April 2018

April 2nd, 2018

Instructions on how to read this blog: 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 Usually Good News and Good News is Usually Bad news.

Monday - April 30  

Soft Suggestion:

Continue floating but be mindful of all the major headwinds still in place along with this week's big headline risk events in the Fed meeting and Jobs Report.

MARKET WRAP:

Not much action in the Mortgage Bond markets today despite the decline in Stocks as Bond prices were held in check by the hotter inflation data from the Core PCE as it rose 1.9% from March 2017 to March 2018, the biggest annual increase since April 2012. The Fannie Mae 30-yr 4% coupon closed at 101.75, -6bp. Stocks closed lower led by falling telecom shares but the Dow, S&P and NASDAQ managed to produce minor gains for the month. The Dow fell by 148.04 points to 24,163.15, the S&P lost 21.86 points to 2,648.05, while the NASDAQ was down 53.53 points to end at 7,066.26. WTI oil was last seen at $68.57/barrel, +$0.47. 10-yr yield 2.95%. Economic data tomorrow is limited to the ISM Index. The two-day Fed meeting kicks off tomorrow but there will be no headlines until 2:00 p.m. ET when the monetary policy statement is released.

 

 

The Fed's favorite inflation measure showed that consumer inflation was on the rise in March. Annual Core Personal Consumption Expenditures (PCE), which excludes volatile food and energy prices, rose 1.9 percent in the 12 months through March. This was the biggest increase since February 2017, and it brings annual Core PCE closer to the Fed's target of 2.0 percent. This data could strengthen the Fed's case to raise its benchmark Fed Funds Rate at its June meeting. 

Personal Income also increased 0.3 percent in March, though February's figure was downwardly revised to a 0.3 percent increase (from 0.4 percent). March Personal Spending rose 0.4 percent, with February's figure also revised lower to 0.0 percent (from 0.2 percent). 

Keep a look out for two other potential market movers this week. The Fed's two-day meeting begins tomorrow, with the Monetary Policy Statement releasing at 2:30 p.m. ET Wednesday. Plus, the Jobs Report for April releases at 8:30 a.m. ET Friday. Both have the potential to cause extra volatility in the markets

 

Friday - April 27  

A WORD FROM THE BOND PITS:

Mortgage bonds closed higher in price and tighter on spread vs Treasuries with high volumes ahead of next week's risk filled economic calendar. 

CLOSING TECHNICAL SIGNAL:

Continue floating but be mindful of the major headwinds still in place.

MARKET WRAP:

Not much movement for Mortgage Bonds in today's session though they did manage to produce gains while Stocks hovered and closed near unchanged. Today's GDP was better than expected but consumer spending eased while wages grew. The Fannie Mae 30-yr 4% coupon closed at 101.78, +16bp. Stocks closed near unchanged as inflation worries offset strong earnings. The Dow closed at 24,311.19, the S&P settled at 2,669.91 while the NASDAQ ended the week at 7,119.79. WTI oil closed near unchanged at $68.10. 10-yr yield 2.96%. An abundance of economic data is due out next including Personal Income & Spending, Core PCE (Fed's favorite inflation gauge), Chicago PMI, Pending Home Sales, ISM Manufacturing and Service Index, ADP, Productivity, and the March Jobs Report. In addition, the 2-day Fed meeting kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement. Have a great weekend!

Link to weekly newsletter:http://www.mmgweekly.com/w/index.html?SID=fa7518562603d5c4a7ad69e2e5726f5f

chart 180427

 

Late Morning Review

The Bureau of Economic Analysis reported on Friday that economic growth in the first quarter of 2018 slipped from the final three months of 2017, though the number did beat estimates. The first reading on Gross Domestic Product showed a gain of 2.3%, down from the 2.9% recorded in the previous quarter, but above the 2.1% expected.

Within the report it showed that consumer spending, which makes up two-thirds of U.S. economic activity, slowed to 1.1% in the first quarter after a robust 4% gain in the previous quarter. Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. It is considered the broadest measure of economic activity.

Consumer Sentiment eased in April due in part about the effect from the tariffs on the economy which was offset by the recent tax cuts. The April Consumer Sentiment Index fell to 98.8 from 101.4 in March though the index continues to remain at elevated levels. “Overall, I still have a favorable view of how consumers are viewing the economy, though I’d like to stress again this is about as good as it gets,” said Richard Curtin, director of the University of Michigan consumer survey.

 

Thursday - April 26  

A WORD FROM THE BOND PITS:

Mortgage Bonds closed higher in price and tighter on spread vs Treasuries with trading volumes plunging. 

Soft Suggestion

We are hoping that we have found a price bottom for Mortgage Bonds.  If you are thinking about refinancing it might be a good idea to wait and see what happens.


MARKET WRAP:

After closing lower for six consecutive sessions, Mortgage Bonds rebounded in today's session as investors searched for bargains with prices at extremely low levels. Today's better than expected economic data was brushed off by Bonds as prices closed higher. The Fannie Mae 30-yr 4% coupon closed at 101.62, +28bp. Stocks closed higher as strong earnings and lower yields fueled the rally. The Dow gained 238.51 points to 24,322.34, the S&P 500 closed higher by 27.54 points to 2,666.94 while the NASDAQ jumped 114.94 points to end the bullish session at 7,118.67. WTI oil closed at $68.19/barrel, +$0.14. Tomorrow's data includes first look Q1 GDP, Employment Cost Index, Chicago PMI and Consumer Sentiment.

Late Morning Review

Mortgage rates continued to edge higher in the latest week, as Bond prices declined amid a strong economic backdrop. Freddie Mac reports that the 30-year fixed-rate mortgage rose 11 basis points this week to 4.58% with an average 0.5 in points and fees. Freddie Mac went on to say that despite the higher rates, demand for home purchase credit remains solid. To put the current home loan rate environment into perspective, in 1984 the rate was nearly 14%.

