May 2018

May 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. Newsletter updated weekly: http://www.mmgweekly.com/w/index.html?SID=fa7518562603d5c4a7ad69e2e5726f5f

Thursday - May 31
 

Thursday - May 31  

Inflation pressures were somewhat subdued in May and will be closely dissected by the members of the Federal Reserve. The year-over-year Core Personal Consumption Expenditure (PCE) came in at 1.8% in April while March was revised lower to 1.8% from 1.9%. Month-over-month Core PCE came in at 0.2% vs. 0.1% expected. These are soft numbers and the recent strength of the U.S. dollar may weigh on future readings. The Core PCE is the Fed's favorite inflation gauge and in the absence of a year-over-year rate going and staying above the Fed's target of 2.00% - it's hard to see the Fed hike more aggressively.

Some good news on the mortgage interest rate front: After rising for most of 2018 and hitting seven-year highs lately, rates declined in this week. Freddie Mac reports that the 30-year fixed-rate mortgage fell 10 basis points to 4.56% with an average 0.40 in points and fees. Freddie Mac says average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Signed contracts to purchase a home declined in April from March due in part to the dwindling inventories of homes for sale on the markets. The National Association of REALTORS® reports that Pending Home Sales declined 1.3% from March to April, the third-lowest level over the past year. Lawrence Yun, NAR chief economist, says the housing market this spring is hindered because of the severe housing shortages in much of the country.

Late Morning Review:

Inflation pressures were somewhat subdued in May and will be closely dissected by the members of the Federal Reserve. The year-over-year Core Personal Consumption Expenditure (PCE) came in at 1.8% in April while March was revised lower to 1.8% from 1.9%. Month-over-month Core PCE came in at 0.2% vs. 0.1% expected. These are soft numbers and the recent strength of the U.S. dollar may weigh on future readings. The Core PCE is the Fed's favorite inflation gauge and in the absence of a year-over-year rate going and staying above the Fed's target of 2.00% - it's hard to see the Fed hike more aggressively.

Some good news on the mortgage interest rate front: After rising for most of 2018 and hitting seven-year highs lately, rates declined in this week. Freddie Mac reports that the 30-year fixed-rate mortgage fell 10 basis points to 4.56% with an average 0.40 in points and fees. Freddie Mac says average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Signed contracts to purchase a home declined in April from March due in part to the dwindling inventories of homes for sale on the markets. The National Association of REALTORS® reports that Pending Home Sales declined 1.3% from March to April, the third-lowest level over the past year. Lawrence Yun, NAR chief economist, says the housing market this spring is hindered because of the severe housing shortages in much of the country.

Wednesday - May 30 

MARKET WRAP:

Both Stocks and Bonds reversed course today as the risk-on, risk-off trade continues to be impacted by geopolitical issues along trade and tariffs. The political turmoil eased in Italy today which fueled the rally in U.S. Stocks,6while Bond prices fell and yields rose. Lower ADP data and slightly lower GDP helped to push Mortgage Bond prices off their lows. The Fannie Mae 30-yr 4% coupon closed at 102.19, -25bp. The Dow gained 306.33 points to 24,667.78, the S&P closed up 34.15 points to 2,724.01 while the NASDAQ closed higher by 65.85 points to end the session at 7,462.45. WTI oil settled at $68.21/barrel, $1.48. 10-yr yield 2.85%. Tomorrow's data includes the inflation reading Core PCE, Personal Income & Spending, Weekly Initial Jobless Claims, Chicago PMI and Pending Home Sales.

Late Morning Review:

The first of two key labor market reports was released this morning showing that employers in the private sector added fewer workers than expected, but still at solid levels. Payroll processor ADP reported on Wednesday that there were 178,000 new workers added in May, just below the 183,000 expected while April was revised lower to 163,000 from 204,000. The pool of people who can't find jobs could be dwindling as the labor market tightens, making it tougher to find new workers.

Economic growth was steady in the first quarter of this year though down from what was reported in the fourth quarter of 2017. The Bureau of Economic Analysis reports that the second reading on first quarter Gross Domestic Product (GDP) rose 2.2%, just below the initial reading of 2.3% and down from 2.9% registered in the final quarter of 2017. Lower consumer spending along with downward revisions to inventories led GDP lower.

The Mortgage Bankers Association (MBA) reports that mortgage rates edged lower in the latest week after moving higher for much of 2018. The 30-year fixed-rate mortgage fell to 4.84% from 4.86% in the latest week with points decreasing to 0.47 from 0.52. Within the report it showed that the MBAs Market Composite Index, a measure of total mortgage loan application volume, fell 2.9%. In addition, the refinance index declined 5% while the purchase index fell 2%.

