June 2018

June 1st, 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. Views You Can Use updated monthly: http://www.mmgweekly.com/m/index.html?SID=78421a2e0e1168e5cd1b7a8d23773ce6

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

Friday - June 15  

MARKET WRAP:

Mortgage Bonds started the day slightly higher, added to gains, before closing near unchanged levels. Solid economic data and end of week positioning brought some selling as the session wore on. The Fannie Mae 30-yr 4% coupon closed at 101.66, near unchanged and just slightly above last Friday's close after a turbulent week. Stocks ended lower on renewed trade woes with China. The Dow lost 84.83 points to 25,090.48, the S&P closed at 2,779.42 -3.07 points while the tech heavy NASDAQ ended at 7,746.37 down 14.66 points. WTI oil settled at $65.06/barrel, -$1.83. 10-yr yield 2.92%. Next week's economic calendar is on the light side with housing in the spotlight. Have a great weekend!

chart 180615

 

Late Morning Review:

Renewed tariff woes with China are helping the U.S. Bond markets today while pushing the Dow Jones Industrial Average, S&P 500 and the NASDAQ lower as the week comes to an end. President Trump has approved tariffs on $50 billion worth of Chinese goods imported into the U.S. An official announcement is expected later today. The closely watched Dow Jones Industrial Average was down nearly 300 points in early trading. 

The Federal Reserve raised its benchmark short-term Fed Funds Rate this week, but what does that actually equate to for the U.S. consumer? The consumer will see a hike on rates for credit cards, home equity lines of credit, auto loans and other adjustable-rate instruments. In addition, student loan rates will creep higher while savings rates for banks will edge higher, but not by much.

Fannie Mae reported this week that mortgage lenders reported a net-negative profit margin outlook for the seventh consecutive quarter due in part to rising home prices and a tight supply of home for sale on the market. Tight supplies continue to put a squeeze on mortgage demand. "Lenders remain bearish this quarter as they continue to face headwinds from rising mortgage rates, tight supply, and strong home price appreciation, which have drastically reduced refinance activity and restrained home purchase affordability," said Doug Duncan, senior vice president and chief economist at Fannie Mae.

Thursday - June 14  

Late Morning Review:

Recent tax cuts and a strong labor market sent consumers on a spending spree in May as Americans doled out their hard-earned cash at gas stations, clothing stores and home improvement centers. May Retail Sales surged 0.8 percent from April, well above the 0.4 percent expected. From May 2017 to May 2018, Retail Sales were up 5.9 percent.

When stripping out autos, Retail Sales jumped 0.9 percent versus the 0.5 percent expected. Overall, it was a strong report. If consumers continue to spend, the U.S. economy will continue to grow at a solid pace in the months ahead. 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.

Mortgage rates edged higher in the latest week but looking at rates from a historic perspective, they are still relatively low. Freddie Mac reports that the 30-year fixed-rate mortgage rose eight basis points to 4.62% in the latest week with an average 0.40 in points and fees. Freddie Mac says the good news is that the impact of rising rates on consumer budgets will be smaller than past rate hike cycles. That is because a much smaller segment of mortgage loans in today’s market are pegged to short-term rate movements.

 

Wednesday - June 13

MARKET WRAP:

As expected, the Fed raised its benchmark Fed Funds Rate in today's interest rate decision and said the economy is doing very well. The Fed now forecasts a total of four rate hikes in 2018 from the previous forecasted three hikes. The headlines initially sent Mortgage Bonds off their highs and fell well into negative territory before rebounding to near unchanged levels. The Fannie Mae 30-yr 4% coupon traded as high as 101.56 before the statement release, bottomed out at 101.19 and closed at 101.47, near unchanged. Stocks closed lower after the Fed signaled two more rate hikes this year. The Dow lost 119.53 points to 25,201.20, the S&P fell by 11.22 points to 2,775.63, while the NASDAQ closed at 7,695.69, down 8.09 points. WTI oil closed at $66.64/barrel, +$0.28. 10-yr yield 2.97% after hitting 3.01% soon after the Fed statement was released. Economic data tomorrow includes retail Sales and Weekly Initial Jobless Claims.

