August 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=
Friday - August 31
Mortgage Bond traded in a narrow range today ending at the session lows, near unchanged. The Fannie Mae 30-yr 4% coupon closed at 101.78, +3bp. Stocks closed near unchanged cutting losses after the trade headlines that talks are ongoing with Canada and a deal possibly with Mexico. The Dow closed at 25,961.29, S&P 2,901.40 and NASDAQ 8,109.53. WTI oil at $69.80/barrel, +$0.19. 10-yr yield ticked up to 2.86%. Next week is holiday shortened with all U.S. capital markets closed on Monday for Labor Day. The big report out next week is the August Jobs Report on Friday. The Vantage Production offices are closed on Monday. Have a great long weekend!
Late Morning Review:
Consumer Sentiment slipped in August to its lowest level since January as its current economic conditions component declined. The final Consumer Sentiment Index for August came in at 96.2, below the 97.9 recorded in July but above expectations of 95.5. The report went on to reveal that future income and job certainty have become the main reasons cited by consumers for their positive spending views.
U.S. Stock markets are near record highs as measured by the closely watched S&P 500 Stock Index. The S&P hit an all-time closing high of 2,914.04 on Wednesday of this week due in part to a robust economy, strong labor market along with sky-high consumer confidence. This week, consumer confidence hit an 18-year high as both business and labor market conditions improved even further in August. Given the strong labor market, many consumers are planning on buying a house or purchasing big ticket items in the near future.
Thursday - August 30
Not much action in the Mortgage Bond markets today as prices traded near the flat line for most of the session, despite the Dow, S&P and NASDAQ ending lower. Stocks drifted lower early on but added to losses after a report surfaced that the U.S. would slap tariffs of $200B on China goods. The Fannie Mae 30-yr 4% coupon closed at 101.78, +9bp. The Dow lost 137.65 points to 25,986.92, the S&P fell by 12.91 points to 2,901.13 while the NASDAQ ended at 8,088.36, down 21.32 points. WTI oil settled at $70.25/barrel, +$0.74. 10-yr yield 2.85%. Tomorrow's economic data includes Chicago PMI and Consumer Sentiment and could be one the slowest trading days of the year.
Late Morning Review
Mortgage rates were essentially unchanged this week as they hover near the same levels for the past three weeks. Freddie Mac reports that the 30-year fixed-rate mortgage is at 4.52% for the week ended today with an average 0.5 in points and fees. Freddie Mac says that while sales and price growth have softened these last few months, this leveling of rates may be helping more buyers reach the market. Last year this time the rate was 3.82%.
In economic news, the Fed's favorite inflation gauge, the annual Core PCE, ticked up to the Fed's target range of 2% in July from 1.9% in June. Month over month, Core PCE rose 0.2%, in line with estimates. Personal Incomes and Spending came in near expectations while Weekly Initial Jobless Claims hover near lows seen in 1969. Inflation seems to be under control but that won't stop the Fed from raising rates next month. Fed Fund Futures are pricing in an almost 100% chance of a hike to the Fed Funds Rate at the September 25-26 Federal Open Market Committee meeting.
Americans filing for first-time unemployment benefits continue to hover near lows seen back in 1969, when the labor market was smaller. Weekly Initial Jobless Claims rose 3,000 in the latest week to 213,000 while the job market continues to tighten. It is said that there are more jobs available than there are people to fill those positions. The Bureau of Labor Statistics reported this week that unemployment rates were lower in July than a year earlier in 323 of the 388 metropolitan areas, higher in 41 areas, and unchanged in 24 areas. Next week, Friday, September 7, the monthly Jobs Report will be released for August.
Wednesday - August 29
Not much movement again today for Mortgage Bonds as they traded in a tight range ending near unchanged. The strong GDP print saw some selling, but was not very aggressive. The Fannie Mae 30-yr 4% coupon closed at 101.72, unchanged, a decent sign given the modest rise in Stocks. Tech stocks led the major indices higher today. The Dow gained 60.55 points to 26,124.57, just below its all-time closing high of 26,616.71. The S&P closed at 2,914.04, up 16.52 points while the tech heavy NASDAQ gained 79.64 points to end the session at 8,109.68. WTI oil settled at $69.51/barrel, +$0.98. 10-yr yield 2.88%. Tomorrow, the Fed's favorite inflation gauge, the Core PCE, will be released along with Personal Income and Spending and Weekly Initial Jobless Claims.
Late Mornging Review
After moving higher from the beginning of the year until mid-June, mortgage rates have pushed lower and continued to edge even lower in the latest week. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell three basis points to 4.78% with an average 0.46 point in the week ended August 24. The MBA went on to report that the purchase index fell 1% while the refinance index decreased 3%.
Economic growth remained strong in the second quarter of 2018 with consumer spending at a robust pace. The second reading on Q2 2018 Gross Domestic Product ticked up to 4.2% from 4.1% in the first reading and came and went without much fanfare. The 4.2% was the best reading since the 4.9% recorded in Q3 2014. GDP measures the total market value of the goods and services produced within the United States in a year.
The National Association of REALTORS® reports that signed contracts to purchase homes in July fell on an annual basis, making this the seventh straight month of declines. Pending Home Sales fell 0.7% in July from June and are down 2.3% year over year. The index was lower in the South and West, with modest gains seen in the Northeast and Midwest. Lawrence Yun, NAR chief economist said, “The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.”