Tuesday - May 29  

MARKET WRAP:

Geopolitical turmoil caused some carnage in the U.S. Stock markets today while Bond yields plunged as investors flocked to the safe haven trade. The Fannie Mae 30-yr 4% coupon surged 53bp to end at 102.44, just near the 2018 highs. The Bond is up 156bp since the low of 100.88 seen on May 17. The Dow plunged 467.52 points to 24,285.57, the S&P fell 41.48 points to 2,679.57, while the NASDAQ was lower by 62.63 points to end the bearish session at 7,372.22. WTI oil closed at $66.73/barrel, -$1.15 on higher production fears. 10-yr yield closed at 2.77% from Friday's close of 2.93%. Tomorrow's data includes May ADP Private Payrolls and Q1 2nd estimate GDP.

Late Morning Review

Home prices continued to edge higher in March due in a large part to low inventories of homes for sale on the market. The S&P Case-Shiller 20-City Home Price Index rose 6.8% from March 2017 to March 2018, matching the February gain. David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said, "Months-supply, which combines inventory levels and sales, is currently at 3.8 months, lower than the levels of the 1990s, before the housing boom and bust. Until inventories increase faster than sales, or the economy slows significantly, home prices are likely to continue rising."

Consumers assessments of the current conditions regarding the U.S. economy is hovering near a 17-year high with a focus on better business conditions. The May Consumer Confidence Index came in at 128.0 in May, just above the 127.5 expected. The Conference Board said that overall, confidence levels remain at historically strong levels and should continue to support solid consumer spending in the near-term, which would support solid economic growth.

U.S. Stocks are lower to begin the holiday shortened week as political turmoil in Italy and Spain weigh on the equity markets. In addition, the on again off again summit between the U.S. and North Korea leads to uncertainty and the Stocks markets hate uncertainty. The closely watched Dow Industrial Average is down 400 points today. However, the average is up nearly 30% since the presidential election in late 2016.

 

 

Friday - May 25 

MARKET WRAP:

Mortgage Bonds opened near unchanged and traded higher as the shortened (2:00 p.m. ET close) session unfolded, boosted by declining Stock prices. The Fannie Mae 30-yr 4% coupon closed at 101.84, +19bp, just below resistance two (R2) at the 50-day Moving Average (101.93). Stocks are lower and close at their regular time at 4:00 p.m. ET weighed down by the geopolitical headlines. WTI oil is lower by $3 on ramped up production fears. 10-yr yield 2.93%. Next week's economic calendar is heavy with readings on housing, manufacturing, inflation and May jobs data. Our next Daily Market Update will be delivered on Tuesday, May 29. Have a safe and great long weekend!

 

Late Morning Review:

Memorial Day marks the unofficial start of summer, and Americans will kick off the season by traveling in near-record numbers. According to AAA, more than 41.5 million Americans will travel this Memorial Day weekend, nearly 5% more than last year and the most in more than a 12 years. About 36 million of those travelers will drive to their holiday weekend destination. AAA

Gas prices are higher. People will be spending about $6 more for a full tank of gas, but that’s not going to stop people from traveling this Memorial Day. “This is the kick-off for the summer season, the economy is still good, and overall people are ready to roam," said a AAA spokesperson. The national average price for a gallon of gas is $2.96, up from $2.37 this time last year. AAA

Just some facts on what Americans will be consuming this Memorial Day weekend: 60% of Americans will be barbecuing this weekend. $1.5 billion of meat and seafood will be sold for the weekend. Hot dogs are consumer every second from Memorial Day to Labor Day (7 billion total). 180+ running races are held each Memorial Day. Memorial Day is the second highest day for beer sales behind July 4.

 

Thursday - May 24  

MARKET WRAP:

Mortgage Bonds squeaked out modest gains today closing higher for the 2nd straight session as Stocks came under pressure due in part to negative geopolitical headlines. President Trump canceled the N. Korea summit and targeted car imports. The Fannie Mae 30-yr 4% coupon closed at 101.66, +9bp. The Dow lost 75.05 points to 24,811.76, the S&P 500 fell by 5.53 points to 2,727.76 while the NASDAQ closed near unchanged at 7,424.42. WTI oil closed at $70.71/barrel, -$1.13 on rumors that OPEC may boost output. The yield on the 10-yr T Note closed at 2.97%, below 3% for the 2nd straight session. Consumer Sentiment and Durable Orders will be released tomorrow morning. Tomorrow, the Bond markets will close early at 2:00 p.m. ET while Stocks undergo a normal session. On Monday, May 28, all markets will be closed for Memorial Day., I will have my phone in my back pocket, so feel free to call me at 205-266-5669 if you need anything. 

Late Morning Review

Freddie Mac reports that the 30-yr fixed-rate mortgage rose five basis points to 4.66% with an average 0.4 in points and fees, their highest level since May 5, 2011 (4.71%). Freddie Mac went on to say that mortgage rates in 2018 have had the most sustained increase to start the year in over 40 years. Through May, rates have risen in 15 out of the first 21 weeks, which is the highest share since Freddie Mac began tracking this data for a full year in 1972. However, a 4.66% rate is still historically low.