Late Morning Review:

Higher oil prices led wholesale prices higher in May as inflation pressures begin to build. The Producer Price Index (PPI) surged 0.5% in May from April, above the 0.3% rise expected. On an annual basis PPI jumped 3.1% from 2.6% in April and was the largest increase since January 2012. The Core PPI, which strips out volatile food and energy, rose 0.2% month over month and 2.6% annually.

It's Fed day! The Federal Reserve is expected to raise the short-term Fed Funds Rate by 0.25% to bring it to the 1.75%-2% level. The announcement will be made at 2:00 p.m. ET this afternoon. The hike is most likely baked into the cake and shouldn't stir up the markets in a big way. However, what is revealed in the statement, economic projections and Fed Chair Powell's news conference, could shake things up.

The Mortgage Bankers Association (MBA) reports that home loan rates edged higher in the latest week but remain historically low. The MBA reports that the 30-year fixed-rate conforming mortgage rose to 4.83% from 4.75% with points increasing to 0.53 from 0.46 for the week ending June 8, 2018. In addition, the MBA's Market Composite Index, a measure of total mortgage loan application volume, fell 1.5% from the previous week. The purchase and refinance indexes both fell 1.5%.

 

 

 

Tuesday - June 12

MARKET WRAP:

Not much action for Stocks and Bonds today as both asset classes closed near unchanged levels ahead of the Fed's interest rate decision tomorrow. Year-over-year consumer inflation heated up a bit while the monthly numbers were rather subdued. The Fannie Mae 30-yr 4% coupon closed at 101.47, near unchanged. The Dow closed near unchanged at 25,320.73, the S&P saw a gain of 4.85 points to 2,786.85 while the NASDAQ rose 43.86 points to end at 7,703.79. WTI oil closed at $66.36, +$0.26. 10-yr yield 2.96%. Wholesale inflation (PPI) will be released tomorrow. The big event will be the 2:00 p.m. ET release of the Fed's interest rate decision and monetary policy statement. Be sure to read tomorrow morning's Daily Market Update to get our latest stance before 2:00.

Late Morning Review

Small business optimism continued to reach new heights in May due in part to tax cuts and less regulations. The NFIB Small Business Optimism Index rose to 107.8 in May, the second highest reading in the survey's 45-year history. "Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes. For years, owners have continuously signaled that when taxes and regulations ease, earnings and employee compensation increase," said NFIB President and CEO Juanita Duggan.

Consumer inflation was somewhat tame month over month while annual increases were a bit hotter than expected. The headline Consumer Price Index (CPI) rose 0.2% in May, just below the 0.3% expected as increases in gasoline slowed a bit during the month. However, year-over-year CPI increased 2.8%, the biggest increase since February 2012, up from 2.5% in April. The Core CPI, which strips out volatile food and energy, rose 0.2% from April and was up 2.2% annually. The Fed's preferred inflation gauge, the annual Core Personal Consumption Expenditure, rose 1.8% in April, just below the Fed's target range of 2%.

Mortgage delinquency rates edged lower in March due in part to an improving economy and labor market. CoreLogic reports that the 30 days or more delinquency rate for March 2018 was 4.3%. In March 2017, 4.4% of mortgages were delinquent by at least 30 days or more including those in foreclosure. This represents a 0.1%-point decline in the overall delinquency rate compared with March 2017.

 

 

 

Monday - June 11  

MARKET WRAP:

Not much action in the U.S. capital markets today ahead of the risk event filled week. Stock and Bond prices closed near unchanged. There were no economic reports today. The two decent Treasury offerings today supported Bond prices but not strong enough to spark a rally. The Fannie Mae 30-yr 4% coupon closed at 101.59, unchanged. The Dow gained 5.78 points to 25,322.31, the S&P 500 closed at 2,782.00, up 2.97 points while the NASDAQ squeaked out a 14.41 point gain to end at 7,659.92. WTI oil closed at $66.10/barrel, +$0.36. 10-yr yield 2.95%. Inflation data from the Consumer Price Index will be released tomorrow. The 2-day Fed meeting kicks off tomorrow on Capitol Hill but there will be no headlines until Wednesday afternoon. The Treasury will sell $14B 30-yr Bonds tomorrow, results at 1:00 p.m. ET.