Tuesday - August 28
Mortgage Bonds followed the path of least resistance today, lower, despite Stocks giving up their early gains and closing near unchanged. However, the meager gains for Stocks pushed the S&P and NASDAQ to fresh record closing highs. Bonds saw some selling after Consumer Confidence rose to its highest level in August since October 2000. The Fannie Mae 30-yr 4% coupon closed at 101.72, -16bp. The Dow gained 14.38 points to 26,064.52, the S&P closed with a fractional gain closing at 2,897.52 while the NASDAQ squeaked out a 12.14 point gain to end at 8,030.03. WTI oil closed at $68.53/barrel, -$0.34 as some profit taking set in. 10-yr yield 2.88%. Tomorrow's economic data includes the second read on Q2 2018 GDP and Pending Home Sales. The Treasury will sell $31B 7-yr Notes and comes after today's good demand from the 5-yr offering and will complete this week's Note offerings.
Late Morning Review
Home prices continued to rise in June, but at a slightly slower pace than in the past. The S&P/Case-Shiller 20-City Home Price Index rose 6.3% from June 2017 to June 2018. This was slightly below the 6.4% expected and down from the 6.5% recorded in May. Month over month, prices rose 0.1% from May to June. “We are seeing signs that growth is easing in the housing market … 30-year fixed rate mortgages rose from 4% to 4.5% since January – and the rise in home prices are affecting housing affordability,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.
Americans attitudes surrounding the U.S. economy and its components soared to levels not seen in 18 years in August. The Conference Board reports that its Consumer Confidence Index increased in August to 133.4, up from 127.9 and above the 126.5 expected. Consumers' assessment of the business and labor markets rose, which suggests high confidence levels should continue to support healthy consumer spending in the near term.
Freddie Mac released its August forecast on the housing market showing that "ongoing supply and demand imbalances and weakening affordability conditions, particularly in markets out West, are expected to keep a lid on home sales growth through the rest of the year." Freddie Mac predicts that the 30-year fixed-rate mortgage will average 4.6% in 2018. The report also showed that total home sales are to increase modestly this year to 6.14 million while home price growth will rise 6%. In addition, total originations are forecasted at $1.655 trillion, down 8.4% from 2017.
Monday - August 27
Not much action in the Mortgage Bond markets today as prices closed modestly lower, trading in a narrow range. There were no economic reports today but news that the U.S. and Mexico came to some deal on trade lifted Stocks and weighed on Bond prices. The Fannie Mae 30-yr 4% coupon closed at 101.91. -6bp. The Dow gained 259.29 points to end at 26,049.64. The S&P closed at 2,896.74, +22.05 points while the NASDAQ was up 71.92 points to 8,017.89, both record high closes. WTI oil closed at $68.87/barrel, near unchanged. 10-yr yield 2.84%. Economic data tomorrow includes Consumer Confidence and the S&P Case-Shiller Home Price Index. The Treasury will sell $37B 5-yr Notes and comes after today's decent 2-yr offering.
Late Morning Review:
U.S. Stocks are higher to begin the week on news that the U.S. and Mexico are trying to reach a deal on the North American Free Trade Agreement (NAFTA). The Dow Jones Industrial Average is up 200 points in early trading. In addition, Fed Chair Powell said that gradual interest rate hikes will continue to assure protection of the U.S. economic growth, maintain a strong job market and to keep inflation under control. The S&P 500 Stock Index closed at a record high of 2,874.69 on Friday.
The end of summer unofficially takes place this Labor Day weekend as Americans get in their last vacations before heading back to school or back to work. Demand for gasoline is expected to spike around the holiday, leading to a likely, but brief price jump, as drivers take to the nation’s roads one last time before fall arrives. The national average price for a regular gallon of gasoline is at $2.83 as of today, Monday, August 27. Last year this time the price was $2.36.
With back to school and college shopping winding down before the new year starts, the numbers are in. Total spending for K-12 schools and college combined is expected to hit $82.8 billion, almost as high as 2017's $83.6 billion. Families with children heading to elementary through high school plan to spend an average $684.79 while families with college bound kids will spend an average $942.17. "The biggest change we are seeing in back-to-school spending this year is coming from electronics, such as items like laptops, tablets and smartphones," said Mark Matthews, National Retail Federation vice president for research.
Friday - August 24
Mortgage Bonds ended near unchanged today with little movement after the Powell speech offered no surprises. The Fannie Mae 30-yr 4% coupon closed at 101.97, near unchanged. Stocks ended after Fed Chair Powell stayed on course with interest rate hikes. The Dow gained 133.37 points to end at 25,790.35. The S&P closed at 2,874.69, +17.71 points while the NASDAQ gained 67.51 points to close at 7,945.97, both fresh record high closes. WTI oil closed at $68.72/barrel, +$0.89. 10-yr yield 2.81%. Next week, the Treasury will sell $36B 2-yr Notes on Monday, $37B 5s on Tuesday and $31B 7s on Wednesday. The economic calendar will feature housing, manufacturing, inflation and consumer attitudes. Have a great weekend!
Late Morning Review
The U.S. economy has been growing at a strong pace in 2018 with second quarter Gross Domestic Product at a robust 4.1%. This week, Target CEO said, "We're currently benefiting from a very strong consumer environment, perhaps the strongest I've seen in my career." Retailers have recently reported the strongest sales in over a decade. Consumer spending makes up two-thirds of economic activity and as Americans spend money, economic growth should continue.
The Federal Housing Finance Agency reports that home prices rose 1.1% in the second quarter of 2018 in its House Price Index (HPI), as low inventories continue to push prices higher. House prices were up 6.5% from the second quarter of 2017 to the second quarter of 2018. On a monthly basis, prices were up 0.2% from May to June. The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.