Americans filing for first-time unemployment benefits fell in the latest week to levels not seen since December 1969, as the labor market is near or at full employment. The Labor Department reported that Weekly Initial Jobless Claims fell 24,000 to 209,000, below the 225,000 expected. The four-week moving average, which irons out seasonal abnormalities, fell 2,250 to 229,250 last week. The current unemployment rate of 4.1% is a 17-year low.

A spate of solid earnings reports is lifting U.S. Stocks today as the equity markets rebound from early-week losses. Taking center stage was Facebook, after the social media giant easily beat expectations in its quarterly earnings report and comes after the damage from the Cambridge Analytica headlines. Facebook now has over 1.45 billion daily users and 2.2 billion monthly users.

 

Wednesday - April 25 

A WORD FROM THE BOND PITS:

Mortgage Bonds closed a bit lower in price and tighter on spread vs Treasuries with higher than normal trading volumes. 

CLOSING TECHNICAL SIGNAL:

We continue to have a bias towards locking until such time that we can see more signs of a stabilization for Mortgage Bond prices. 

MARKET WRAP:

Not much action in the Mortgage Bond markets today aside from some early morning gyrations. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon opened lower but quickly edged higher on some Stock weakness but ended at 101.34, -9bp. Stocks seesawed from positive to negative several times before finally ending with mixed numbers as higher yields could push borrowing costs higher. The Dow gained 59.70 points to 24,083.83, the NASDAQ closed lower by a mere 3.61 points to 7,003.73 while the S&P 500 closed with a 4.84 point gain to end at 2,639.40. WTI oil closed at $68.05/barrel, +$0.35. 10-yr yield closed at 3.03%. Tomorrow’s economic data includes Weekly Initial Jobless Claims and Durable Orders.

Late Morning Review

The Mortgage Banker Association (MBA) reports that mortgage rates hit their highest level since September 2013, though they still remain historically attractive. The MBA reports that the 30-year fixed-rate mortgage jumped 7 basis points in the latest week to 4.73% with an average 0.49 point. The MBAs refinance index fell 0.3% in the latest week while the purchase index was unchanged.

U.S. Stocks are lower today as rising yields conjure up higher borrowing costs for companies to fund new projects or to pay down debt. The closely watched 10-year Treasury yield has risen to 3% this week, up from 2.75% last week. Investors have been selling safe-haven assets, such as Treasury Notes and Bonds along with Mortgage Backed Securities. As Bond prices decline, rates tend to move higher, as they have an inverse relationship.

Monday - April 23  

Soft Suggestion: Floating as long as the Bond can stay above support at 101.56 and the 10-yr yield remains below the 3% mark. If those levels are breached, then we will quickly switch to locking. 

MARKET WRAP:

Not much movement for Mortgage Bond prices today as they were weighed down rising yields and added supply this week. Better than expected Existing Home Sales also weighed on Bond prices. The Fannie Mae 30-yr 4% coupon closed at 101.59, -9bp. Stocks closed modestly lower as yields rose and as commoddities declined. The Dow closed at 24,448.83, -14.11 points, the S&P closed near unchanged at 2,670.29 while the NASDAQ was down by 17.52 points to end at 7,128.60. Big week for earnings. WTI oil closed at $68.64/barrel, +$0.24. 10-yr yield 2.97%. Data out tomorrow includes Case Shiller Home Price Index, New Home sales and Consumer Confidence.

Late Morning Review

The National Association of REALTORS® (NAR) reported on Monday that Existing Home Sales in March rose 1.1 percent from February to an annual rate of 5.60 million annualized units, above the 5.57 million expected. However, sales are down 1.2 percent from March 2017 due in part to continued low inventories and affordability issues. Total housing inventory was at a 3.6-month supply in March, well below the 6-month level that is considered healthy.

Within the Existing Home Sales Report, it showed that the median home price was $250,400, up 5.8 percent from March 2017. Month over month, sales rose in the Northeast and Midwest, while declines were seen in the South and West. Lawrence Yun, the NAR chief economist, said, "The unwelcoming news is that while the healthy economy is generating sustained interest in buying a home this spring, sales are lagging year-ago levels because supply is woefully low and home prices keep climbing above what some would-be buyers can afford."

Freddie Mac reported on Monday that while housing inventory is still tight, it expects the increased construction of new homes to help reduce the pressure on house price appreciation, which is currently at an annual rate of around 7%. Freddie Mac predicts that mortgage rates will average 4.6% in 2018 and 5.1% in 2019. The report went on to reveal that total home sales will hit 6.30 million in 2018 and 6.44 million in 2019. Lastly, total mortgage originations will hit $1.720 trillion in 2018, down from $1.850 trillion in 2017.

Thursday - April 19  

A WORD FROM THE BOND PITS:

Mortgage Bonds ended lower in price and tighter on spread vs Treasuries and saw yields break above support. 

Soft Suggestion:

We will continue to recommend locking until such time we can see some stabilization in Bond prices. 

MARKET WRAP:

Mortgage Bonds ended lower in today's bearish session though they did manage to bounce off the lows. The Fannie Mae 30-yr 4% coupon hit a low of 101.69 this morning, a level not seen since September 2013 weighed down by positive economic data. The Bond closed at 101.94, -19bp, the lowest close since September 2013! Stocks closed lower as tech and tobacco shares pressured prices lower. The Dow fell 83.18 points to 24,664.89, the S&P 500 declined by 15.51 points to 2,693.13 while the tech heavy NASDAQ lost 57.18 points to end at 101.97. WTI oil closed at $68.29/barrel, -$0.18. 10-yr yield 2.91%. There are no economic reports due for release tomorrow.