Late Morning Review:

The Federal Open Market Committee meeting kicks off on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement and interest rate decision. The Fed is expected to raise the Fed Funds Rate by 0.25% to bring the benchmark rate to 2%. The hike is already baked into the cake but the accompanying statement, economic projections and Fed Chair Powell's press conference immediately following the release could impact the markets. There will be no headlines until Wednesday.

The housing market continues to produce positive headlines for consumers. Property data collector CoreLogic reports that homeowner equity surged by $1 trillion in Q1 2018 from Q1 2017, an annual increase of 13.3%. In addition, homeowner equity has doubled in the past five years, rising by $4.4 trillion from Q1 2013 to Q1 2018. Over the past 12 months, 640,000 borrowers moved into positive equity.

Tonight at 9:00 p.m. ET President Trump will meet North Korean leader Kim Jong Un with the goal being "the complete, and verifiable, and irreversible denuclearization of the Korean Peninsula." Ahead of the summit, U.S. Stocks are modestly higher. This week's events will have an impact on Stock and Bond prices as well as home loan rates.

Friday - June 8  

MARKET WRAP:

Not much action in the markets today as the summer doldrums set in for a Friday. The Fannie Mae 30-yr 4% coupon closed at 101.56, -16bp. Stocks closed higher as trade issues ease. The Dow closed higher by 75.12 points to 25,316.53, the S&P 500 closed up 8.66 points to 2,779.03, while the NASDAQ ended at 7,645.51, +10.44 points. WTI oil ended at $65.74/barrel, -$0.21. 10-yr yield 2.94%. Next week we have the 2-day Fed meeting ending Wednesday with the release of a policy change and the statement. It is expected that the short-term Fed Funds Rate will rise by 0.25%. Consumer and wholesale inflation will be released. The Treasury will sell a total of $68B in 3- and 10-yr Notes along with 30-yr Bonds. Have a great weekend!

 

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Late Morning Review:

Housing sentiment continued to strengthen in May, but high home prices complicate consumer purchase confidence, reports Fannie Mae. Higher home prices are due in part to limited inventories of homes for sales on many markets across the nation. The Fannie Mae Home Purchase Sentiment Index (HPSI) rose 0.6 points in May to 92.3, reaching a new all-time survey high for the second consecutive month. The net share of respondents who reported that now is a good time to sell a home increased to 46% in May, and is now up 14 percentage points year over year. However, the net share of those surveyed said now is a good time to buy, decreased to 28%, showing little improvement in the past 12 months.

Not much action in the U.S. capital markets today as the investing world sits on their hands awaiting next week's Fed decision and monetary policy statement. Currently, there is a 90% chance of a 0.25% hike to short-term Fed Funds Rate. The Federal Open Market Committee meeting begins Tuesday and ends Wednesday at 2:00 p.m. ET with the rate announcement and statement. The Fed will also release economic projections while Fed Chair Powell will hold a press conference at 2:30 p.m. ET.

 

Thursday - June 7

MARKET WRAP:

Mortgage Bonds were able to rise today as bargain hunters jumped in after the recent decline. The Fannie Mae 30-yr 4% coupon closed at 101.72, +16bp, closing above resistance one at the 25-DMA. Stocks closed mixed as tech shares weighed on the S&P and NASDAQ. The Dow gained 95.02 points to 25,241.41, the S&P closed lower by 1.98 points to 2,770.37 while the NASDAQ fell by 54.17 points to end at 7,635.07. WTI oil closed at $65.95/barrel, +$1.22. 10-yr yield 2.92%. There are no economic reports due for release tomorrow.