Fed Chair Powell spoke at the Fed sponsored Jackson Hole Economic Symposium today, which was eagerly anticipated this week. Mr. Powell said that gradual rate hikes seem appropriate and he expects strong economic growth to continue. The Federal Reserve will do whatever it takes on inflation but there are no clear signs of it accelerating above its target range of 2%. Mr. Powell went on to say that the U.S. economy does not seem to be showing signs of overheating. Most people who want jobs can find them.
Thursday - August 23
Mortgage Bonds traded in an extremely tight range today closing near unchanged with no clear signal to move higher. Even a weaker than expected New Home Sales report and lower Stocks prices couldn't push Bond prices higher. The Fannie Mae 30-yr 4% coupon closed 101.94, near unchanged. This confirms that the number of $102 mentioned below is a difficult number to break. Stocks declined modestly as the trade issues escalate. The Dow fell 76.62 points to 25,656.98, the S&P fell by 4.84 points to 2,856.98, while the NASDAQ was down 10.63 points to end at 7,878.45. WTI oil closed at $67.84, unchanged. 10-yr yield 2.82%. The only economic report tomorrow is Durable orders but it will take a backseat to Fed Chair Powell's speech at the Jackson Hole Economic Symposium around 10:00 a.m. ET.
3:23 pm EST - We are now sitting on $102 and $104. Round numbers that are hard to break thru. See below.
Chart at 1pm EST- Currently Staying above 100 day moving average, but not above $102.
Late Morning Review:
Freddie Mac reports that the 30-year fixed-rate mortgage fell two basis points this week to 4.51% with an average 0.5 in points and fees. It was the lowest rate since mid-April. Freddie Mac said, "It is clear that affordability constraints have cooled the housing market, especially in expensive coastal markets. Many metro areas desperately need more new and existing affordable inventory to break out of this slump."
New Home Sales declined 1.7% in July from June to an annual rate of 627,000, below the 645,000 expected. June's number was revised higher to 638,000 from 631,000. While sales were down month over month, they were up 12.8% from July of last year. July sales plunged in the Northeast, fell in the South, while the Midwest and West saw solid gains. The median sales price was $328,700. There was a 5.9 month supply of new homes on the market, near the 6-month levels considered normal.
Americans filing for first-time unemployment benefits continue to hover near the lows seen in 1969 as the labor market is near full employment. The Labor Department reported that Weekly Initial Jobless Claims fell 2,000 in the week ended August 18 to 210,000. The four-week moving average of claims, which strips out volatile food and energy, declined 1,750 to 213,750. Some pundits feel that Weekly Initial Jobless Claims could fall below the 200,000 mark in the near future.
Wednesday - August 22
Mortgage Bonds & Treasuries improved slightly, but in the latter, the recent rally is showing early signs of stalling. Stocks were mixed but overall set a record for the longest bull market in American history – 10 Years!!! The USA Dollar has lost some gains recently thanks to President Trump showing some criticism of the Fed – this has allowed the price of oil to increase a couple of dollars higher.
2:30 pm EST Mortgage Backs are currently trying to get over the round numbers of 102 and 104.
Late Morning Review:
Existing Home Sales fell for the fourth straight month in July. The National Association of REALTORS reported that Existing Home Sales decreased 0.7 percent to a seasonally adjusted annual rate of 5.34 million in July from 5.38 million in June. This was their slowest pace in more than two years.
Existing Home Sales are 1.5 percent lower than July 2017, and they have declined on an annual basis for five straight months. Unsold inventory is at a 4.3-month supply, well below the 6-month supply seen as normal.
The minutes from the Fed's July 31-August 1 Federal Open Market Committee meeting will be released today. It will be important to hear the Fed's take on inflation and wage growth, since soft inflation and smaller wage growth has been keeping the Fed from hiking its benchmark Fed Funds Rate more aggressively.
Tuesday - August 21
Not much movement for Mortgage Bonds today as they traded in an extremely tight range for most of the session. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon fell 9bp to end at 101.88, just above support at the 100-day Moving Average. Stocks rose on encouraging data from the consumer sector and on trade optimism. The Dow gained 63.60 points to 25,822.29, while the NASDAQ closed at 7,859.17, up 38.16 points. The S&P hit its record high of 2,872 and tied its record for longest bull market, before closing at 2,862.96, up 5.91 points. WTI oil closed at $67.35/barrel, +$0.89. 10-yr yield 2.84%. Tomorrow, Existing Home Sales will be released. The Fed minutes will be released at 2:00 p.m. ET.
Late Morning Review:
Luxury homebuilder Toll Brothers reported strong earnings and forecasted solid guidance going forward in yesterday's corporate earnings release. Rising orders along with a healthy economy sent completed sales up 18% from a year earlier. The company reported earnings per share of $1.26, well above the $1.03 expected. Douglas C. Yearley, Jr., Toll Brothers’ chief executive officer said, “Our double-digit growth in revenues, contracts and backlog and our strong earnings reflect the health of the new home industry in general and our unique position in the luxury market."
U.S. Stocks are in the midst of the longest-ever bull market in American history. Fueled by tax cuts, solid economic growth, relatively low interest rates, strong corporate earnings and sky-high consumer confidence, the current bull-market that began on March 9, 2009, has lasted nine years, five months and 13 days ... the longest stretch ever. The closely watched S&P 500 Stock Index is just six points below its all-time closing high of 2,872, hit back on January 26.