Late Morning Review

Mortgage rates edged higher in the latest week due in part to declining Bond prices. U.S. Stocks rallied in the past week, which pressured Bond prices lower. Lower Mortgage Bond prices tend to push mortgage rates higher as they have an inverse relationship. Freddie Mac reports that the 30-year fixed-rate mortgage rose five basis points this week to 4.47%, a fresh 2018 high. That rate does carry an average 0.5 point added on top of the rate. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

The Philadelphia Fed Index was released on Thursday showing a slight increase in its headline number while a few components edged lower during April. The index rose to 23.2 this month from 22.3 in March. Nearly 37% of the manufacturers reported increases in overall activity this month, while 14% reported declines. Within the report it showed that current new orders and shipments remained positive but fell 17 points and 9 points, respectively.

Oil prices are at their highest level since late 2014 after top exporter Saudi Arabia said it would be happy to see crude rise to $80 or even $100 while a recent report this week revealed that U.S. crude oil supplies have declined. West Texas Intermediate oil is at $69/barrel today, up from $26 seen in early 2016. As oil prices rise, so do gas prices at the pumps. The national average price for a regular gallon of gasoline rose to $2.74 today, up from $2.67 a week ago and up from $2.55 a month ago. The Energy Information Administration (EIA) reports that gasoline demand in mid-April was the highest on record and is the highest so far this year. Gas prices are also higher due to the annual switchover to summer grade fuel, which costs a bit more to refine as more crews are put to work to meet demand.

Wednesday - April 18  

A WORD FROM THE BOND PITS:

Mortgage Bonds closed lower with spreads generally tighter on spread vs Treasuries with lower trading volumes.

Soft Suggestion

Risk of rates going up seem more likely than going down, locking seems prudent at this time. 

MARKET WRAP:

Mortgage Bonds pushed lower today after being trapped in a sideways pattern the past few months. The Fannie Mae 30-yr 4% coupon closed at 102.12, -16bp in listless trading. There were no economic reports released today. Stocks ended mixed as lower shares of IBM weighed on equities. The Dow lost 38.56 points to 24,748.07, the S&P gained 2.25 points to 2,708.64, while the NASDAQ rose 14.13 points to 7,295.23. WTI oil closed at $68.47/barrel, up $1.95. 10-yr yield 2.87%. Economic data tomorrow includes Weekly Initial Jobless Claims and the Philly Fed.

 

Late Morning Review

U.S. Stocks are higher as earning season continues to produce solid numbers. Mortgage Stanley reported that profits and revenues beat expectations in its quarterly earnings report. United Airlines and CSX Corp. beat earnings estimates while IBM reported profit margins fell short of estimates but revenues were higher for the second consecutive quarter after nearly six years of declines. Of the companies in the S&P 500 that have reported earnings, 80% have beat forecasts.

What might become one of the greatest political achievements in our lifetime is the potential denuclearization of North Korea and end of the 60-year war between North and South Korea. The stage appears to be set for a meeting between North Korea's Kim Jong-un and President Trump. Headlines out this morning show that CIA Director and Secretary of State nominee Mike Pompeo, has already met with North Korea's Kim Jong-un to lay the groundwork for such a meeting at a "neutral" site.

The Mortgage Bankers Association reported on Wednesday that its Market Composite Index, a measure of total mortgage loan application volume, rose 4.9% in the latest week. The refinance Index rose 4% while the purchase Index increased 6% from one week earlier. Mortgage rates remained unchanged with the 30-year fixed-rate conforming mortgage ($453,100 or less) steady at 4.66% with points unchanged at 0.46. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.

 

 

Tuesday - April 17  

A WORD FROM THE BOND PITS:

Mortgage Bonds closed flat and narrowly unchanged on spread vs Treasuries and decent trading volumes with better buying on net. 

Soft Suggestion:
Continue to float as the 10-year yield remains in a tight range between 2.75% and 2.90%. A move above 2.90% would be bad and a move below 2.75% would be good ... for rates that is.

MARKET WRAP:

Not much movement seen in the Mortgage Bond markets today as prices hovered near unchanged throughout the session. Higher Stocks and better then expected Housing Starts weighed on Bond prices. The Fannie Mae 30-yr 4% coupon closed at 102.28, unchanged. Stock closed higher led by easing Syrian issues and by higher shares in the tech sector after stellar earnings from Netflix. The Dow rose 213.59 points to 24,786.63, the tech heavy NASDAQ jumped 124.81 points to 7,281.09 while the S&P gained 28.55 points to end at 2,706.39. WTI oil closed at $66.52/barrel, +$0.30. 10-yr yield 2.82%. There are no scheduled economic reports due for release tomorrow. The Fed's Beige Book will be released tomorrow afternoon at 2:00 p.m. ET.

Late Morning Review

The Commerce Department reported on Tuesday that March Housing Starts rose 1.9% from February to an annual rate of 1.319 million annualized units, above the 1.268 million expected. February was revised higher to 1.295 million from 1.236 million. From March 2017 to March 2018, Housing Starts were up 10.9%. Building Permits, a sign of future construction rose 2.5% month over month to an annual rate of 1.354 million versus the 1.315 million expected.

However, all was not rosy within the report. Single-Family Starts, which account for the biggest share of the housing market, fell 3.7%from February, but rose 5.2% year over year. Housing Starts got a big boost from a 16.1% monthly increase from the multi-dwelling sector. Total Housing Starts saw a substantial gain in the Midwest and a slight increase in the Northeast; the South and West fell modestly.

