P 500 declined by 19.34 points to 2,853.53 while the NASDAQ ended lower by 39.26 points to end the session at 7,466.50. WTI oil closed at $65.56/barrel, -$0.58. 10-yr yield 2.69%. The S&P Case Shiller Home Price Index and Consumer Confidence will be released tomorrow. The 2-day Fed meeting kicks off tomorrow but there will be headlines until 2:00 p.m. ET on Wednesday when the monetary policy statement is released Wednesday at 2:00 p.m. ET.

Late Morning Review

Inflation remained tame in December as the Fed's favorite inflation gauge, the December Core Personal Consumption Expenditure (PCE) on an annual basis, was unchanged at 1.5% while month-over-month saw a 0.2% rise, which was expected. Low inflation makes it tough for the Federal Reserve to hike interest rates. Within the report it revealed that Personal Spending rose 0.4% in December as demand for goods and services increased.

President Trump will gives his first State of the Union this week on Tuesday night at 9:00 p.m. ET. The address comes after the three-day shutdown in recent weeks that involved issues surrounding DACA Dreamers. Currently, President Trump's approval rating is 39% for those who approve of the job he is doing, while 56% disapprove. The president will most likely touch on immigration issues, border security, tax reform, the U.S. economy and infrastructure.

This week investors will be receiving a full dose of economic data that will cover a broad landscape of the U.S. economy that will culminate with the closely watched Jobs Report for December. In addition, housing and manufacturing data will be delivered. Throw in the two-day Fed meeting and you have a recipe for volatility.

8:04 AM Global Bond yields rise, U.S. 10-yr yield surges to 2.72% from Friday's 2.66%.

Friday - January 26  


Volatility continued today with most of the action occurring in the early part of the session. Bond prices were pressured lower by the continued rise in Stocks as the three major indexes closed at fresh record high levels due in part to positive economic data, strong corporate earnings and the recent tax cuts. The Fannie Mae 30-yr 3.5% coupon closed at 101.28, -22bp. The Dow gained 223.92 points to 26,616.71, the S&P 500 was up 33.62 points to 2,872.87 while the NASDAQ jumped 94.60 points to end at 7,505.77. WTI oil closed at $66.14/barrel, +$0.63 as the weak dollar fuels the gains. 10-yr yield 2.65%. Next week's economic calendar is packed with an array of data that will cover a large portion of the U.S. economy culminating with the January Jobs Report on Friday. It is estimated that employers added 180K new workers during the month. Have a great weekend!


This weeks newsletter: http://www.mmgweekly.com/w/index.html?SID=fa7518562603d5c4a7ad69e2e5726f5f

Newsletter chart

Late morning review:

Economic growth slipped a bit in the fourth quarter of 2017, led lower by drags on trade and inventories. The first read on fourth quarter Gross Domestic Product rose 2.6%, just below the 2.9% expected and down from 3.2% in the third quarter. Within the report, it showed that consumer spending surged 3.8%, the fastest pace in two years; this was fueled by purchases of new cars and trucks, clothing, and healthcare. Gross Domestic Product is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.

On the housing front, new home sale prices are 43% higher than their 2011 lows and 22% higher than the 2007 peak. Existing Home Sales in 2017 hit 5.5 million, its highest level since 6.5 million in 2006 and just above 2016's number and up from the 5.25 million in 2006. The big drag on housing ... a nationwide lack of inventory. Inventories have decreased 31 straight months year over year and at the current sales pace the stock of homes for sale is 3.2 months, a record low.



Thursday - January 25  


Seesaw trading was the name of the game today in both the Bond and Stock markets. MBS opened a bit higher, then fell into negative territory only to end positive after a strong 7-yr Note offering. The Fannie Mae 30-yr 3.5% coupon gained 16bp to end at 101.53. Same with Stocks. Differing opinions from Treasury Sec Mnuchin talking down the dollar this week and President Trump talking the greenback up today led to the volatility. The Dow gained 140.67 points to 26,392.79 a fresh record high led by Dow components Caterpillar and 3M beating earnings estimates. The S&P closed at 2,839.25, +1.71 points while the NASDAQ closed with a small 3.95 point loss to end at 7,411.64. WTI oil closed at $65.51/barrel near unchanged. The 10-yr yield 2.62%. Q4 2017 first read on GDP will be released tomorrow.