After two straight months of gains, Existing Home Sales fell 2.5 percent in April from March to an annual rate of 5.46 million units, below the 5.57 million expected, reports the National Association of REALTORS®. On an annual basis, Existing Home Sales are down 1.4 percent and have declined year-over-year for two straight months. Across the U.S. sales fell 4.4% in the Northeast, declined 2.9% in the South, dropped 3.3% in the West and were unchanged in the Midwest

Inventories of homes for sale on the market continue to run low with a 4-month supply, below the 6-month supply that is considered normal. The median home price was $257,900, up 5.3 percent from a year ago. Lawrence Yun, the NAR chief economist, says this spring’s staggeringly low inventory levels caused existing sales to slump in April. He explains, “The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home.”

 

 

Wednesday - May 23  

MARKET WRAP: 

Mortgage Bonds spent most of the trading day in positive territory and received an extra boost after the somewhat dovish Fed minutes. The Fed minutes revealed that higher inflation may not result in higher rates. Weaker-than-expected New Home Sales also supported higher Bond prices. The Fannie Mae 30-yr 4% coupon closed at 101.56, +34bp. Stocks spent the day near unchanged to lower but also got a boost after the Fed minutes and closed modestly higher. The Dow gained 52.40 points to 24,886.81, the S&P 500 rose 8.85 points to 2,733.29, up 8.85 points while the NASDAQ closed at 7,425.95, +47.50 points. Tomorrow's economic data includes Weekly Initial Jobless Claims and Existing Home Sales for April. The Treasury will sell $30B 7-yr Notes and comes after today's decent demand for the 5-yr offering.

Late Morning Review:

The Commerce Department reported on Wednesday that New Home Sales fell 1.5% in April from May to an annual rate of 662,000 units, below the 677,000 expected. Sales in March were revised lower to 672,000 from 694,000 while January and February were also revised lower. However, sales were up 11.6% from April 2017 to April 2018. On a monthly basis, sales were higher in the Northeast, lower in the West, and near unchanged in both the Midwest and South. Inventory of homes for sale on the market was at a 5.4-month supply, just below the 6-month supply that is considered normal.

Yesterday afternoon, President Trump said the June 12 summit meeting with the U.S. and North and South Korea may not work out. In addition, the President denied there is a current deal with China's ZTE Corp. and he is not satisfied with trade talks with China. The headlines sent the Dow Jones Industrial Average down 200 points by the close of trading, after spending the morning session modestly higher. This negative talk has spilled into this morning's trade as U.S. Stocks trade lower.

Mortgage rates continued to edge higher in the latest week and are now at highs seen in April 2011. The Mortgage Bankers Association reports that the 30-year fixed-rate conforming mortgage rose nine basis points to 4.86%, with points increasing to 0.52 from 0.50. With the increase in rates, the refinancing index fell 3.7% and is at its lowest level since December 2000. A strengthening economy has pushed Bond prices, which in turn, increases mortgage rates.

 

 

Tuesday - May 22  

MARKET WRAP:

No movement today in Mortgage Bond prices with many players still at the MBA conference in New York. There were no economic reports to impact trading in today's session. The Fannie Mae 30-yr 4% coupon closed unchanged at 101.22. Stocks fell after President Trump backtracked on recent reports regarding China's ZTE Corp, trade talks and the upcoming summit between the U.S. and North and South Korea. The Dow lost 178.88 points to end at 24,834.41, the S&P closed lower by 8.57 points to 2,724.44 while the NASDAQ closed at 7,378.45, -15.58 points. WTI oil closed at $72.13/barrel, -$0.15. 10-yr yield 3.06%. New Home Sales will be released tomorrow. The FOMC minutes from the May FOMC meeting will be delivered at 2:00 p.m. ET. The Treasury will sell $36B 5-yr Notes.

Late Morning Review:

The New York Federal Reserve released its Household Debt and Credit Report for the first quarter of 2018 revealing that household debt increased in the first quarter of 2018 for the 15th consecutive quarter. As of March 31, 2018, total household indebtedness was $13.21 trillion, a $63 billion (0.5%) increase from the fourth quarter of 2017.

Mortgage balances, the largest component of household debt, increased somewhat during the first quarter. Mortgage balances shown on consumer credit reports on March 31 stood at $8.94 trillion, an increase of $57 billion from the fourth quarter of 2017. Student loan debt has risen 9.2% annually over the past 10 years to $1.41 trillion.