Fannie Mae released its April 2018 Economic and Housing Outlook yesterday revealing it sees strong economic growth in 2018 persisting even as risks rise. Fannie Mae expects Gross Domestic Product to rise 2.7% in 2018, despite the possible downside risks stemming from future trade policy enactments. In addition, tax refunds and reduced withholdings are expected to boost consumer spending in March and the months ahead. Finally, soft residential investment in the first quarter of 2018 should prove temporary, as home sales resume their slow upward grind; inventory shortages are playing friend to prices but foe to affordability and sales.

Monday - April 16 

A WORD FROM THE BOND PITS:

Mortgage Bonds closed near unchanged and tighter on spread vs Treasuries with lower trading volumes. 

CLOSING TECHNICAL SIGNAL:

You can try to float but be aware that a negative tone is cast over the Bond market as the 10-year yield rises.

MARKET WRAP:

Mortgage Bond prices traded in a very tight range today with prices being capped by rising Stock prices. Stocks rose as the Syrian conflict fears ease and as investors focus on earnings season. The Fannie Mae 30-yr 4% coupon closed near unchanged at 102.28. The Dow gained 212.90 points to 24,573.04, the S&P 500 rose by 21.54 points to 2,677.84 while the NASDAQ jumped 49.63 points to end at 7,156.28. WTI oil settled at $66.22/barrel, -$1.17. 10-yr yield 2.83%. Housing Starts and Building Permits will be released tomorrow morning.

Late Morning Review

Homebuilder sentiment edged slightly lower in April though it remains well into positive territory. The National Association of Home Builders (NAHB) reports that its Housing Market Index came in at 69 in April, down from 70 in may and just below the 70 expected. Within the report it showed that the current single-family home sales index fell to 75 from 77. “Ongoing employment gains, rising wages and favorable demographics should spur demand for single-family homes in the months ahead,” explaines NAHB Chief Economist Robert Dietz.

After three straight months of declines, retailers across the nation reported that consumers spent their hard-earned dollars in March. Leading the boost was spending on automobiles and health and personal care items. Retail Sales rose 0.6 percent in March, above the 0.4 percent expected and up from the decline of 0.1 percent in February. Consumer spending makes up two-thirds of U.S. economic activity and is crucial to a healthy economy. The Retail Sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation.

U.S. Stocks are rising to begin the week as investors feel that any post-strike fallout from the missile attack on Syria from the U.S., U.K. and France over the weekend will be minor. In addition, Bank of America reported solid earnings after JPMorgan Chase, Citigroup and Wells Fargo reported better-then-expected results on Friday. In addition, New York Fed President Bill Dudley said this morning that Stock market valuations don't look overvalued, which is helping to support higher prices. 

Friday - April 13  

Soft Suggestion

Heading into the weekend, you might want to float.

MARKET WRAP:

Not much action in the Mortgage Bond markets today as prices traded in a very tight range and closed modestly higher as the Stock rally ran out of steam. The Fannie Mae 30-yr 4% coupon closed at 102.25 +9bp. Stocks closed lower today but the Dow, NASDAQ and S&P closed higher for the week. The Dow fell by 122.91 points to 24,360.14, the S&P 500 lost 7.69 points to 2,656.30 while the NASDAQ closed at 7,106.65 down 33.59 points. WTI oil closed at $67.39/barrel, up $0.32 and closed nearly 9% higher for the week due to geopolitical risks. 10-yr yield closed at 2.82%. Next week's economic calendar features housing, Retail Sales and manufacturing data. Have a great weekend!

Late Morning Review

Consumer Sentiment slipped in early April after having hit a record high in March, due in part to the recent trade tariffs announced by the Trump administration. The Consumer Sentiment Index declined to 97.8 in early April from the March reading of 101.4 and below the 100.5 expected. In addition, the notion of higher interest rates down the road also pushed the index lower. The index measures the attitudes and expectations concerning both present and future economic conditions of 500 consumers.

Boston Fed President Raphael Bostic (non-voter, hawk) said this morning he supports three more rate hikes in 2018 as more tightening is needed. He said that his optimism for the U.S. economy exceeds that of the "quite positive" forecasts from his FOMC colleagues. The Federal Reserve raised the short-term Fed Funds Rate at its March meeting and forecasts two more hikes in 2018. However, if inflation remains low, the Fed may have a tough time raising rates more than two more times this year, despite what Mr. Bostic has said.

Earnings season kicked off this week and there is a growing sense that corporate earnings for the first quarter will be rather strong and guidance may be more upbeat due to tax cuts/reform. JPMorgan Chase, Wells Fargo and Citigroup all posted better-than-expected numbers on Friday while BlackRock Inc., the world's largest asset manager, reported better-than-expected profits on Thursday. Earnings for S&P 500 companies are expected to rise 18.5% from a year ago, which would be the largest gain in seven years, according to Thomson Reuters.

 

news Chart 180413

Thursday - April 12  

A WORD FROM THE BOND PITS:

Mortgage Bonds closed lower in price and wider on spread vs Treasuries as risk-on was the trade of the day. 

CLOSING TECHNICAL SIGNAL:

Playing it safe, we are advising locking with the Fannie Mae 4% coupon falling and closing below support and after the 10-yr yield quickly rose above 2.75%, hit early yesterday.

MARKET WRAP:

Mortgage Bonds declined today under the weight of rising Stock prices after President Trump somewhat dialed back on attacking Syria in the imminent future. But as we know, that could easily change. The Fannie Mae 30-yr 4% coupon closed at 102.19, -28bp. The Dow gained 293.60 points to 24,483.05, the S&P 500 rose 21.80 points to 2,663.99, while the NASDAQ jumped 71.22 points to end at 7,140.24. WTI oil settled at $67.07/barrel, +$0.25. 10-yr yield closed at 2.84% from yesterday's low for the week of 2.75%. Preliminary Consumer Sentiment will be released tomorrow morning.