Late morning Review

Sales of new homes plunged in December due in part to unseasonably cold and harsh weather. This was coupled with fading sales in the South after people replaced houses soon after the September hurricanes. The Commerce Department reported that New Homes Sales fell 9.3% in December from November to an annual rate of 625,000 units, below the 679,000 expected. It was the largest decline in nearly a year and a half. November was revised lower to 689,000 units from 733,000. From December 2016 to December 2017, sales were up 14.1%. November recorded losses in all four major sectors of the U.S.: the Northeast, South, Midwest and West.

Home Depot just joined the growing list of U.S. companies to offer employees bonuses after the passage of the Tax Cut and Jobs Act. The home remodeling company will be giving hourly employees a one-time cash bonus of $1,000 and will be scaled based on a workers length of employment. However, unlike other national companies, Home Depot did not announce plans to raise wages. 



Wednesday - January 24  

Mortgage Bonds traded in a tight range for the afternoon session after this morning's seesaw action. Lower Existing Home Sales had little impact on trading, especially due to the fact that a slip in sales could be the product of low inventories of homes for sale on the market. The Fannie Mae 30-yr 3.5% coupon closed at 101.38, -9bp. Stocks ended mixed after a choppy session. The Dow gained 41.31 points to 26,252.12, the S&P closed slightly lower by 1.59 points to 2,837.54 while the NASDAQ fell by 45.23 points to end the session at 7,415.05. WTI oil gushed higher by $1.14 to end at $65.61/barrel. 10-yr yield 2.65%. Tomorrow's economic data includes Weekly Initial Jobless Claims and New Home Sales. The Treasury will sell $28B 7-yr Notes.


Late Morning Review:

Mortgage rates inched higher in the latest week as Bond prices declined forcing borrowing costs higher. The Mortgage Bankers Association reports that the 30-year conforming fixed-rate mortgage rose to 4.39% from 4.36% in the previous week. Within the report it revealed that the home purchase index rose 6% to its highest level since April 2010 while the refinance index increased 1%.

The National Association of REALTORS® reports that low inventories of homes for sale on the market continued to be a thorn in the side for would-be borrowers last month. December Existing Home Sales fell 3.6% from November to an annual rate of 5.570 million units versus the 5.70 million expected. Declines were seen across the board in the Northeast, Midwest, South and West. From December 2016 to December 2017, sales were up 1.1%. Inventories of homes for sale on the market fell to a 3.2-month supply, well below the 6-month supply that is seen as normal. Housing inventories are down 10.3% from a year ago.

The ongoing stream of positive news and outlooks by corporate leaders are fueling U.S. Stocks once again today. JPMorgan's Jamie Dimon says President Trump's tax cuts will be "a boom" for the economy while Goldman Sachs CEO Lloyd Blankfein says he has really liked what Mr. Trump has done for the economy. In addition, Disney announced that it will be giving $1,000 bonuses to 125,000 employees while Starbucks announced it will be boosting wages and doling out bonuses to employees.

existing home sales



Tuesday - January 23  


MBS opened higher and for the most part held the gains throughout the session aided in part by a strong 2-yr offering. There were no economic reports due for release today. The Fannie Mae 30-yr 3.5% coupon rose by 22bp to end the session at 101.50. Stocks ended mixed as soaring shares of Netflix buoyed the NASDAQ, while J&J and Proctor & Gamble held the Dow in check. The Dow closed near unchanged at 26,210.81, the S&P 500 closed at 2,839.13 up 6.16 points while the NASDAQ gained 52.25 points to end the session at 7,460.28. WTI oil closed at a 3-yr high of $64.47/barrel, +$0.89. 10-yr yield 2.61%. Tomorrow's data is limited to December Existing Home Sales. The Treasury will sell $34B 5-yr Notes and comes after today's strong demand for the 2-yr offering. Dow components General Electric and United Technologies report earnings before the open.

Late Morning Review:

Fannie Mae released its January 2018 Economic and Housing Outlook revealing that solid consumer spending and a jump in labor productivity due to increased business equipment investment should spur real Gross Domestic Product to 2.7% in 2018. Fannie predicts the unemployment rate to to average 3.7% in the second half of 2019, down from an already low level of 4.1%. The new tax laws are likely to provide a mixed response in the housing market with greater housing demand spurred on by increased disposable income while changes to tax deductions essentially reduce the subsidy for home ownership.

U.S. Stocks are slightly higher after a round of positive earnings results from Dow components J&J, Proctor & Gamble, Travelers and Verizon. Shares of Netflix are higher as the company added 8.4 million subscribers in Q4 2017, above the 6.4 million expected. At such frothy levels, Stocks are due for a pause or a correction, but as the old saying goes, "You can't fight the tape" meaning you may not want to bet on a downward move in the equity markets.