Late Morning Review:

Americans filing for first-time unemployment claims continue to hover near lows seen in the early 1970's as the labor market is now near full employment. Weekly Initial Jobless Claims fell 1,000 to 222,000 and have remained below the 300,000 mark for 170 weeks, a sign of strength in the sector. The four-week moving average of initial claims, which irons out seasonal abnormalities, rose 2,750 to 225,500 last week.

Mortgage rates edged lower this week and remain at historically low levels. Freddie Mac reports that the 30-year fixed-rate mortgage fell two basis points to 4.54% with an average 0.50 in points and fees. Freddie Mac says that while the very healthy job market continues to fuel interest in buying a home, the supply shortages in most markets are pushing prices higher and currently keeping sales at a standstill.

Gas prices at the pumps were unchanged this week but have been pushing higher as the spring and summer driving season is underway. Motor club AAA reports that the national average price for a regular gallon of gasoline is at $2.94, up from $2.81 a month ago and up from $2.36 a year ago. “Nearly 80% of Americans say the price of gasoline is too high at $3 per gallon.” said Jeanette Casselano, AAA gas price expert. “Crude oil prices are falling, but it likely won’t be enough to drop gas prices more significantly this summer.”

Wednesday - June 6  

MARKET WRAP:

Talk of higher inflation and discussion of ending stimulus in the Eurozone weighed on Bond prices in today's session while pushing yields higher. The Fannie Mae 30-yr 4% coupon closed at 101.56, -22bp and at the low for the day. Stocks surged on easing trade issues. The NASDAQ closed at a fresh record high of 7,698.24, +51.38 points, the Dow jumped 346.41 points to 25,146.39, while the closely watched S&P gained 23.55 points to end the bullish trading day at 2,772.25. WTI oil edged lower to $64.73/barrel, -$0.79 on higher supply worries. 10-yr yield closed at 2.97%. Economic data tomorrow is limited to Weekly Initial Jobless Claims and nothing scheduled for Friday.

Late Morning Review:

Mortgage rates declined in the latest which sparked a jump in mortgage applications, reports the Mortgage Bankers Association (MBA). The MBA reports that its Market Composite Index, a measure of total mortgage loan application volume, rose 4.1% in the latest week. The refinance index rose 4%, while the purchase index increased 4% from the previous week. The 30-year fixed-rate conforming mortgage fell to 4.75% from 4.84% with an average 0.46 in points. Mortgage rates have been on the rise in 2018, but from an historical basis, they remain just above all-time lows.

Just some numbers from the recent Census Bureau report on homeownership rates: The homeownership rate of 64.2% in the first quarter of 2018 was not statistically different from the rate in the first quarter of 2017 (63.6%) and virtually unchanged from the rate in the fourth quarter 2017 (64.2). National vacancy rates in the first quarter 2018 were 7% for rental housing and 1.5% for homeowner housing. The rental vacancy rate of 7% was virtually unchanged from the rate in the first quarter 2017 (7%) and not statistically different from the rate in the fourth quarter 2017 (6.9%).

Tuesday - June 5  

MARKET WRAP:

Not a lot of action in the markets today in the absence of any market moving news or geoploitical headlines. After the recent slide, Mortgage Bonds closed slightly higher from yesterday. The Fannie Mae 30-yr 4% cou[pon closed at 101.78, +6bp. Stocks closed mixed and left the NASDAQ at a record high close of 7,637.86, +31.40 points. The Dow fell by 13.71 points to 24,799.98 while the S&P saw a meager 1.93 point gain ending at 2,748.80. WTI oil closed at $65.52/barrel, +$0.77. 10-yr yield 2.92%. There are no major economic reports due for release tomorrow.

Late Morning Review:

Limited inventories of homes for sale on the market continue to push home prices higher as “new construction fails to keep up with and meet new housing growth or replace existing inventory,” according to CoreLogic Chief Economist Frank Nothaft. CoreLogic reports that home prices, including distressed sales, rose 6.9% from April 2017 to April 2018, while there was a 1.2% gain in April 2018 compared with March 2018. Looking ahead, CoreLogic forecasts a 5.3% increase in home prices from April 2018 to April 2019. Nothaft says, “More construction of for-sale and rental housing will alleviate housing cost pressures.”