Late Morning Review

Stocks are higher this morning as the investing community expects a strong earnings season and as the Syria tensions ebb. BlackRock Inc., the world's largest asset manager, reported better-than-expected profits as first quarter earnings season kicks off. Earnings for S&P 500 companies are expected to rise 18.5% from a year ago, which would be the largest gain in seven years, according to Thomson Reuters. The Dow Jones Industrial Average was up 320 points in early Thursday trading.

Economist Elliot Eisenberg Ph.D., recently reported that as house prices relentlessly rise, the percentage of conventional loans this past winter going to borrowers with debt-to-income (DTI) ratios above 45% hit 20%, almost triple what the percentage was 12 months ago, but less than the housing boom peak of 36%. Meanwhile, the share of buyers with DTIs between 46% and 50% is near where it was in 2004-05 but remains well under the 2007 top. I'm slightly concerned." You can subscribe to Mr. Eisenberg's Daily Blog by going to www.econ70.com.

The minutes from the March Federal Open Market Committee meeting were released yesterday revealing that the Federal Reserve is on track for two more hikes to the short-term Fed Funds Rate in 2018. The minutes went on to say that Fed members feel the U.S. economy will continue to grow further and inflation will rise in the coming months. The Federal Reserve forecasts that Gross Domestic Product will rise 2.7% in 2018, up from the 2.5% reported back in December and sees 2.4% in 2019 from the previous forecast of 2.1%.

Wednesday April 11th

Late Morning Review

The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) fell 0.1% in March, below the expected gain of 0.1%. Lower gas prices at the pumps are to blame for the first decline in 10 months. When stripping out volatile food and energy, the Core CPI was in line at 0.2%. On a year-over-year basis, CPI rose 2.4% while Core CPI rose 2.1%, both 12-month highs. The Consumer Price Index measures the average price level paid by urban consumers (80% of the population) for a fixed basket of goods and services.

Heightened tensions over Syria between Russia and the U.S. are giving Bond prices a modest boost so far this morning. President Trump tweeted that Russia should get ready for a missile strike on Syria after the chemical attack over the weekend. Several Russian officials have threatened to retaliate if the U.S. strikes. U.S. Stocks are lower on the headlines.

Mortgage rates declined slightly in the latest week after climbing since the beginning of 2018. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage with conforming loan balances ($453,100 or less) declined to 4.66% in the latest week from 4.69%. That rate carries at least an average 0.40 point added on top. Within the report it showed that both the refinance and purchase index fell 2%.

 

First Thing

March CPI rose 2.4% year-over-year, the fastest annual pace in 12 months.  March CPI -0.1% vs the 0.1% expected. Core CPI 0.2%, in line. The CPI data has little impact on the Bond markets. 10-yr yield declines to 2.75% from yesterday's close of 2.79%  The Monthly Bond Rollover took place after the close of trading last night with the effect being -16bp for the Fannie Mae 30-yr 4% coupon.

cpi 1803

Tuesday April 10th

A WORD FROM THE BOND PITS:

Mortgage Bonds closed near unchanged and mostly tighter on spread vs Treasuries in their continued sideways trading pattern. The Monthly Bond Rollover will take place after the close of trading this evening. 

CLOSING TECHNICAL SIGNAL:

We continue to recommend floating with a finger on the lock button. 

MARKET WRAP:

Not a lot of movement in Mortgage Bonds today as prices were capped by surging Stock prices along with a mediocre 3-yr Treasury offering. Today's higher Producer Price Index could lead to a pass through to consumers and keep the Fed on target to its belief that inflation pressures are poised to pick up. The Fannie Mae 30-yr 4% coupon again closed at 102.53, -6bp. Stocks blasted off on China's Xi's comments that eased trade war fears and on the heels of higher tech shares. The Dow soared by 428.90 points to 24,408.00, the S&P gained 43.71 points to 2,656.87, while the tech heavy NASDAQ surged 143.95 points to end at 7,094.30. WTI oil gushed higher by $2.09 to $65.51/barrel. 10-yr yield 2.79%. Tomorrow's CPI data will be closely watched by the investing community as well as by the members of the Federal Reserve. The Treasury will sell $21B 10-yr Notes, results at 1:00 p.m. ET. The minutes from the March FOMC meeting will be released at 2:00 p.m. ET.

Late Morning Review

Stocks are surging higher this morning after Chinese President Xi Jinping promised to cut import tariffs, and open the country's economy. Mr. Xi went on to say that China will enforce the legal intellectual property of foreign companies. In economic news, the wholesale inflation reading Producer Price Index (PPI) for March rose 0.3% versus the 0.2% expected while the Core PPI also rose 0.3%, above the 0.2% anticipated. Mortgage Bonds lost a bit of steam on the news but have traded back to unchanged levels. The markets look ahead to tomorrow's more closely watched Consumer Price Index for any signs of mounting inflation pressures.

Fannie Mae released its Home Purchase Sentiment Index (HPSI) on Monday showing that respondents who said now is a good time to purchase a home rose in March from February. Fannie Mae's HPSI rose 2.5 points to 88.3, reversing February's decline. Additionally, the net share who reported that now is a good time to sell a home increased 3 points. The net share who said home prices will go up in the next 12 months decreased three points in March, while the net share of consumers who said mortgage rates will go down over the next 12 months also increased 5 points.

The National Federation of Independent Business (NFIB) reports that its small business optimism index hit 104.7 in March, which is among the highest in survey history, though down from 107.6 in February. Within the survey it showed that a net 20% of small business owners are planning to create jobs, while 28% feel now is a good time to expand. “It has been a remarkable 16 months for small business optimism,” said NFIB President and CEO Juanita Duggan. “This is the first time in 35 years where the fewest number of small business owners have told us that taxes are their number one business problem."