In corporate news, JPMorgan plans to raise wages, expand hiring and open new branches due in part to a growing economy and the recent changes to the U.S. tax code. The bank will open 400 new branches, hire 4,000 new workers while raising hourly wages to $15 and $18 from a range of $12 to $16.50. In addition, JPMorgan will reduce medical plan deductibles by $750 per year for those employees making less that $60,000 a year. The corporate tax rate has declined to 21% from 35%. 


Monday - January 22


MBS traded in a tight range for most of the sessio near the lows of the day. There were no economic reports to impact trading. The Fannie Mae 30-yr 3.5% coupon closed unchanged at 101.25. The major Stock indexes all closed at fresh record highs today after a deal was reached to fund the government through February 8. The Dow gained 142.88 points to end at 26,214.60, the S&P 500 was up 22.67 points to 2,832.97, while the NASDAQ jumped 71.65 points to close at 7,408.03. WTI oil settled at $63.62/barrel, +$0.25. 10-yr yield 2.65%. There are no economic reports due for release tomorrow. In earnings news, Dow components Procter & Gamble, Johnson & Johnson, Travelers, and Verizon will report earnings before the opening bell on WallStreet.

Late Morning Review

The U.S. government shutdown enters its third day as lawmakers failed to come to an agreement on Friday. Hundreds of thousands of government employees will be sent home today or told not to show up for work. As for the military, there will be no lapse in pay unless the shutdown continues past February 1. The Senate will reportedly take another shot at a short-term funding resolution vote today by 12:00 p.m. ET.

The International Monetary Fund (IMF) revised global economic growth to 3.9% for 2018 and 2019, slightly higher from its last update in October. The IMF cited the U.S. Tax Cut and Jobs Act for the revised growth which is expected to support growth in the U.S. and help its key trading partners. The IMF went on to say that the U.S. economy should grow by 2.7% in 2018, above the previous 2.3% estimated.

Janet Yellen's 4-years as Federal Reserve Chair ends on Wednesday January 31, 2018 with her 32nd and final meeting. During Yellen's term as Fed Chair, the nation's central bank implemented 5 rate hikes and began reversing the $4 trillion of bond purchases made over the 6 years of 2008-14 during "Quantitative Easing," a innovative program started under Fed Chair Ben Bernanke. 

Friday - January 19  


MBS followed the path of least resistance today, lower, while yields pushed higher on economic optimism and as the recent tax plan buoyed Stocks. The Fannie Mae 30-yr 3.5% coupon fell 25bp to end the ugly session at 101.28. Stocks were able to produce gains despite the looming gov't shutdown led higher by consumer Stocks. The Dow gained 53.91 points to end at 26,071.72. The S&P closed at 12.27 points to 2,819.30, while the NASDAQ was up 40.33 points to end at 7,336.38, both at record highs. WTI oil posted its first weekly loss in five weeks settling at $63.37/barrel, -$0.58. 10-yr yield closed at 2.65%, not a good sign. Have a great weekend! 

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Late Morning Review

Consumer Sentiment edged lower in early January down from the decade high hit back in October. The index fell to 94.4 after the 95.9 recorded in December. However, consumers reported persistent strength in personal finances and buying plans. The report also revealed that 34% of consumers talked of tax reform with 70% of those saying the new tax reform bill would be positive while 18% said negative.

Leading cloud-based platform provider for the mortgage industry, Ellie Mae, reported this week that refinance applications made up 40% of all closed loans in December. The surge in refinancing was due in part to purchases being down in the winter months and would-be borrowers wanting to close before the new tax laws took effect. "As we closed out 2017 we saw an increase in the percentage of refinances due to seasonality as fewer purchases take place in the fourth quarter, and likely homebuyers were taking advantage of the mortgage deductibility limit before it decreased to $750,000 on December 15th,” said Jonathan Corr, president and CEO of Ellie Mae.

The new Tax Cut and Jobs Act bill should see Americans money taxed at lower rates starting February 1. Corporations are steadily increasing wages, giving bonuses, upping 401K contributions and hiring anyone they can. This is all powerful for housing. With consumer confidence already the highest in this century, that number should grow as tax reform actually starts to hit the wallets of America.