Just the numbers: From the last trading day of 2017 on December 29, the closely watched S&P 500 is up 2%. The 10-year yield is at 3.07%, it closed at 2.41% on December 29, 2017. WTI oil is trading at $72.46/barrel, up from $60.42/barrel on December 29. The 30-year fixed-rate mortgage was at 3.99% on December 28, 2017, currently at 4.61%.

Monday - May 21  

MARKET WRAP:

Not much movement in Mortgage Bonds today despite big gains in the Stock markets. The non-movement was due in part to the aforementioned MBA conference in New York and a lack of market moving news and data. The Fannie Mae 4% coupon closed at 101.22, near unchanged. Stocks surged on the easing U.S.-China trade dispute. The Dow gained 298.20 points to 25,013.29, the S&P 500 closed at 2,733.01 while the NASDAQ closed at 7,394.03, +39.67 points. WTI oil closed at $72.24/barrel, +$0.97. 10-yr yield edged lower to 3.05%. There are no economic reports due for release tomorrow. The Treasury will sell $33B 2-yr Notes, results at 1:00 p.m. ET.

 

Late Morning Review

The National Association of REALTORS® (NAR) released its midyear forecasts revealing that a stronger economy, higher wage growth and a tight labor market are expected to push both home sales and prices higher in 2018. However, low inventories of homes for the sale on the market along with falling affordability could cap the rate of increases. The NAR forecasts that the 30-year fixed-rate mortgage will average 4.60% this year and 5% in 2019. As far as Existing Home Sales, the NAR predicts that they will end 2018 at a pace of around 5.6 million, up 1.8% year-over-year and 5.7 million in 2019. U.S. Stocks are surging to begin the week as the trade war tensions between the U.S. and China ease. Over the weekend, Secretary Mnuchin says that the "trade war" is really a "trade dispute" and has been put on hold as both sides have agreed to drop their trade tariff threats and work towards a long-term agreement. The closely watched Dow Jones Industrial Average hit the 25,000 mark today for the first time since the middle of March. With first quarter 2018 earnings season over, the numbers are in and earnings for the reporting companies grew significantly compared to 2017. Standard & Poor's reported that the operating earnings per share of the companies in the S&P 500 in the first quarter of 2018 were up nearly 27% on a year-over-year basis when compared to operating earnings from the first quarter 2017. That's the largest year-over-year increase in earnings since the fourth quarter 2010. The corporate tax cuts enacted by the White House could be one of the reasons for the big gains.

Friday - May 18  

chart 180520

MARKET WRAP:

Mortgage Bonds were able to add to yesterday's gains in today's session boosted in part by mixed Stock prices and bargain basement prices. There were no economic reports tomorrow. The Fannie Mae 30-yr 4% coupon closed at 101.28, up 34bp and at the high of the day. The Dow closed near unchanged at 24,715.09, the S&P fell by 7.16 points to 2,712.97, while the NASDAQ closed at 7,354.33, -28.13 points. WTI oil closed at $71.28/barrel, -$0.21. 10-yr yield edged lower to 3.06%. Next week the Treasury will sell a whopping $99B in Treasury securities.

Late Morning Review

Fannie Mae released its May 2018 Economic and Housing Outlook yesterday revealing that despite a lusterless first three months of 2018, it expects home sales to post decent gains both this year and next, as prices increase and affordability declines amid low inventory. On the economic front, Fannie Mae is forecasting that Gross Domestic Product will average 2.7% in 2018 due in part to strengthening consumer spending. One headwind to the economic outlook is the continued rise in oil prices as they may offset some of the increase in disposable income from the recent tax cuts while also putting upward pressure on headline inflation.

Memorial Day marks the unofficial start of summer, and Americans will kick off the season by traveling in near-record numbers. According to AAA, more than 41.5 million Americans will travel this Memorial Day weekend, nearly 5% more than last year and the most in more than a 12 years. About 36 million of those travelers will drive to their holiday weekend destination. “Gas prices are higher. People will be spending about $6 more for a full tank of gas, but that’s not going to stop people from traveling this Memorial Day,” Jenkins said. “This is the kick-off for the summer season, the economy is still good, and overall people are ready to roam.” The national price for a gallon of gas is $2.91, about $0.55 more than this time last year. AAA

Thursday - May 17  

MARKET WRAP:

Not much action in the Mortgage Bond market today as prices traded in a narrow range while Stocks closed modestly lower. Today's strong Philly Fed Index could have had a hand in capping Bond prices. Stocks closed lower on trade issues after President Trump said he doubts China trade negotiations will succeed. The Fannie Mae 30-yr 4% coupon closed at 100.94, unchanged. The Dow fell 54.95 points to 24,713.98, the S&P 500 was lower by 2.33 points to 2,720.13 while the NASDAQ fell by 15.82 points to 7,382.47. WTI oil closed at $71.49/barrel, unchanged. 10-yr yield 3.11%. There are no economic reports scheduled for release tomorrow.