Monday - August 20
Not much movement for Mortgage Bonds today though they did manage to close with gains while Treasury prices surged. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 101.97, +16bp. Stocks closed higher on trade optimism, but closed off their best levels after President Trump criticized the Fed rate hikes at a GOP fundraiser. The Dow gained 89.37 points to 25,758.69, the S&P rose 6.92 points to 2,857.05 while the tech heavy NASDAQ closed at 7,821.00, up 4.67 points. WTI oil closed at $66.43/barrel, +$0.52. 10-yr yield 2.82%. There are no economic reports due for release tomorrow.
Late Morning Review:
Home price gains continued in July though at a slightly slower pace than what the market has been seeing the past few years. Real estate brokerage Redfin reports that home prices rose 5.3% from July 2017 to July 2018 to a median price of $307,400. The rate of price gains has been declining for the past five months and it is the slowest annual increase since September 2016. In addition, home sales rose 4.1% year over year.
This week features just a few economic reports and no Treasury Bond or Note offerings. There are a couple of big events the financial markets must hurdle this week, including the annual Jackson Hole Economic Policy Symposium Thursday through Saturday. The Symposium focuses on important economic issues facing the U.S. and world economies. Fed Chair Powell will be speaking on Friday and could offer up some insight on the U.S. economy. On Wednesday at 2:00 p.m. ET, the Fed will release the minutes from the recent August 1 Federal Open Market Committee meeting.
U.S. Stocks are higher to begin the week buoyed by positive headlines surrounding trade talks between the U.S. and China. The two nations are scheduled to meet this Wednesday and Thursday with lower-level delegations from both countries. The Dow Jones Industrial Average is up 100 points as the week unfolds. The Dow, S&P and NASDAQ are just below all-time high levels due in part to a strong economy, a tight labor market, solid corporate earnings and sky-high consumer confidence.
Friday - August 17
Not much movement in the Mortgage Bond market today, typical for a summer Friday. The Fannie Mae 30-yr 4% coupon closed near unchanged at 101.81. Stocks closed higher on news of trade progress. The Dow gained 110.59 points to 25,669.32, the S&P 500 closed at 2,850.13, up 9.44 points, while the tech heavy NASDAQ settled at 7,816.13, up 9.80 points. WTI oil closed at $65.91, +$0.46 but closed lower for the seventh straight week on weaker demand outlook. 10-yr yield settled at 2.86%. Next week, economic data is on the light side so the markets will take their cue from geopolitical headlines. Have a great weekend!
Late Morning Review:
Ellie Mae released its Origination Insight Report for July this week showing that the percentage of closed purchase loans held steady at 71% of total loans closed in July for the second straight month. Ellie Mae reports the average 30-year interest rate for all loans edged higher to 4.91% from 4.90% in June and a new Origination Insight Report high. “The purchase market remained solid in July and as we see inventories rise, we might begin to see a transition to a buyer’s market,” said Jonathan Corr, president and CEO of Ellie Mae. “The summer home buying season is still in full swing and while interest rates have risen, we expect to see a continued increase in purchase percentages.”
Consumer sentiment edged lower in early August and slipped to its lowest level since September 2017 concentrated in the bottom third of the income distribution. The Consumer Sentiment Index in August fell to 95.3, below the 97.8 expected and down from 97.9 in July. Consumers said that buying conditions for large households durable items fell to the lowest levels in four years. Home buying conditions were viewed less favorably in early August than anytime in the past 10 years, with home prices judged less favorably than anytime since 2006.
The pay rates between top chief executive officers and the average worker continued to widen in 2017. There was a 17% increase for the top guy with an average of $18.9 million a year compared with hardly a budge in wages for the average worker. The $18.9 million includes salaries, bonuses, restricted stock grants and other forms of compensation. The average worker pay grew by 0.2%.
Thursday - August 16
Surging Stock prices held Mortgage Bond prices near unchanged throughout most of the afternoon session today. Stocks rebounded in a big way on easing tariff and Turkey woes. The Fannie Mae 30-yr 4% coupon closed near unchanged at 101.78. The Dow jumped 396.32 points to 25,558.73, the S&P 500 closed at 2,840.69 up 22.32 points, while the tech heavy NASDAQ gained 32.40 points to end at 7,806.52. WTI oil rose $0.45 to $65.46/barrel. 10-yr yield 2.87%. Economic data is limited to Consumer Sentiment tomorrow.
Late Morning Review:
After hitting a nine-month low in June, new home construction bounced back in July. Housing Starts improved to a seasonally adjusted annual rate of 1.168 million units, up 0.9%from June's downwardly revised estimate of 1.158 million. However, from July 2017, Housing Starts were down 1.4%, likely due to higher construction costs for materials, and shortages of land and labor this year. While the Midwest and South saw increases, Starts declined in the West and Northeast.
Building Permits, a sign of future construction, had better results in July, increasing 1.5% from June and up 4.2% from a year ago.
Optimism that trade tensions between the U.S. and China are easing helped Stocks rebound in early trading. Continued uncertainty overseas in Turkey also has the potential to increase market volatility.
Wednesday - August 15
Bond prices rose modestly today as investors sold Stocks on escalating trade worries. The Fannie Mae 30-yr 4% coupon closed at 101.78, +12bp, which most likely didn't equate to a much better rate sheet. The Dow lost 137.51 points to 25,162.41, the S&P 500 fell 21.59 points to 2,818.37 while the NASDAQ closed at 7,774.11, down 96.77 points. The Dow was down 334 points at one point earlier in the session and closed off worst levels. WTI oil closed at $65.01/barrel, -$2.03 on oversupply fears here in the U.S. 10-yr yield closed at 2.86%, down from yesterday's close of 2.89% though above the 2.83% seen earlier today. Tomorrow's economic data includes the Philly Fed, Housing Starts/Building Permits and Weekly Initial Jobless Claims.