Thursday - January 18  


Brighter global economic data weighed on Bond prices during the session while lifting yields. Housing Starts declined in December but it could have been due in part to harsh winter weather across the nation while the Philly Fed declined and jobless claims hover near multi-decade lows. The Fannie Mae 30-yr 3.5% coupon closed at 101.53, -16bp and at the lows of the session. Stocks declined as investors paused with prices at record highs and on concerns of a government shutdown. The Dow lost 97.84 points to 26.017.81, the S&P 500 lost 4.53 points to 2,798.03 while the NASDAQ saw a small 2.23 point loss to end at 7,296.04. WTI oil closed near unchanged at $63.95/barrel. The yield on the 10-yr T Note closed at 2.62, right at our "line in the sand." Tomorrow's economic data is limited to Consumer Sentiment.

Late Morning Review 

The Commerce Department reported that December Housing Starts fell 8.2% from November, driven lower by a sharp decrease in single-family units. It was the largest percentage drop since November 2006. Housing Starts came in at 1.192 million annualized units, below the 1.280 million expected and fell 6 percent year over year.

Single-family Housing Starts plunged nearly 12% month over month though they did increase 3.5% from December 2016. Multi-family dwellings rose 2.6% from November and plummeted 21% year over year. Building Permits, a sign of future construction, were essentially unchanged from November at an annual rate of 1.302 million units.

Americans filing for first-time unemployment benefits fell to lows not seen since the early 1970s in the latest week. However, the decline could have been overstated as several states were estimated. Weekly Initial Jobless Claims fell 41,000 to 220,000, the lowest since February 1973. The latest numbers marked the 150th straight week that claims remained below the 300,000 mark, which signals a healthy job market. 

Wednesday - January 17  


MBS closed lower today in the face of record breaking high levels in the Stock markets. The Fannie Mae 30-yr 3.5% coupon closed at 101.69, -25bp and near the session low. Enthusiasm surrounding corporate earnings lifted Stocks along with Apple announcing to repatriate billions of overseas cash into the U.S. economy. The Dow closed above 26K for the first time ever gaining 322.79 points to end the bullish session at 26,115.65, the S&P 500 rose 26.14 points to 2,802.56, while the NASDAQ jumped 74.59 points to settle at 7,298.27. WTI oil closed up $0.24 to $63.97/barrel. 10-yr yield 2.58%.

Late Morning Review

Home builder confidence remained at high levels in January after December registered an 18-year high: this signals housing demand should continue to grow in 2018. The National Association of Home Builders reports that its Housing Market Index came in at 72 this month, after the 74 reported in December. A strong labor market, low mortgage rates and rising consumer confidence continues to fuel the housing market.

Mortgage rates edged higher in the latest week as investors shifted out of Bonds and into more risky investments such as Stocks. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage with conforming loan balances ($424,100) or less, rose to 4.33% from 4.23% in the previous week. The MBA also reported that its refinance index rose 4% while the purchase index was up 4%.

Investment banking giant Goldman Sachs is getting into lending to consumers for home improvements through Marcus, the firm's personal lending venture. Marcus will begin to offer no-fee, fixed-rate unsecured personal loans; high-yield online savings accounts; and certificates of deposit. The loans will range from $3,500 to $40,000 for periods of three to six years and does not require a home appraisal or borrowing against the borrowers' homes. This is just another way for Wall Street to tap into consumer lending.

Tuesday - January 16


Mortgage Bond prices traded in a tight range today closing near unchanged. The Fannie Mae 30-yr 3.5% coupon closed near unchanged at 101.94. Stocks opened the week in record territory but the gains faded by the end of the day as buyers dwindled in an overbought market, though the losses were minimal. The Dow lost 10.33 points to 25,792.86, the S&P 500 fell by 9.82 points to 2,776.42, while the NASDAQ ended lower by 37.37 points to end at 7,223.68. WTI oil settled at $63.73, down $0.57. 10-yr yield 2.53%. Tomorrow's economic data is limited to the NAHB Housing Market Index. 

Late Morning Review

The Dow Jones Industrial Average, NASDAQ and S&P are all higher today in fresh record territory on a strong start to earnings season. Out of the S&P 500 companies that have reported as of last Friday, 69% have outpaced earnings-per-share estimates. The Dow is trading at 26,000 for the first time ever, moving from 25,000 to 26,000 in its fastest 1,000-point increase ever.

The cost for college tuition has been on the rise and as it creeps higher, the amount of student loan debt has ballooned. The student loan debt of college students has increased by nearly $1 trillion over the last dozen years. Outstanding student loan debt was $380 billion as of 9/30/05, climbing by $980 billion to $1.36 trillion as of 9/30/17, an increase of +11.2% per year.