 

First Thing

March PPI 0.3% vs 0.2% expected. Core PPI 0.3% vs 0.2% expected.PPI data a bit hotter than expected but the Street looks ahead to the more closely watched CPI tomorrow morning. 10-yr yield at 2.79%, near unchanged.

The NFIB reports that its small business optimism index hit 104.7, which is among the highest in survey history. “It has been a remarkable 16 months for small business optimism,” said NFIB President and CEO Juanita Duggan. “This is the first time in 35 years where the fewest number of small business owners have told us that taxes are their number one business problem."Fed's Kaplan sees two more rate hikes in 2018, expects 2018 to be a relatively solid year for economic growth in the U.S.

Monday April 9th

A WORD FROM THE BOND PITS:

Mortgage Bond prices closed near unchanged in price and tighter on spread vs Treasuries in a quiet start to the week. 

CLOSING TECHNICAL SIGNAL:

Continue to advise floating as time has been on our side in the past 5 sessions. 

MARKET WRAP:

Stocks rallied for most of the session until late in the day after the above headlines hit. Mortgage Bonds traded modestly lower but were able to trade to near unchanged levels by the end of the day as Stocks gave up most of their gains. The Fannie Mae 30-yr 4% coupon closed at 102.59, unchanged. The Dow gained 46.34 points to 23,979.10 after being up 441 points. The S&P closed higher by 8.69 points to 2,613.16 while the NASDAQ saw a 35.23 point gain to end at 6,950.34. WTI oil settled at $63.42/barrel, +$1.36. 10-yr yield 2.78%. Wholesale inflation from the Producer Price Index will be released tomorrow ahead of Wednesday's CPI report. The Treasury will offer $30B 3-yr Notes.

Late Morning Review

Quarterly earnings season ramps up this week with JPMorgan, Wells Fargo and Citigroup reporting on Friday. Wall Street feels that the corporate tax cuts could propel quarterly profits to their highest in seven years. The numbers will have a direct impact on U.S. Stocks this week depending on how companies have performed. It is expected that S&P 500 profits will increase nearly 19% in the first quarter of 2018.

Performance of first-lien mortgages remained largely unchanged during the fourth quarter of 2017 compared with a year earlier, according to the Office of the Comptroller of the Currency’s (OCC) quarterly report on mortgages. The OCC Mortgage Metrics Report, Fourth Quarter 2017, showed 94.5% of mortgages included in the report were current and performing at the end of the quarter, compared to 94.7% a year earlier. The report also showed that foreclosure activity has increased from the previous quarter.

Gas prices at the pumps continued to rise this week as the market continues to purge winter-blend gasoline to make room for summer storage. The national average price for a regular gallon of gasoline is at $2.66, up from $2.53 a month ago. Last year this time the price was $2.38. The highest price ever recorded was $4.11 back on July 17, 2008. Expect modestly higher prices in the coming months as the spring and summer driving seasons get underway.

First Thing

The New York Fed will purchase up to $780M in Fannie/Freddie 30-yr 4% and 4.5% coupon beginning at 11:15 a.m. ET later this morning. 10-yr yield 2.79% just above Friday's close of 2.77%. There are no economic reports due for release today. The rest of the week is light with CPI the standout on Wednesday. On the earnings front, investors feel that the corporate tax cuts could propel quarterly profits to their highest in seven years. Stock futures higher as earnings will kick off this week and as the U.S.-China trade war fears ease, for today. The Trump administration stressed the tariff dispute could be resolved through talks.

Friday April 6th

A WORD FROM THE BOND PITS:

Mortgage Bonds closed slightly higher and wider on spread vs Treasuries.

CLOSING TECHNICAL SIGNAL:

We are advising floating into the weekend but not with a lot of conviction given that the Dow was down nearly 800 points during the session and Mortgage Bonds actually lost ground as the session progressed. 

MARKET WRAP:

The weak headline Non-Farm Payrolls was somewhat offset by higher revisions for February, a slight uptick in wages and total unemployment (U6) down to 8% year over year. The Fannie Mae 30-yr 3% coupon closed with a 12bp gain ending at 102.59, not a lot to write home about considering the carnage in the Stock markets today. The Dow lost 572.46 points to 23,932.76, the S&P 500 fell by 58.37 points to 2,604.47, while the NASDAQ was down a whopping 161.44 points to end the bearish session at 6,915.11. Stocks were lower on the notion of trade war tariffs, fears of rate hikes and traders not wanting to hold positions heading into the weekend for fear of more negative geopolitical headlines. WTI oil fell by $1.48 to $62.06/barrel. 10-yr yield 2.77%. Not a lot of economic data next week with CPI being in the spotlight. Have a great weekend!

Late Morning Review

Job growth slowed in March due in part to some harsh weather across the nation. The Bureau of Labor Statistics reports that there were 103,000 jobs created in March, lower than the 175,000 expected. On the surface, it looks like a disappointing report, but as you dig deeper there are positives within the numbers. February Non-Farm Payrolls were revised higher to 326,000 from 313,000 while January was revised lower to 176,000 from 239,000.

The U6 number, or total unemployment, fell to 8% from 8.2% while the Labor Force Participation Rate was steady at 62.9. Average hourly earnings came in at 0.3%, higher than the 0.2% expected while year-over-year wage growth ticked up to 2.7% from 2.6% percent in February. For the first three months of 2018, there was an average 202,000 jobs created, compared to 177,000 in the same period last year. The Unemployment Rate was unchanged at 4.1%.