Late Morning Review

Mortgage rates continued their trek higher this week due in part to the continued growth in the U.S. economy and a tight labor market. Positive economic data usually pushes Bond prices lower, which leads to higher rates. Freddie Mac reports that the 30-year fixed-rate mortgage rose five basis points to 4.66%, the highest level since May 19, 2011. That rate does carry an average 0.4 in points and fees. Freddie Mac says while this year’s higher mortgage rates have not caused much of a ripple in the strong demand for buying a home that is seen in most markets, inflationary pressures and the prospect of rates approaching 5% could begin to hit the psyche of some prospective buyers.

HousingWire reports that Ellie Mae's April Origination Insight data shows that the share of closed purchase loans jumped to its highest level since the company began tracking originations, while the time to close a loan continues to shrink. Ellie Mae expects to see a strong purchase market during the peak summer buying months, despite low inventories of homes for sale on the market.

Redfin reports that the national median home price increased 7.6% in April 2018 from April 2017 to $302,200 across the 174 markets that it tracks. This was the first time in history that the national median home price rose above the $300,000 level. The online real estate brokerage firm also reported that home sales were up 5.2% from last year and were higher by 1.5% from January to April this year from the same period last year. "Despite rising prices and low inventory, sales in 2018 so far are slightly higher than last year, which was the best year on record since the 2006 housing boom," said Redfin Chief Economist Nela Richardson.

Wednesday - May 16

MARKET WRAP:

Mortgage Bonds pushed lower once again today as sellers continued to infiltrate the Bond markets without any relief in sight. Weaker housing data had little impact on the Bond prices. Stocks weighed on Bond prices as the day wore on as the equity markets may be getting used to higher yields ... we shall see. The Fannie Mae 30-yr 4% coupon closed at 100.94, -19bp. Stocks were boosted by the tech sector and retail shares. Macy's strong earnings was a factor in the retail sector. The Dow gained 62.52 points to 24,768.93, the S&P rose by 1.01 points to 2,722.46 while the NASDAQ closed at 7,398.29, +46.66 points. WTI oil closed at $71.49/barrel, near unchanged. 10-yr yield 3.10%. Tomorrow's data includes Weekly Initial Jobless Claims and the Philly Fed.

 

Tuesday - May 15  

MARKET WRAP:

Mortgage Bond prices tumbled again today weighed down by solid economic data and after falling through support yesterday. The Fannie Mae 30-yr 4% coupon closed at 101.12, -34bp after hitting 100.97 earlier in the session. Stocks also declined on trade war fears, lower shares of Home Depot and inflation fears. The Dow lost 193 points to 24,706.41, the S&P fell by 18.68 points to 2,711.45 while the NASDAQ closed at 7,351.62, -59.68 points. WTI oil settled at $71.31/barrel, -$0.35. 10-yr yield 3.07%. Tomorrow's data includes Housing Starts/Building Permits. We could be switching to the 4.5% Fannie Mae 30-yr coupon within the next week.

Late Morning Review

Consumers spent broadly across most retail sectors in April after a sluggish start in the beginning of the year. The Commerce Department reported that Retail Sales rose 0.3% from March to April, which was concentrated on sales at furniture stores, clothing stores and gasoline stations. March’s reading was revised to a 0.8% increase from February, up from the 0.6% originally reported. On a year-over-year basis, Retail Sales jumped a solid 4.7%. 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.

Manufacturing activity in the New York State region increased in May led by the new orders index and the prices paid index. The Empire Manufacturing Index rose to 20.1 in May from the 15.8 recorded in April and above the 15 expected. Of those surveyed, 40% of respondents reported that conditions had improved over the month, while 20 percent reported that conditions had worsened.Employment was expected to increase in the months ahead while future business conditions rose from April.

Over in the housing market, home builder sentiment remained strong in May as builders are being boosted by growing consumer demand for single-family homes. However, the increasing costs for lumber poses a concern for builders. The NAB Housing Market Index rose two points in May to 70. Tight housing inventory, employment gains and demographic tailwinds should continue to boost demand for newly built single-family homes," said NAHB Chief Economist Robert Dietz.

Monday - May 14  

MARKET WRAP:

Mortgage Bonds ended lower in today's quiet session capped by rising Stock prices. There were no economic reports released today. Stocks ended higher on U.S.-China trade optimism, though they did end off the best levels. The Fannie Mae 30-yr 4% coupon closed at 101.47, -19bp, the session low. The Dow rose 68.24 points to 24,899.41, it's eighth straight day of gains, the S&P 500 was higher by 2.41 points to 2,730.13, while the NASDAQ closed higher by 8.43 points ending at 7,411.31. WTI oil end at $70.96/barrel, +$0.26. 10-yr yield closed at 2.99%. Tomorrow's data includes April Retail Sales, May Empire Manufacturing and May NAHB Housing Market Index.