Manufacturing activity in the New York State region continued at a solid pace in January according to companies responding to the January 2018 Empire State Manufacturing Survey. The index came in at 17.7, below the 19 recorded in December with 32% of the respondents reporting that conditions had improved over the month, while 15% reported that conditions had worsened. Looking ahead, companies remained optimistic about the six-month outlook.

Friday - January 12  


Mortgage Bond prices traded in a tight range today closing near unchanged. The Fannie Mae 30-yr 3.5% coupon closed near unchanged at 101.94. Stocks opened the week in record territory but the gains faded by the end of the day as buyers dwindled in an overbought market, though the losses were minimal. The Dow lost 10.33 points to 25,792.86, the S&P 500 fell by 9.82 points to 2,776.42, while the NASDAQ ended lower by 37.37 points to end at 7,223.68. WTI oil settled at $63.73, down $0.57. 10-yr yield 2.53%. Tomorrow's economic data is limited to the NAHB Housing Market Index.

Late Morning Review

Consumer spending ended 2017 on a high note as Americans purchased an array of goods and products. The Commerce Department reported that Retail Sales rose 0.4% in December, in line with estimates, while November was revised higher to 0.9% from 0.8%. Sales rose 4.2% in 2017 compared to the 3.2% increase in 2016. For the 12-months ended in December, Retail Sales jumped 5.4%. Consumer spending makes up more than two-thirds of U.S. economic activity.

This morning, the highly anticipated Core Consumer Price Index (CPI), which strips out volatile food and energy, saw its largest increase in 11 months rising 0.3% compared to the 0.2% expected. Moreover, Core CPI year over year increased to 1.8% from the 1.7% registered in November. One number doesn't make a trend, but with expectations of inflation rising in advance of this number, the "street" took this hot reading as an opportunity to sell and ask questions later. 



Retail Sales 1712


Thursday - January 11  


Mortgage Bond prices traded in a tight range today closing near unchanged. The Fannie Mae 30-yr 3.5% coupon closed near unchanged at 101.94. Stocks opened the week in record territory but the gains faded by the end of the day as buyers dwindled in an overbought market, though the losses were minimal. The Dow lost 10.33 points to 25,792.86, the S&P 500 fell by 9.82 points to 2,776.42, while the NASDAQ ended lower by 37.37 points to end at 7,223.68. WTI oil settled at $63.73, down $0.57. 10-yr yield 2.53%. Tomorrow's economic data is limited to the NAHB Housing Market Index.

Late Morning Review

Wholesale inflation declined for the first time in nearly 1 1/2 years in December from November amidst decreasing costs for services. The Bureau of Labor Statistics reports that the Producer Price Index (PPI) declined 0.1% in December, well below the 0.4% recorded in November. On an annual basis, the PPI rose 2.6%, after the 3.1% rise seen in November. The more closely watched inflation reading Consumer Price Index will be released Friday morning.

Mortgage rates edged higher this week as Bond prices declined and yields increased. U.S. Stocks continue to push higher pressuring Bond prices lower. When Bond prices decline, mortgage and interest rates tend to rise. Freddie Mac reports that the 30-year fixed-rate mortgage rose 4 basis points to 3.99% with an average 0.5 in points and fees. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Retailing giant Walmart announced on Thursday that it will be raising its starting wage rate for hourly employees to $11 an hour after the Tax Cut and Jobs Act was passed in December. In addition, workers that are employed 20-years will receive a one-time cash bonus of $1000, $750 for those employed 15 to 19 years of service, 10 to 14 years $400, five to nine years $300, two to four $250 and workers with less than two years will receive $200. The wage increases are expected to cost Walmart $300 million.

Wednesday - January 10  


Mortgage Bond prices fell again today on the China headlines, but buyers stepped in for bargains and pushed prices higher to close at unchanged levels on a stellar 10-yr Note auction. There were no economic reports due for release today. The Fannie Mae 30-yr 3.5% coupon closed at 101.88 near unchanged. Stocks took a breather closing slightly lower. The Dow lost 16.67 points to 25,269.13, the S&P fell 3.06 points to 2,748.23, while the NASDAQ fell by 10 points to end at 7,153.57. WTI oil closed at $63.57/barrel, +$0.61. 10-yr yield 2.55%. Tomorrow's economic data includes PPI and Weekly Initial Jobless Claims. After the close of trading, the Ginnie Mae 4% 30-yr coupon has been added to the Bond page and the Ginnie 3% 30-yr has been deleted.