 

First Thing

March Non-Farm Payrolls 103K vs the 175K expected.  Unemployment Rate 4.1% vs the 4% expected.  U6 or total unemployment at 8% from 8.2%  The Labor Force Participation Rate steady at 62.9 from 63 in February.  Average hourly earnings 0.3% vs 0.2%. Year over year wage growth 2.7% from 2.6%.  March Non-Farm Payrolls 103K vs the 175K expected.  February Non-Farm Payrolls revised to 326K from 313K. Fed Chairman Jerome Powell will be speaking on the U.S. economic outlook before the Economic Club in Chicago today at 1:30 p.m. ET

employment 1803

 

 

 

 

Thursday April 5

A WORD FROM THE BOND PITS:

Heavy trading volumes were seen in the Mortgage Bond market today as prices closed near unchanged an tighter on spread vs Treasuries. 

CLOSING TECHNICAL SIGNAL:

Technicals take a backseat to the Jobs Report tomorrow morning. Locking is recommended. 

MARKET WRAP:

Mortgage Bonds traded in a tight range during today's session as players positioned themsleves ahead of the big headline risk in the Jobs Report. The Fannie Mae 30-yr 4% coupon closed at 102.47, +6bp. Stocks rose as the tech sector rebounded and as trade war fears eased. The Dow jumped 240.92 points to 24,505.22, the S&P gained 18.15 points to 2,662.84, while the NASDAQ closed higher by 34.44 points to end at 7.076.55. WTI oil closed at $63.54/barrel, +$0.17. 10-yr yield 2.83%. And that leads us to the March Jobs Report which is due to be released at 8:30 a.m. ET where it is expected that U.S. employers added 175K new jobs in March. Be sure to be tuned in to MMG and look to the "Market News" section for the numbers and the market's reaction.

Late Morning Review

After climbing since the beginning of the year, mortgage rates edged lower this week giving potential borrowers some relief. Freddie mac reports that the 30-year fixed-rate mortgage fell four basis points this week to 4.40% with an average 0.5 in points and fees added on top of that rate. Freddie Mac says that "though rates are up slightly from a year ago, a robust labor market is helping home purchase demand weather modestly higher rates."

U.S. employers announced large jobs cuts in March after almost a year relatively low planned layoff activity. Outplacement firm Challenger, Gray & Christmas reports that there were 60,357 planned layoffs last month, an increase of 71% from February's 35,369 planned cuts. Last month's total is the highest monthly total since April 2016. John Challenger, Chief Executive Officer of Challenger, Gray & Christmas, Inc. said, "Last month’s plans may indicate that growth could be slowing down, especially as the market continues to tighten.”

The closely watched Jobs Report for March will be released tomorrow and always carries big headline risk for traders and investors. It is estimated that employers added added 175,000 new workers in March after the blowout 313,000 created in February, while the Unemployment Rate is expected to tick lower to 4% from 4.1%. The ADP report earlier this week came in much hotter than expected - so it does set the bar a bit higher for a good number.

 

 

First Thing

Mortgage Bonds open near unchanged weighed down by rising Stock futures as the U.S.-China trade worries ease.China and the U.S. now seem open to negotiations on tariffs. The yield on the 10-year T Note has risen to 2.81% from yesterday morning's low of 2.74%.Weekly Initial Jobless Claims +24K to 242K, above the 225K expected. Bond traders sit on their hands today ahead of tomorrow's Jobs Report.

 

 

Wednesday April 4

A WORD FROM THE BOND PITS:

Mortgage Bonds closed near unchanged and tighter on spread vs Treasuries as the tit-for-tat trade issues continued today. 

CLOSING TECHNICAL SIGNAL:

Per this morning's Daily Update, "The U.S. Bond market, a barometer for fear and uncertainty, doesn't seem to care about a trade war just yet." And by the end of the day, it doesn’t seem that Stocks are caring too much for the moment, either. Seeing that Stocks were able to rebound nearly 800 points and more importantly, bounce higher for the S&P 500 off its 200-day MA – we might see a further move to the upside at the expense of Bonds. The 10-Year yield is right at 2.80%, which better hold, otherwise yields are likely to move another leg higher. Now might be a good time to lock. 

MARKET WRAP:

Extreme volatility continued to grip the equity markets today as the Dow fell 500 points in early morning trading, only to close with a solid gains. President Trump's economic adviser, Larry Kudlow, said that the administration was involved with a "negotiation" with China rather than a trade war. That helped to reverse Stocks higher. Mortgage Bonds couldn't produce any meaningful gains when Stocks were cratering this morning and ended near unchanged. The Fannie Mae 30-yr 4% coupon closed at 102.44, near unchanged. The Dow gained 230.94 points to end at 24,264.30, the S&P 500 closed higher by 30.24 points to 2,644.69, while the tech heavy NASDAQ jumped 100.82 points to end the session at 7,042.10. Weekly Initial Jobless Claims will be released in the morning.

Late Morning Review

Yesterday, the Trump administration put out a list of 1,300 China products it was considering hitting with tariffs. Then, last night in a swift response, China announced new tariffs on U.S. soybeans, planes, cars, whiskey and chemicals. The headlines have sent Stocks lower though they are off their worst levels. It is worth noting that there is no clear timeline on when these new proposed U.S. and China tariffs would take effect.

The first of two key labor market reports was released this morning showing that private employment growth was solid in March as the sector continues to grow. ADP reports that private employment grew by 241,000 new positions in March, above the 203,000 expected while February was revised to 246,000 from 235,000. Professional and business services led the gains with 44,000 new jobs.

Mortgage rates were unchanged in the latest week as Bond prices remained steady after their big decline that began back in early January. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate conforming mortgage was unchanged in the latest week at 4.69% with points at 0.43. In addition, the MBA reported that the refinance index fell 5% while the purchase index decreased 2%.