Late Morning Review:
Consumers splurged in July as evidenced by the strong Retail Sales number, which rose 0.5% from June, exceeding the 0.1% expected. This solid number signals that the U.S. economy is doing well. Sales were led by clothing and accessories stores and gasoline station sales. However, June Retail Sales were revised lower to 0.2% from 0.5%, which took some of the luster from the July number. On an annual basis, Retail Sales were up 6.4% from July of last year. The U.S. economy depends on consumer spending to keep the motor running, and with back-to-school season upon us, Halloween not far away, and the holiday shopping season down the road, retailers could be looking at strong sales in the coming months.
Home builder confidence remained strong in August due in part to solid demand for new housing, a strong labor market and increasing wage growth along with rising household formations. The National Association of Home Builders reports that its Housing Market Index for newly-built single-family homes fell one point to 67 in August, where any number over 50 indicates that more builders view conditions as good rather than poor. “However, builders are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.
Mortgage rates remained essentially unchanged in the latest week as they hover just a percentage point above all-time lows. The Mortgage Bankers Association (MBA) reports that its Market Composite Index, a measure of total mortgage loan application volume, fell 2% for the week ended August 10, 2018. The MBAs refinance index was unchanged, while the purchase index fell 3%. The 30-year fixed-rate mortgage fell 3 basis points to 4.81% with points decreasing to 0.43 from 0.45. The 30-year fixed-rate mortgage with jumbo loan balances was unchanged at 4.73% with an average 0.29 point. The survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990.
Tuesday- August 14
Not much action in the Mortgage Bond market today as prices were weighed down by rising Stock prices. There were no major economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 101.62, -12bp and below resistance at the 50-day Moving Average. Stocks closed higher on earnings optimism and the lira rebound. The Dow gained 112.22 points to 25,299.92, the S&P 500 closed at 2,839.96 up 18.03 points while the NASDAQ rose by 51.18 points to end at 7,870.89. WTI oil slipped $0.16 to $67.04/barrel. 10-yr T Note at 2.89%. Tomorrow's economic data will feature Empire Manufacturing, Retail Sales and the NAHB Housing Market Index.
Late Morning Review:
Small business owners continue to express optimism due in part to a strong U.S. economy. The NFIB Small Business Optimism Index rose to its second highest level in the survey's 45-year history to 107.9 in July, just a whisker away from its record-high of 108 set back in July 1983. Small businesses are one of the backbones of the U.S. economy and employ millions of Americans. "Small business owners are leading this economy and expressing optimism rivaling the highest levels in history," said NFIB President and CEO Juanita Duggan. "Expansion continues to be a priority for small businesses who show no signs of slowing as they anticipate more sales and better business conditions."
The world's largest home improvement center, Home Depot, posted blowout earnings in its latest quarter due in part to strong home-improvement activity and a robust U.S. economy in the second quarter. Home Depot reported earnings per share of $3.05 versus the $2.84 expected while revenues came in at $30.46 billion, above the $30.03 billion expected. A slow start to the spring season, due to cooler weather pushed shoppers to purchase their spring gardening needs in the second quarter. The company has raised its earnings forecast for the full year.
The Congressional Budget office (CBO) reports that economic growth will be strong in 2018 but will ease in 2019 as fiscal stimulus eases. The CBO predicts that Gross Domestic Product will grow 3.1% in 2018, above the 2.2% recorded in 2017 due to increased government spending, reduction in taxes, and faster growth in private investment. The CBO went on to say that in 2019, the pace of GDP growth slows to 2.4% in the agency’s forecast as growth in business investment and government purchases slows.
9:30 am chart
Monday - August 13
Not much action in the Mortgage Bond markets today as prices traded near unchanged unable to produce gains as Stocks declined on the Turkish woes. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 101.72, -9bp, the session low, and just at resistance at the 50-day Moving Average. Stocks ended lower as players were a bit defensive amid the Turkish currency woes. The Dow lost 125.44 points to 25,187.70, the S&P fell 11.35 points to 2,821.93, while the NASDAQ ended lower at 7,819.70, -19.40 points. WTI oil settled at $67.20/barrel, -$0.43. 10-yr yield 2.87%. No major economic reports being released tomorrow.
Late Morning Review
U.S. Stocks are rebounding to start the week shrugging off the trade headlines and a bit of the Turkey dilemma because of the ongoing stream of good economic data here in the U.S. Given the limited size of Turkey's economy, and the likelihood of this being a short-term "pain," there shouldn't be a major problem for the U.S. equity markets. There are no economic reports due for release today to impact trading. However, the rest of the week flares up with Retail Sales, Consumer Sentiment, Housing Starts/Building Permits/NAHB Housing Market Index, Philly Fed and the Empire Manufacturing hitting the wires.
The Labor Department reports that in June 2018, there were 5.50 million Americans that had their employment end by either quitting, being laid off or getting discharged from work. In June 2018, there were also 5.65 million Americans that were hired into new jobs. Separate from the 5.65 million Americans that were hired, there were still 6.66 million job openings that were unfilled, the second highest monthly total ever for a statistic tracked since December 2000.