Late Morning Review

Reports that China may slow or halt purchases of U.S. government securities are pushing U.S. Bond prices lower and yields higher this morning. It is worth noting that this is not the first time China has said they are slowing in purchases and not the first time Bonds initially reacted poorly to the news. China owns over $1.2 trillion of our outstanding $6.3 trillion in Treasuries or over 19%. Why does China buy our Bonds? China buys our Bonds, or loans the U.S. money, so the U.S. can keep buying inexpensive manufactured goods from China.

Chicago Fed's Evans says he wanted to put off rate hikes until mid-year and wait for stronger inflation while Dallas Fed's Kaplan says wage pressures could begin to rise this year. We will hear differing opinions leading up to the January 31 FOMC meeting. There is a near zero percent chance of a hike at the meeting. Right now, many investors can't imagine why the Fed would hike more than two times this year until it sees what stimulus effect we get from the tax bill as well as what an infrastructure bill looks like.

Mortgage rates remained unchanged in the latest week as reported by the Mortgage Bankers Association (MBA). The 30-year fixed-rate mortgage was essentially unchanged in the latest week at 4.23% with an average point of at least 0.30. Within the report it revealed that the MBAs refinance index rose 11% while the purchase index was up 5%. 

Tuesday - January 9  


MBS traded lower for the third straight session pressured by the ongoing rally in the Stock markets. The Fannie Mae 30-yr 3.5% coupon lost 28bp to end at 102.09. Stocks again closed at record highs with the S&P off to its best start to a year since 1987. The Dow rose by 102.80 points to 25,385.80, the S&P gained 3.58 points to 2,751.29, while the NASDAQ was up 6.19 points to end at 7,163.57. WTI oil ended at $62.95, +$1.23. As mentioned, the 10-yr yield closed at 2.54%. There are no economic reports due for release tomorrow. The Treasury will sell $20B 10-yr Notes and comes after today's strong demand for the 3-yr paper.

Late Morning Review

Small business optimism soared in 2017 on the expectations of better economic policies out of Washington along with suspending the regulatory attack on business. In 2017, the National Federation of Independent Business Small Business Optimism Index had its best year in the 45-year history of the Index. In December, the index came in at 104.9, a bit lower than the near-record November report. In 2017, the average monthly index was 104.8, above the previous record of 104.4 set back in 2004. NFIB President and CEO Juanita Duggan says, "With a massive tax cut this year, accompanied by significant regulatory relief, we expect very strong growth, millions more jobs, and higher pay for Americans.”

U.S. Stocks continue their relentless move higher due in part to strong economic data around the world and expectations of an earnings boost from the recent corporate tax cuts. Fourth quarter earnings season kicks off later this week with earnings for S&P 500 companies expected to increase by nearly 12% in the fourth quarter, up from 8% a year earlier. The Dow Jones Industrial Average, NASDAQ and S&P 500 are at record high levels.

Credit card debt hit record highs for Americans in November signaling consumer confidence, though the high levels could cause problems down the road. U.S. revolving credit, made up mostly of credit card debt, increased $11.2 billion to $1.023 trillion in November, reports the Federal Reserve. The $1.023 trillion is just above the previous record of $1.021 trillion set back in April 2008. Non-revolving credit, such as auto and student loans, were up $16.8 billion to $2.8 trillion in November.

Monday - January 8  


Not a lot of action in the markets today to begin the week as Stock and Bond prices traded and ended close to flat levels. There were no economic reports or glaring geopolitical headlines to impact trading. The Fannie Mae 30-yr 3.5% coupon closed at 102.41, -6bp. Stocks ended mixed though the S&P and NASDAQ squeaked out fresh record closing highs. The Dow lost 12.87 points to 25,283.00, the S&P closed at 2,747.71 while the NASDAQ fell rose 20.82 points to end the day at 7,157.38. WTI oil closed at $61.73/barrel, +$0.29. 10yr yield 2.48%. There are no economic reports due for release tomorrow though the Labor Department will release its JOLTS report. The Treasury will sell $24B 3-yr Notes, results at 1:00 p.m. ET.

Late Morning Review

Fannie Mae released its Home Purchase Sentiment Index which fell 2 points in December to 85.8, reversing last month’s rise. The net share of respondents who said now is a good time to buy a home declined while the net share who reported that now is a good time to sell a home remained flat. “Entering 2018, housing affordability remains a persistent challenge, particularly in rental markets, where consumer expectations for price increases over the next 12 months reached a new survey high," said Doug Duncan, senior vice president and chief economist at Fannie Mae.