Late Morning Review

This morning, the Federal Reserve Bank's Loretta Mester (voter, hawk) says the Fed could raise rates more rapidly if the U.S. economy grows faster than expected, though it could go slower if inflation weakens. Ms. Mester went on to say that she doesn't see inflation picking up sharply this year. The Fed's favorite inflation gauge, the annual Core PCE, is at 1.9%, not far off the Fed's target of 2%. Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

The National Bureau of Economic Research (NBER) recently reported that the current economic expansion in the U.S. is in a tie for the second longest in history dating back to June 2009. In addition, the number of consecutive months of labor market gains is the longest ever as of April. The NBER went on to say that the 3.9% Unemployment Rate recorded in April was the lowest since late 2000. The NBER also reported that the number of job openings hit 6.6 million in March, the highest since the Labor Department started tracking the number in December 2000.

Gas prices at the pumps continued to rise to start the week as the summer driving season gets set to kick off in a few weeks. In addition, the recent announcement from the White House to withdraw from Iranian nuclear deal had a hand in driving up oil prices. Motor Club AAA reports that the headlines from Washington along with the switchover to summer blend gasoline and growing global demand are also factors fueling the rise in gas prices. The national average price for a regular gallon of gasoline is at $2.87, up 6 cents in the latest week and up 53 cents from a year ago.

Friday - May 11  

MARKET WRAP:

Mortgage Bonds closed near the flat line, but remain near 2018 lows. St Louis Fed President Bullard ward out saying that the Fed Funds Rate is already near "neutral" which means he is against further rate hikes this year. That is a big development and it will be interesting to see how fellow Fed Members and Fed Chair Powell respond with their assessment of the economy and rates.

Technically, Stocks broke our of a "Bear Trap" and bounced off their 200-day MA-which is good news for Stocks. Couple this with any talk less Fed Rate hikes, and it is easy to see Stocks go higher at expense of Bonds.

Late Morning Review

Tech giant and popular iPhone maker Apple is in the works to introduce a credit card with the help from powerhouse investment banking firm Goldman Sachs. The card will be branded with Apple Pay, the technology giant’s mobile payment and digital wallet platform. The partnership is two-fold with Apple looking to gain revenues outside of selling gadgets while Goldman looks to diversify its revenues from other sources like trading and investment banking. The partnership could also include Goldman offering in-store loans to Apple customers for the tech company's products.

The Mortgage Bankers Association reported on Thursday that its Builder Application Survey for April shows that mortgage applications to purchase new homes rose 7.5% compared to April 2017. However, compared to March, applications declined 5%. The MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 656,000 units in April 2018. Despite a strong economy and job market, the decrease in April was likely due to a combination of rising mortgage rates and slow new construction activity, as builders still face a shortage of skilled labor and increasing materials costs, among other challenges,” said Joel Kan, Associate Vice President of Economic and Industry Forecasting at the MBA. 

The Federal Reserve’s Fed Funds Rate: You hear about it in the financial news on an almost weekly basis; but what is it and what does it impact? The Federal Funds Rate is the rate at which depository institutions (banks) lend reserve balances to other banks on an overnight basis. Reserves are excess balances held at the Federal Reserve to maintain reserve requirements. The Fed Funds Rate influences short term interest rates, albeit indirectly, for everything from home and auto loans to credit cards, as lenders often set their rates based on the prime lending rate. The prime lending rate is the lending rate at which banks charge their customers. The Prime Rate is calculated by taking Fed Funds Rate, currently at 1.75%, of 1.75% and adding three points to it equaling the current Prime Rate of 4.75%.

Wednesday - May 9

MARKET WRAP:

After opening lower, Mortgage Bonds traded in a tight range during the session capped by rising Stock prices. Equities were pushed higher as oil surged, which boosted energy Stocks and the broader market. The Fannie Mae 30-yr 4% coupon closed at 101.56, right on support and down 12bp for the session. The Dow gained 182.33 points to 24,542.54, the S&P gained 25.87 points to 2,697.79 while the NASDAQ jumped 73 points to end at 7,339.90. WTI oil gushed higher by $2.08 to $71.14/barrel. 10-yr yield 3%. The closely watched inflation reading CPI will be released tomorrow along with Weekly Initial Jobless Claims. The Treasury will sell $17B 30-yr Bonds tomorrow, results at 1:00 p.m. ET.