The job market continues to strengthen with many employers reporting that it is getting tougher and tougher to fill openings. The Labor Department reported that its JOLTS (Job Opening and Labor Turnover Survey) report showed there were 6.7 million job openings in April from 6.6 million in March. The 6.7 million is the highest recorded since the government began the survey back in December 2000. At this point in time, the job market is considered to be at or near full employment.

The service sector of the economy grew in May for the 100th consecutive month. The ISM Service Index rose to 58.6 in May from the 56.8 recorded in April and above the 58.0 expected. Within the report it showed that the employment component rose in May as well as other key sectors. The report went on to say that the majority of respondents are optimistic about business conditions and the overall economy. There continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold.

Monday - June 4 

MARKET WRAP:

The trading week kicked off with lower Bond prices, higher yields and higher Stock prices. Stocks were boosted in the absence any of any glaring geopolitical headlines and after the solid Jobs report on Friday. The Fannie Mae 30-yr 4% coupon closed at 101.72, -22bp. The Dow gained 178.48 points to 24,813.69, the S&P 500 was up 12.25 points to 2,746.87, while the tech heavy NASDAQ gained 52.12 points to end the day at 7,606.46. WTI oil closed at $64.75/barrel, -$1.06 on supply concerns. 10-yr yield rose to 2.94%. Economic data is limited to the ISM Service Index.

Late Morning Review:

The National Association for Business Economics (NABE) feels the Tax Cut & Jobs Act will boost economic growth in 2018 and 2019, but the U.S. could fall into a new recession in 2020. NABE expects 2.8% Gross Domestic Product this year, slightly lower from its 2.9% reported in March. The slightly less optimistic view is due in part to the trade policies that could have a negative impact on the economy. The current economic expansion began in mid-2009 and is currently the second longest in U.S. history and will be the longest if it continues past June 2019.

There were no U.S. bank failures during the first five months of 2018, the first time this has occurred since 2006. Ultimately, there were no bank failures in 2006, the last calendar year when that happened. Since 2007, 531 banks have failed, an average of 48 per year over the last 11 years.

The two-day Federal Open Market Committee (FOMC) meeting will kick off its regularly scheduled meeting next week, June 12-13. It is expected that the meeting will end on Wednesday with a quarter-point hike in the short-term Fed Funds Rate (FFR). The Fed Funds Rate is the rate at which depository institutions lend reserves held at the Federal Reserve to other depository institutions overnight. The FFR influences everything from home and auto loans to credit cards along with lenders' Prime Rates.

Friday - June 1 

MARKET WRAP:

Easing political tensions in Europe and a strong Jobs Report for May sent Bond prices lower today, yields higher, Stocks higher as the seesaw action continued in Stocks and Bonds. The Fannie Mae 30-yr 4% coupon closed at 101.94, -12bp. The Dow gained 219.37 points to 24,635.21, the S&P closed at 2,734.62, +29.35 points while the tech heavy NASDAQ ended the week at 7,554.33, up 112.21. WTI oil closed at $65.81/barrel, -$1.23. 10-yr yield 2.90%. Late in the day President Trump said the summit with North Korea is back on for June 12. Next week's economic is on the light side. Have a great weekend!

 

chart 180601

 

Late Morning Review:

Strong job growth continued in May as the U.S. economic expansion continues its winning ways. The Bureau of Labor Statistics reports that Non-Farm Payrolls rose 223,000 in May, above the 190,000 expected and up from 159,000 in April. For the past three months, job gains averaged 179,000. April and March were revised for an increased total of 15,000. The Unemployment Rate for May fell to 3.8%, the lowest since April 2000.

May Average Hourly Earnings increased 0.3%, in line with estimates and up from 0.1 percent in April; year-over-year was reported at 2.7%, up from 2.6% in April. Total unemployment, or the U6 number, fell to 7.6% in May from 7.8% in April. The Labor Force Participation Rate was at 62.7% for May from 62.8 percent the previous month. Overall, the Jobs Report was strong and shows a tightening labor market.

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