The holiday shopping season paid off well for retailer Kohl's as comparable sales grew by nearly 7% during November and December. That is well above the 4.9% gain on overall sales estimated by MasterCard for the holiday shopping season. The uptick in sales was accomplished by handling returns for Amazon, shrinking hundreds of stores instead of closing them while bringing in new brands, such as Under Armour.

The new year has ushered in the highest gas prices at the pumps since 2014 due in part to higher travel volumes over the holidays coupled with rising oil prices. The national average price for a regular gallon of gasoline is at $2.49, with motorists in the Northeast, South and upper Midwest seeing pump prices rise as much as $0.13 from more than a week or two ago. However, now that holiday traveling season is over, motorists can expect gas prices to trend cheaper this month as gasoline demand eases. 

Friday - January 5  


MBS edged lower today after the mixed jobs report that showed a miss on the headline Non-farm Payrolls but positive components were seen within the report. The Fannie Mae 30-yr 3.5% coupon closed at 102.50, -9bp. Stocks rallied as the Dow and NASDAQ notched their best start to a year since 2006 on global economic optimism. The Dow gained 220.74 points to 25,295.97, the S&P rose 19.16 points to 2,743.15 while the NASDAQ surged by 58.64 points to end the session at 7,136.55. WTI oil settled at $61.44/barrel, -$0.57. 10-yr yield 2.47%. Next week calendar is on the light side though the inflation reading CPI and PPI will be released. Have a great weekend!

Late Morning Review

The Labor Department reports that 148,000 new jobs were created in December, below the 188,000 expected, while November was revised higher to 252,000 from the 228,000 originally reported. It was the 87th month in a row for job growth, the longest stretch of growth on record. The Unemployment Rate remained at 4.1%, a 17-year low.

Within the report it showed that average hourly earnings rose 0.3% from November’s 0.2% and increased 2.5% year over year, above the 2.4% annually in November. The U6 number, which measures total unemployment, fell to 8.1% in December, down from 9.1% in December 2016. So, overall, it was a good report.

The service sector of the economy edged lower in December signaling continued growth though at a slightly slower pace. The ISM Service Index fell 1.5 points to 55.9 in December and below the 57.6 expected. Despite the small decline, December was the 96th consecutive month of economic growth in the service sector. A reading above 50 for the index indicates expansion in the service sector, and a reading below 50 signals contraction. Within the report it revealed that the employment component edged higher.


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Thursday - January 4 


Mortgage Bond prices spent most of the session modestly below unchanged after early morning weakness was seen due in part to positive global economic data and the strong ADP report. The Fannie Mae 30-yr 3.5% coupon closed at 102.59, -12bp. The rally in Stocks continued with the Dow rising above the 25K mark for the first time ever in its 132-year history and tied its fastest 1,000 point rise. The Dow closed at 25,075.13, up 152.45 points, the S&P ended at 2,723.99, a gain of 10.93 points while NASDAQ rose 12.38 points settling at 7,077.91 - all record high closing marks. WTI oil finished at $62.01 +$0.38, a three high. 10-yr yield 2.45%. Be sure to be tuned in tomorrow morning just before 8:30 a.m. ET to catch the Non-farm Payrolls Report, Hourly Earnings and the Unemployment Rate along with the markets reaction.

Late Morning Review

Mortgage rates are predicted to rise in 2018 as the Federal Reserve reduces its holding of Mortgage Backed and Treasury Securities and as signs point to a strengthening economy. The Mortgage Bankers Association forecasts that the 30-year fixed-rate mortgage will rise to 4.6% in 2018, 5% in 2019 and 5.3% in 2020. Along those lines, the National Association of REALTORS® expects the 30-year rate to end 2018 at 4.5%. In addition, Realtor.com said mortgage rates will average 4.6% throughout the year and could hit 5% by the end of 2018.

In labor market news, ADP reports that private payrolls rose by 250,000 in December, well above the 190,000 expected. Within the solid report it showed that in December small businesses added 74,000 jobs, midsize companies added 100,000 and large companies added 52,000. Solid job growth was seen in professional and business services followed by education and healthcare. The report comes ahead of Friday's government Jobs Report.