Tuesday - May 8

MARKET WRAP:

Mortgage Bonds retreated today after failing to rise above resistance and after solid labor market, housing and small business optimism news. The Fannie Mae 30-yr 4% coupon fell by 16bp to end at 101.69, the session low. Stocks seesawed throughout the session ahead of the Iran-U.S. news and ended near unchanged after President Trump announced that the U.S. is pulling out of the Iran nuclear deal. The Dow closed at 24,360.21, the S&P settled at 2,671.92 while the NASDAQ finished at 7,266.90. WTI oil ended at $69.07/barrel, -$1.67 but was seen down $1 after hours and after Iran-U.S. news. 10-yr yield 2.97%. The Treasury will sell $25B 10-yr Notes tomorrow and comes after today's so-so demand for the 3-yr offering. Wholesale inflation from the PPI will be released Wednesday morning.

Monday  - May 7

MARKET WRAP:

Not much action in the Mortgage Bond market as prices traded close to the flatline during the session being free of any economic data. The Fannie Mae 30-yr 4% coupon closed unchanged at 101.84. Stocks ended higher though off their best levels led higher by Apple and the energy sector. The Dow gained 94.81 points to 24,357.32, the NASDAQ closed up 55.59 points to 7,265.21 while the closely watched S&P 500 gained 9.21 points to end at 2,672.63. WTI oil closed at $70.77/barrel, +$1.01.10-yr T Note yield 2.95%. There are no major economic reports due for release tomorrow. The Treasury will sell $31B 3-yr Notes, results at 1:00 p.m. ET.

Friday - May 4  

Chart 180504

 

Late Morning Review:

The Bureau of Labor Statistics reported on Friday that U.S. employers added 164,000 new workers in April, below the 190,000 expected. This was up, however, from the 135,000 recorded in March (which was revised higher from 103,000). The Unemployment Rate fell to an 18-year low of 3.9% while the total unemployment number, or the U6, fell to 7.8%, down from 8.6% from a year ago.

Wage growth fell to 2.6% on an annual basis, down from the 2018 high of 2.9% recorded in January. Month-over-month hourly earnings rose 0.1% versus the 0.2% expected. This is a soft reading and does prevent the Fed from hiking the Fed Funds Rate more aggressively. The Fed will most likely hike rates in June and the market is expecting it. Despite the growing economy, wage growth has been soft for quite some time.

 

Thursday - May 3

A WORD FROM THE BOND PITS:

Mortgage Bonds closed modestly higher in price and narrowly changed on spread vs Treasuries ahead of the Jobs Report. 

Soft Suggestion:

If you are buying a home it makes sense to lock to avoid the potential spike in rates. But if you are refinancing you might roll the dice and see if the potential of volatility turns into lower rates.

MARKET WRAP:

Lower Stocks buoyed Bond prices in today's session as traders gear up for tomorrow big risk event in the Jobs Report for April. Stock investors were spooked early on by the U.S.-China trade talks and less than impressive earnings this morning. The Fannie Mae 30-yr 4% coupon closed at 101.78, +12bp. The Dow nearly lost 400 points this morning before closing at 23,930.15, +5.17 points. The S&P fell by 5.94 points to 2,629.73, while the NASDAQ closed lower by 12.74 points to end the volatile session at 7,088.15, both off their worst levels. WTI oil closed at $68.43/barrel, +$0.50. 10-yr yield 2.94%. And as if you didn't know already, the April Jobs Report will be released tomorrow morning at 8:30 a.m. ET. As always, be sure to be tuned into the Mortgage Market Guide's Market News section for the numbers and the market's reaction.

Late Morning Review

A recent survey by First American Financial Corp. reveals that there is no housing affordability crisis. One of the reasons given in the survey is that while home prices have been increasing, so have incomes. The report went on to show that most states have reached their peak home price at 2007 levels, while incomes are much higher than they were in last decade.

U.S. Stocks are lower today as investors remain on edge about the U.S.-China trade talks coupled with less than impressive corporate earnings released this morning. Treasury Secretary Mnuchin is in Beijing today spearheading two days of trade talks between the two countries. The closely watched S&P 500 has fallen below a key technical level, which is ushering in more selling.

Mortgage rates edged slightly lower this week after three straight weeks where borrowing costs have risen, after being in an upward pattern since the year began. Freddie Mac reports that the 30-year fixed-rate mortgage fell three basis points to 4.55% with an average 0.5 in points and fees. Despite the higher rates this year, Freddie Mac reports that its data through April shows that first-time home buyers represent 46% of purchase loans, up from 43% over the same period a year ago.

Wednesday - May 2  

A WORD FROM THE BOND PITS:

Mortgage Bonds closed near unchanged and mostly tighter on spread vs Treasuries in an event filled session that featured

Soft Suggestion:

With the Fed behind us we can float into Thursday but be aware that we may switch to locking ahead of Friday's Jobs Report. 