First Thing

China hits back on trade wars as it imposes tariffs on U.S. soybeans, planes, cars, whiskey and chemicals.10-yr yield 2.75% down from 2.78% at yesterday's close.ADP reports that private payrolls rose by 241K in March vs the 203K expected. February revised higher to 246K from 235K.The MBA reports that the 30-yr fixed-rate conforming mortgage unchanged at 4.69% with at least a 0.40 point added on top.

Tuesday April 3

A WORD FROM THE BOND PITS:

Mortgage Bond prices closed slightly lower and tighter on spread vs Treasuries on slightly below normal trading volumes. 

CLOSING TECHNICAL SIGNAL:

We continue to advise floating but we are losing conviction. Be on guard for a potential alert to lock at any time tomorrow. We will solidify our position once we see what the technical picture looks like as Thursday approaches ahead of Friday morning's Jobs Report for March. However, ADP Private Payrolls will be released tomorrow morning.

MARKET WRAP:

Extreme volatility continues to grip the equity markets as the Dow gained nearly 400 points today after a 400 point loss yesterday. There were no economic reports released today. Mortgage Bonds ended modestly lower on Stock strength. The Fannie Mae 30-yr 4% coupon closed at 102.50, -6bp, not bad for a big up day for Stocks. Stocks gained as the S&P rose above a key support level and as Amazon's stock price rebounded. The Dow gained 389.17 points to 24,033.36, the S&P was up 32.57 points to 2,614.45 while the tech heavy NASDAQ jumped 71.16 points to end at 6,941.28. WTI oil closed at $63.51/barrel, +$0.50. 10-yr yield 2.78%. Tomorrow's economic data includes ADP Private Payrolls and ISM Services.

Late Morning Review

Home prices continued to push higher in February due in part to the ongoing theme of limited housing supply on the markets. CoreLogic reports that home prices, including distressed sales, rose 6.7% from February 2017 to February 2018 and were up 1% month over month from January to February. Looking ahead, CoreLogic forecasts that home prices will rise 4.7% year over year from February 2018 to February 2019.

Home equity hit an all-time high at the end of February due in part to rising home values. Black Knight Financial Services reports that tappable equity rose to $5.4 trillion at the end of February, up 10% from the previous peak in 2005. "Home prices continued their upward trajectory at the national level, the amount of tappable equity available to homeowners with mortgages continued to rise as well,” said Black Knight spokesperson Ben Graboske. “Tappable equity rose by $735 billion over the course of 2017, the largest dollar-value calendar year increase on record."

The closely watched Jobs Report for March will be released Friday morning where it is expected that employers added 175,000 new workers during the month. That expectation comes after the blowout number in January of 313,000 new positions added as the labor market continues to tighten. The 313,000 jobs created was the largest gain since July 2016 and came after a strong report in January where 239,000 Americans found work. What we need to see is a steady uptick in wage growth, which has been somewhat stagnant in past years.

core 1802

 

First Thing

10-yr yield 2.75% from yesterday's close of 2.73%. U.S. Stocks plunged yesterday on the tech wreck, lingering trade concerns and profit taking. President Trump continued his assault on Amazon yesterday, which took down the whole technolo

 

Monday April 2

A WORD FROM THE BOND PITS: 

Mortgage Bonds closed near unchanged and wider on spread vs Treasuries despite the big sell-off in equities. 

CLOSING TECHNICAL SIGNAL:

Continue float with a finger on the lock trigger.

MARKET WRAP:

Mortgage Bonds closed near unchanged, this despite the plunge in Stocks, though equities did manage to close off their lows. The Fannie Mae 30-yr 4% coupon closed at 102.56, near unchanged. The Dow lost 458.92 points to 23,644.19, the S&P 500 fell by 58.99 points to 2,581.88 and closed below its 200-day Moving Average. WTI oil closed at $63.01/barrel, -$1.93. 10-yr yield 2.73%. There are no economic reports due for release tomorrow.

Late Morning Review

The first quarter came to an end last Thursday with the Dow Jones Industrial Average losing 2.5%, while the NASDAQ posted a 2.3% quarterly loss. The closely watched S&P 500 Stock Index fell by 1.2% for the quarter, after coming off a nine-quarter stretch of gains. Trade war fears, tariffs, the notion of higher interest rates, a tech sell-off and plain old profit-taking pushed Stocks lower in the first three months of the year after seeing all-time highs in late January.

Economic activity in the manufacturing sector grew in March reports the Institute for Supply Management (ISM). The ISM Index registered 59.3 last month, down from 60.8 in February and just below the 60 expected. The new orders, production and employment components all decreased modestly during March. A spokesperson from the ISM said that the report indicates strong growth in manufacturing for the 19th consecutive month.A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates that it is generally contracting.

In housing numbers: The U.S. homeownership percentage was 63.4% in 2016, the lowest percentage nationwide since 1965 or 51 years earlier when the rate was just 63.0%. The homeownership percentage rose to 63.9% in 2017. In the fourth quarter of 2017, the rate moved up to 64.2% from 63.9% in the third quarter.

 

First Thing

As the first quarter came to an end last Thursday, the Dow fell 2.5%, the S&P declined 1.2% while the NASDAQ posted a 2.3% quarterly loss. China has increased tariffs by up to 25% on 128 U.S. productsThe March ISM Index at 59.3 vs the 60 expected..10-yr T Note yield 2.76% from Friday's close of 2.74%.

Contact

John Marbury
jmarbury@nationalbankofcommerce.com
Mortgage Lender NMLS# 514390
NMLS# 740833
Phone:205-266-5669
Fax: 866-217-4174

813 Shades Creek Parkway
Birmingham, Alabama 35209
 

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