Despite solid holiday spending, famed department store Macy's is set to lay off 5,000 workers and close seven more stores as the competition from online retailers like Amazon continues to cut into box store sales. Macy's did report a 1.1% increase in 2017 holiday sales compared to the same period last year fueled by increased demand for active apparel, shoes, dresses and coats. Mastercard’s SpendingPulse early report shows that holiday sales rose 4.9% from last year, above the 4% projected by the National Retail Federation.

Wednesday - January 3  


Not a lot of movement in the Mortgage Bond markets during the afternoon session as prices traded in a narrow range. Prices held gains despite the Fed minutes revealing that policymakers are not only intent on calling for more rate hikes, but some see the possibility for a more aggressive rate hike path. The Fannie Mae 30-yr 3.5% coupon closed at 102.69, +12bp. Stocks closed at record highs again led by the tech sector. The Dow gained 98.67 points to 24,922.68, the S&P closed above 2,700 for the first time ever gaining 17.25 points to 2,713.06, while the NASDAQ settled at 7,065.53, +58.63 points. WTI oil closed at $61.78/barrel, +$1.41. The MBA reported that the 30-yr conforming mortgage rate was unchanged at 4.25% with 0.36 in points. The yield on the 10-yr T Note 2.44% hardly budging today. Tomorrow, the December ADP Private Payrolls Report will be released.

Late Morning Review

The American Enterprise Institute Center on Housing Markets and Finance has published its four housing predictions for 2018. The first point is that the tight supply of single family homes will tighten further this year with inventories running at half the normal rate. The group expects year-over-year home prices to rise 6.25% to 6.75% in 2018. Entry-level homes for first-time homebuyers will continue to rise. In addition, first-time homebuyers will continue to take on more leverage in an effort to keep up with the out-sized home price gains on entry-level homes.

Construction spending in the U.S. hit a record high in November fueled by private sector construction. U.S. construction spending rose 0.8% in December from November to an annual rate of $1.257 trillion, up from the $1.247.1 trillion reported in October. Construction spending increased 2.4% on a year-over-year basis. Private residential construction spending rose 1% in November, the highest level since February 2007 while public construction outlays rose marginally.

Economic activity in the manufacturing sector across the nation expanded in December, and the overall economy grew for the 103rd consecutive month, reports the Institute for Supply Management (ISM). The ISM Manufacturing Index registered 59.7 in December, up 1.5 points from November. The new orders and production indexes were both higher while the employment index decreased. The solid readings indicate growth in manufacturing for the 16th consecutive month, led by strong expansion in new orders and production with hiring growing at a slower rate and supplier deliveries continuing to struggle. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Tuestday January 2nd 

Market Wrap

MBS began the new year modestly lower as Stocks picked up where they left off in 2017, trading higher to start 2018. There were no economic reports released today. The Fannie Mae 30-yr 3.5% coupon closed at 102.56, -16bp. Tech stocks led the way in the equity markets today. The Dow gained 104.79 points to 24,824.01 and just shy of its record close. The S&P 500 closed at 2,695.79, +22.18 points while the NASDAQ gained 103.50 points to end at 7,006.89 and the first close above 7,000 ever and both closed at record highs. WTI oil settled at $60.37/barrel, near unchanged. 10-yr yield 2.45%. Tomorrow's economic data is limited to the ISM Index. The minutes from the December Fed meeting will be released at 2:00 p.m. ET.


Late morning review 

CoreLogic reports that home prices nationwide, including distressed sales, jumped 7% from November 2016 to November 2017 and increased 1% month over month from October to November. Looking ahead, price gains are expected to cool a bit as CoreLogic sees a 4.2% increase from November 2017 to November 2018. CoreLogic’s chief economist, Frank Nothaft, said, “Growing numbers of first-time homebuyers find limited for-sale inventory for lower-priced homes, leading to both higher rates of price growth for starter homes and further erosion of affordability.”

Online real estate database company Zillow reports that the total value of all U.S. homes in 2017 was $31.8 trillion. The top cities for value were Los Angeles at number one worth $2.7 trillion followed by New York at $2.6 trillion. The $31.8 trillion is more than 1.5 times the Gross Domestic Product (GDP) of the U.S. and approaching three times the size of China's GDP. In 2017, renters spent a record $485.6 billion with renters in New York and Los Angeles spending the most.

The last week of 2017 saw mortgage rates hit a five-month high though still below the rates seen at the end of 2016 and early 2017. Freddie Mac reported last Thursday that the 30-year fixed-rate mortgage hit 3.99% with an average 0.5 in points and fees. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. 


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