The size of the U.S. Federal Reserve's balance sheet continues to shrink as outlined in its reduction plan announced on September 20, 2017. U.S. Treasury debt and Mortgage-Backed Securities held by the Federal Reserve as of 8/01/18 was $4.04 trillion, down from $4.24 trillion as of 8/02/17. The reduction plan called for a $200 billion reduction that started in October 2017 and involved $10 billion of bonds maturing each month without reinvesting the principal. That monthly amount will increase by $10 billion each quarter before peaking at $50 billion per month in October 2018. The plan comes as the U.S. economy is less dependent on the Federal Reserve as economic growth continues to strengthen.
Friday - August 10
Mortgage Bond prices pushed higher today on negative headlines out of Turkey due to U.S. sanctions and its crumbling financial environment. The Fannie Mae 30-yr 4% coupon closed at 101.78, +19bp. Stocks fell on the geopolitical headlines surrounding the U.S. and Turkey. The Dow fell 196.09 points to 25,313.14, the S&P 500 lost 20.30 points to 2,833,28 while the NASDAQ was down 52.67 points to end at 7,839.11. WTI oil closed at $67.63/barrel, +$0.82. 10-yr yield 2.87%. Next week's economic calendar is packed with key reports such as Retail Sales, manufacturing, housing and consumer sentiment. Have a great weekend!
Late Morning Review:
Rising home prices and mortgage rates pushed housing affordability to lows not seen in a decade in the second quarter of 2018, reports the National Association of Home Builders. From the beginning of April to the end of June, 57.1% of all new and existing home were affordable, down from 61.6% in the first quarter. The national median home price rose from $252,000 in the first quarter of 2018 to $265,000 in the second quarter, the highest quarterly median price in the history of the Housing Opportunity Index. At the same time, average mortgage rates surged by more than 30 basis points in the second quarter to 4.67% from 4.34% in the first quarter.
Consumer inflation remained tame in July from June but year-over-year core consumer inflation rose the most in 10 years. The Consumer Price Index (CPI) rose 0.2% in July from June in line with estimates as rising shelter costs offset a drop in energy prices. Over the past 12 months, CPI rose 2.9%, unchanged. However, the Core CPI, which strips out food and energy, rose 2.4%, the highest rate since September 2008. But inflation remains on the tame side with no evidence of a spike higher in the coming months.
Gas prices at the pumps remained unchanged today from last week, despite lower oil prices. Motorists are still paying the highest August prices since 2014. The national average price for a regular gallon of gas is $2.87, the same from a month ago but up $0.50 from last year this time. Motorists should see lower prices by mid-September as the summer driving season winds down in a few weeks.
Thursday - August 9
Mortgage Bonds continued in their sideways pattern today, trading in a tight range, as the Fannie Mae 30-yr 4% coupon closed at 101.75, +9bp and right at resistance at the 50-day Moving Average (101.73). Stronger resistance is seen just above at the 100-day Moving Average (101.83). Stocks closed in mixed fashion. The Dow fell 74.52 points to 25,509.23, the S&P lost 4.12 points to 2,853.58, while the NASDAQ closed near unchanged at 7,891.78. WTI oil closed at $66.81/barrel, -$0.13. 10-yr yield 2.92% from this morning's high of 2.96%. July CPI will be released tomorrow morning.
Late Morning Review
Home price gains continued their winning ways in the second quarter of 2018 hitting record highs. The National Association of REALTORS® (NAR) reports that amidst extremely low inventory levels across much of the nation, existing homes sales waned while home price gains maintained their upward trajectory. The median price for a single-family home rose 5.3% from the second quarter of 2017 to the second quarter of 2018 to $269,900. Lawrence Yun, NAR chief economist says, “With not enough homes for sale, multiple bids caused prices to rise briskly and further out of the reach of some prospective buyers.”Late Morning Review
Americans filing for first-time unemployment benefits continue to hover near lows seen in the early 1970s as the labor markets are near full employment. The Labor Department reports that Weekly Initial Jobless Claims fell 6,000 in the latest week to 213,000, just above the 208,000 reported for the week of July 14, which was the lowest reading since December 1969. The four-week moving average of initial claims, which irons out seasonal abnormalities, declined 500 to 214,250 last week, the lowest reading since mid-May.
Wholesale inflation from the Producer Price Index (PPI) was unchanged in July from June versus the 0.3% gain expected while year-over-year edged lower to 3.3% from 3.4%. The Core PPI, which strips out volatile food and energy, rose 0.1%, below the 0.2% expected, and up 2.7% annually from 2.8% in June. The tame wholesale inflation data was due in part to a modest increase in the cost of goods and a decline is services. The more closely watched inflation-reading Consumer Price Index will be released tomorrow.
Wednesday - August 8
Not much action in the capital markets today, typical for August as many players are vacationing. There were no economic reports or glaring geopolitical headlines to influence trading, though the the trade issues weighed on Stocks today. Equities ended near unchanged and did not tank due in part to strong earnings as well as strong economic data and growth. The Fannie Mae 30-yr 4% coupon closed at 101.62, +9bp closing midway between resistance and support. The Dow fell 45.16 points to 25,583.75, while the S&P closed at 2,857.70, NASDAQ at 7,888.32, both settling near unchanged. WTI oil closed at $66.94/barrel, -$2.23 on higher supply concerns, easing demand. 10-yr T Note yield 2.96%. The first of two inflation reports will be released tomorrow with the Producer Price Index followed by the Consumer Price Index on Friday. Weekly Initial Jobless Claims will also be released. The Treasury will sell $18B 30-yr Bonds, results at 1:00 p.m. ET.