MARKET WRAP:

Not a lot of action in the Mortgage Bond market today as traders sat on their hands heading into the Fed statement, which turned out to be a somewhat Goldilocks scenario. The Fannie Mae 30-yr 4% coupon closed at 101.72, near unchanged as Bond prices were capped by the uptick in Treasury auctions that we reported earlier in the day. Stocks briefly rallied after the Fed statement, but quickly fizzled out as investors revert back to higher inflation pressures, higher rates and fears of a trade war. The Dow lost 174.07 points to 23,924.98, the NASDAQ fell by 29.80 points to 7,100.89. while the closely watched S&P 500 closed at 2,635.67, down 19.13 points. The losses come after the big three rallied right after the Fed statement. WTI oil closed at $67.93/barrel, +$0.93. 10-yr yield 2.97%. Tomorrow morning the New York Fed will be supportive as it will purchase up to $805M in Fannie/Freddie 30-yr 4% and 4.5% coupons beginning at 9:45 a.m. ET. Weekly Initial Jobless Claims, Productivity and ISM Services will be released tomorrow morning.

 

 

Late Morning Review:

The first of two key labor market reports was released this morning showing that ADP Private Payrolls rose 204,000 in April, down from the 228,000 recorded in March, which was revised lower from 241,000 and below the 225,000 expected. However, expectations ranged from 200,000 to 240,000. This is a good reading in what is already a tight labor market that is getting tighter. The report comes ahead of the Non-Farm Payroll report from the government which will be released Friday morning.

It's Fed day! The Fed will release its monetary policy statement at 2:00 p.m. ET this afternoon where it is expected that the Fed Funds Rate will remain at current levels. The text within the statement will be closely dissected by the investing community. The Fed Funds Rate is currently at the 1.75% range, marking the Prime Rate at 4.75%. Fed Funds Rate + 3 points = current Prime Rate of 4.75%. The question is whether or not the statement will lean towards dovish or hawkish for the members' views on inflation and the economy.

The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage rose 7 basis points to 4.80%, jumbo up 5 basis points to 4.69%, both at highs seen in September 2013. FHA jumped 10 basis points to 4.81%, its highest since July 2011. Those rates carry at least an average 0.50 point added on top. And where the rates have increased, they are still historically low. In addition, refinance Index decreased 4% from the previous week while the purchase index fell 2%.

Tuesday May 1

A WORD FROM THE BOND PITS:

Mortgage Bond prices closed slightly lower in price and narrowly changed on spread vs Treasuries ahead of tomorrow's Treasury announcement on the size of future Note or Bond auctions and the Fed. 

CLOSING TECHNICAL SIGNAL:

Continue floating with the mindset to lock either tomorrow afternoon, in case there is a surprise reaction to the Fed statement, or Thursday afternoon in advance of Friday's Jobs Report.

MARKET NEWS: 

Bond prices were weighed down today by the Fed meeting, Jobs Report, and higher inflation. The Fannie Mae 30-yr 4% coupon closed at 101.69, -6bp. Throw in tomorrow's announcement from the Fed on quarterly refunding and you have a recipe for flat to lower Bond prices. Stocks ended mixed as the Dow saw a modest loss but the "Big Three" closed well off their lows with the S&P and NASDAQ closing in positive territory. Inflation fears hurt Stocks early on but a Trump administration official said he hoped to further open China's economy to U.S. companies, which cut into losses. The Dow lost 64.10 points to end at 24,099.05, the S&P closed higher by 6.75 points to 2,654.80 while the NASDAQ ended the session at 7,130.70, +64.43 points. WTI oil closed at $67.25/barrel, -$0.32 as the stronger dollar pushed "Black Gold" lower. 10-yr yield rose to 2.97%. The ADP Private Payrolls Report will be released tomorrow morning at 8:15 a.m. ET. The Fed's monetary policy statement will be delivered at 2:00 p.m. ET where there is a near 0% chance of a hike to the Fed Funds Rate.

Late Morning Review

High demand, limited supply of homes for sale on the market, along with new home construction running below historically normal levels pushed home prices higher in March. CoreLogic reports that home prices, including distressed sales, rose 7% from March 2017 to March 2018, while there was a 1.4% month-over-month gain from February to March. Looking ahead, CoreLogic forecasts a 5.2% rise in home prices from March 2018 to March 2019. CoreLogic went on to report that half of the top 50 markets in the country are overvalued because home prices in those areas have risen so much faster than incomes.

The two-day Fed meeting kicks off today, and while there is a near 0% chance of a hike to the short-term Fed Funds Rate, the accompanying monetary policy statement always has the potential to be a market mover. There will be no headlines out of the meeting today. The monetary policy statement will be released tomorrow at 2:00 p.m. ET and will come along with the Fed's economic projections.

U.S. construction spending fell in March due in part to weak homebuilding during the month. The Commerce Department reported on Tuesday that construction spending declined 1.7% in March from February, below the 0.5% gain expected. Within the report it revealed that private construction projects fell 2.1%, the largest decline since January 2011 while public construction projects were unchanged. In addition, government construction jumped 2.2%.

 

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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