Late Morning Review:
Fannie Mae released its July Home Purchase Sentiment Index (HPSI) showing that home purchase sentiment hit its plateau as high home prices stymie trade-up confidence. The HPSI fell in July for the second consecutive month, declining 4.2 points to 86.5, after hitting survey highs in April and May. The report went on to reveal that the net share of Americans who say it is a good time to buy a home fell 4 percentage points from last month to 24%. The net share of those who say it is a good time to sell fell 6 percentage points from last month’s survey high to 41%.
U.S. Stocks are near unchanged as trade issues somewhat outweigh the strong earnings season. Last night, the White House completed plans to impose $16 billion in tariffs on imported Chinese goods while China countered with similar measures. The S&P 500 Stock Index closed at 2,858 yesterday, just shy of its all-time closing high of 2,872 hit back on January 26. Since January 26, China's Shanghai Stock Exchange has lost 22% due to the trade issues.
As the summer winds down, parents across the country begin to stock up on supplies as they usher off kids to the beginning of the new school year. Retailers are expecting a strong shopping season given the low unemployment rate, strong economic growth and high consumer confidence. Deloitte forecasts that back-to-school spending will rise 2.2% to $27.6 billion this year, with the average spending per household up slightly to $510 from $501 last year. That includes $112 on school supplies, up from $104 in 2017.
Tuesday - August 7
Mortgage Bonds edged lower today on the heels of higher Stocks and a weak 3-yr Treasury auction. The Fannie Mae 30-yr 4% coupon closed at 101.56, -12bp. Stocks rose due in part to higher shares of Google and Amazon and on the strength of a winning earnings season. The Dow gained 126.73 points to 25,628.91, the S&P 500 closed at 2,858.45, +8.05 points with today's high of 2,863 just 9 points below its all-time closing high of 2,872 hit back on January 26. Since January 26, China's Shanghai Stock Exchange has lost 22% due to the trade issues. WTI oil settled at $69.17/barrel with a meager gain. 10-yr yield has edged higher to 2.98% from this morning's low of 2.93%. There are no major economic reports due for release tomorrow. The Treasury will sell $26B 10-yr Notes, results at 1:00 p.m. ET.
Late Morning Review:
Home price gains remained strong in June. CoreLogic reports that home prices, including distressed sales, rose 6.8% from June 2017 to June 2018 and increased 0.7% month over month from May to June. Over the next year, gains are expected to slow as further increases in home prices and home loan rates could erode affordability and dampen sales and home-price growth. CoreLogic forecasts a 5.1% increase from June 2018 to June 2019 while month-over-month home prices are expected to be unchanged from June to July of this year.
Mortgage credit availability continued to increase in July for the third month in a row fueled by an increase in conventional credit supply. The Mortgage Bankers Association's Mortgage Credit Availability Index rose 1.7% in July after gains in both May and June. From a year ago, the index has increased 2.8%. The MCAI is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.).
A recent survey revealed that buying a home can be exhausting, confusing and complicated. Homes.com reports that in a survey of 2,000 Americans, 40% say that purchasing a home can be the most stressful event in modern life while another 44% said they felt nervous throughout the whole home buying process. In addition, about 33% of those surveyed admitted to shedding tears at some point during the process. “At the end of the day, buying a home is often the largest purchase the average American will experience in their lives,” said David Hoegerman, Homes.com senior manager of content.
Monday - August 6
Not much action in the capital markets today in the absence of any economic data or glaring geopolitical headlines. The Fannie Mae 30-yr 4% coupon closed at 101.69, near unchanged. Stocks closed a bit higher as trade issues offset strong earnings. The Dow gained 39.60 points to 25,502.18, the S&P saw a 10.05 point gain to 2,850.40 while the NASDAQ closed at 7,859.67, +47.66 points. WTI oil closed at $69.01, +$0.52 on an unexpected decline in Saudi production. 10-yr yield settled at 2.94%. There are no major economic reports due for release tomorrow. The Treasury will sell $34B 3-yr Notes tomorrow, results at 1:00 p.m. ET.
Late Morning Review:
The American dream of owning a home was alive and well in the past 12 months as the economy and labor markets continued to grow. The Census Bureau reports that twice as many American homeowners were created in the last year as had been created in the previous 10 years. The number of US homeowners grew by +1.8 million (to 77.9 million) over the 12 months ending 6/30/18, double the +0.9 million new homeowners that were added over the decade ending 6/30/17.
U.S. Stocks are near unchanged to begin the week as strong earnings are offset by the lingering trade woes between the U.S. and China. The closely watched S&P 500 Stock Index finished higher last week closing a five-week run of gains, its first such streak in 2018. Strong earnings have pushed the equity markets higher as Reuters reports that over 400 S&P 500 companies have reported so far, and nearly 79% have topped earnings estimates.
JPMorgan Chase CEO Jamie Dimon was speaking at the Aspen Institute's 25th Annual Summer Celebration Gala over the weekend saying that the yield on the 10-year T Note could rise to 5%, which would boost borrowing costs for consumers. A stronger U.S. economy would be the reason for the rise in the 10-year yield. "Business sentiment is almost at the highest level it's ever been, consumer sentiment is at its highest levels, markets are wide open, housing's in short supply and my guess is mortgage credit will expand a little bit," Dimon said. "If you look at how the table's set, consumers are in very good shape."
Friday - August 3
After the solid Jobs report was released this morning, Mortgage Bonds edged higher as the risk-events were now through for the week. The Fannie Mae 30-yr 4% coupon closed at 101.66, +12bp. Stocks ended higher as strong earnings trump trade jitters. The Dow gained 136.42 points to 25,462.58, the S&P 500 closed at 2,840.35 up 13.13 points while the NASDAQ finished at 7,812.01, up 90.35 points. WTI oil settled at $68.49/barrel, -$0.47. 10-yr yield closed at 2.95%. Next week, the Treasury will sell a total of $78B in 3- and 10-yr Notes next week along with 30-yr Bonds on Tuesday, Wednesday and Thursday. The only economic report of value next week is the Consumer Price Index on Friday. Have a great weekend!
Late Morning Review:
And the survey says ... 157,000 jobs were created in July, below the 190,000 expected. The headline number was a miss, but a look under the hood shows many strong data points. The headline number of 157,000 missed expectations, but May and June were revised higher by 59,000. The Unemployment Rate fell to 18-year lows of 3.9%. One of the biggest highlights was the U6 number, or total unemployed, which dropped 0.3% to 7.5% for the month and down big from 8.5% a year ago.
Within the report it showed that the Labor Force Participation Rate remained at 62.9%. For the past three months, job growth averaged 224,000 compared to 194,000 in the same period in 2017. Average hourly earnings came in at 0.3% month over month, in line with estimates, while annually it remained at 2.7%. Weighing a bit on the report was hobby and retail toy employment, which fell by 32,000, largely due to the closing of Toys R Us. Outside the headline number which is always volatile and subject to revisions, this report was a strong one.
The service sector grew in July for the 102nd consecutive though the numbers were a bit lower than June. The Institute for Supply Management (ISM) Service Index registered 55.7 in July, below the 59.1 recorded in June and below the 58.5 expected. Within the report it revealed that the new orders index declined while the employment component gained strength. The survey went on to say that the majority of respondents remain positive about business and the economy.
Thursday - August 2
Not much action in the Mortgage bond markets today ahead of tomorrow's Jobs Report. The Fannie Mae 30-yr 4% coupon closed at 101.50, +6bp. Stocks closed in mixed fashion. Apple became the first publicly traded company in history to reach a $1 trillion market cap. The Dow closed near unchanged at 25,326.16, the S&P gained 13.86 points to 2,827.22 while Apple shares led the NASDAQ higher closing at 7,802.68, +95.39 points. WTI oil settled at $68.93/barrel, +$1.27. The July Jobs Report will be released at 8:30 a.m. ET tomorrow morning, be sure to be tuned in for the numbers and the market's reaction.
Late Morning Review:
Mortgage rates rose this week to near seven-year highs. Freddie Mac reports that the 30-year fixed-rate mortgage rose six basis points to 4.60% 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. Sam Khater, Freddie Mac’s chief economist says, "With the embers of a strong economy potentially stoking higher inflation, borrowing costs will likely modestly rise in coming months.”
The labor market continues to produce strong numbers as 2018 progresses and as the U.S. economy strengthens. Outplacement firm Challenger, Gray & Christmas reports that U.S.-based employers announced planned job cuts of 27,122 in July, 27.1% less than the 37,202 cuts in June. The July number is 4.2% below the 28,307 announced from the same time last year. Retailers are leading the cut in jobs as on line shopping continues to grow. "The economy is at near-full employment. Nearly 90% of companies recently polled by Challenger are either actively hiring or in retention mode. Companies are not letting go of their workforces right now,” said John Challenger, chief executive officer of Challenger, Gray & Christmas, Inc.
Rental and housing numbers from the Census Bureau: The U.S. Census Bureau reports that over the 10 years from 6/30/07 to 6/30/17, the number of "renter" households in the U.S. increased by 8.4 million to 43.4 million, while the number of "owner" households increased by just 0.9 million to 76.1 million. However, over the latest 12 months from 6/30/17 to 6/30/18, the number of "renter" households in the United States declined by 0.1 million to 43.3 million, while the number of "owner" households increased by 1.8 million to 77.9 million.
Wednesday - August 1
Mortgage Bonds edged lower today on the heels of an uptick in future Bond offerings from the Treasury and a solid ADP Private Payrolls for July. The Bond closed at 101.47, -9bp, right at support. Stocks closed lower as tariff issues outweighed strong Apple earnings, though the NASDAQ finished higher. The Dow lost 81.37 points to 25,333.82, hardly a percentage loss, the S&P lost a meager 2.93 points to 2,813.36 while the NASDAQ closed at 7,707.28, +35.49 points. WTI oil settled at $67.66/barrel, -$1.05 on a jump in U.S. crude stockpiles. 10-yr yield 2.99%. Economic data is limited to Weekly Initial Jobless Claims tomorrow.
Late Morning Review:
The labor market continues to produce positive numbers for employment as the U.S. economy grows stronger. ADP Private Payrolls rose 219,000 in July, above the 175,000 expected while June was revised higher to 181,000 from 177,000. July's 219,000 was the highest since February's 241,000. The job market is booming, impacted by the deficit-financed tax cuts and increases in government spending," says Mark Zandi, chief economist of Moody's Analytics.
It’s Fed Day! The Federal Open Market Committee meeting ends this afternoon with the 2:00 p.m. ET release of its monetary policy statement. The market does not expect a hike to the short-term Fed Funds Rate. Rather, the statement will be dissected for clues that could solidify expectations for two more hikes in 2018. The current Fed Funds Rate is at a range of 1.75% to 2%. It is expected that there will be a rate hike at the September meeting.
Mortgage rates edged higher in the latest week after some positive economic reports were released last week. Second quarter 2018 Gross Domestic Product rose 4.1%, which pushed Bond prices lower, rates higher. The 30-year fixed-rate mortgage rose seven basis points to 4.84%, though rates still remain historically low. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.
Chart from July 27th