September 2018

September 4th, 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 - September 28  

MARKET WRAP:

Mortgage Bonds were able to bounce off the seven-year lows seen on Wednesday after the Fed forecasted that inflation will remain in check for several years. Today's Core PCE was unchanged and backed up the Fed's assertion. The Fannie Mare 30-yr 4% coupon closed at 100.94, unchanged. Stocks ended near unchanged as the quarter and month came to an end. The Dow closed at 26,458.31, the S&P 2,913.98, while the NASDAQ ended at 8,046.35. The S&P rose 7.2% for the quarter, its best quarter since Q4 2013. WTI oil was last seen at $73.56/barrel, +$1.41. 10-yr yield 3.06%. Next week ADP Private Payrolls will be released on Wednesday, Non-farm Payrolls Friday. Have a great weekend!

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Late Morning Review:

Inflation remained contained in August and comes after Fed Chair Powell said this week that he doesn't see any upside surprises to inflation. The Bureau of Economic Analysis reported this morning that Core Personal Consumption Expenditures, the Fed's favorite inflation gauge, was unchanged year-over-year at 2%, right at the Fed's target range. Inflation data is one of the metrics that dictates the path of mortgage rates. A low inflation environment tends to keep interest rates in check.

Consumer Sentiment continued to hover near at frothy levels in September due in part to a strong economy and tight labor market. The Consumer Sentiment Index rose to 100.1 in September, well above the 96.2 recorded in August and topped the triple digit mark for only the third time since January 2004. Richard Curtin, chief economist at the index said, "All households held very optimistic expectations for improved personal finances in the year ahead, the most favorable financial prospects since 2004."

Thursday - September 27

MARKET WRAP:

Mortgage Bonds ended near unchanged weighed down by rising Stock prices. This morning's economic data had little impact on the markets. The Fannie Mae 30-yr 4% coupon closed at 100.94, unchanged. Stocks closed higher due in part to rising tech shares. The Dow gained 54.65 points to 26,439.93, the S&P 500 rose 8.03 points to 2,914.00 while the NASDAQ closed at 8,041.96, +51.60 points. WTI oil settled at $72.12/barrel, +$0.55. 10-yr yield 3.05%. Tomorrow's economic data includes Core PCE, Personal Income & Spending and Consumer Sentiment.

Late Morning Review:

Soaring consumer confidence, a strengthening economy and a tight labor market sent Bond prices lower, yields higher and mortgage rates higher this week. Freddie Mac reports that the 30-year fixed-rate mortgage rose seven basis points in the latest week to 4.72% with an average 0.5 tacked on in points and fees. Freddie Mac said that housing constraints and home price gains are beginning to ease, which should keep housing demand up in the near future.

Final economic growth in the second quarter of 2018 grew at a robust pace due in part to increased consumer and business spending along with investment increases. The Bureau of Economic Analysis reported that Gross Domestic Product (GDP) rose 4.2% in the second quarter, the best reading since the third quarter of 2014. The Atlanta Federal Reserve is forecasting that GDP in the third quarter of 2018 will rise 4.4%.

In other economic news, very strong data from August Durable Orders shows they are up 4.5% from -1.2% in July, which helped to lift the U.S. Stock markets. Durable Orders are those products that tend to be on the expensive side and last for at least three years. Weekly Initial Jobless Claims continue to hover near lows seen in the late 1960s coming in at 214,000 in the latest week.

 

 

Wednesday - September 26  

MARKET WRAP:

As expected, the Fed raised the short-term Fed Funds rate at the close of the FOMC meeting and went to say that the U.S. economy is strong. Fed Chair Powell said that he doesn't see inflation surprising to the upside, which boosted Bond prices and pushed yields lower. The Fannie Mae 30-yr 4% coupon closed at 100.94, +25bp. Stocks closed lower after the push into Bonds after Fed Chair Powell's words on inflation. The Dow lost 106.93 points to 26,385.28, the S&P lost 9.59 points to 2,905.97 while the NASDAQ fell 17.10 points to end at 7,990.36. WTI oil was last seen at $72.04/barrel, -$0.24. 10-yr yield edged lower to 3.04%. Tomorrow's data includes Q2 3rd read on GDP, Durable Orders, Initial Claims and Pending Home Sales.

 

Late Morning Review:

Mortgage rates hit their highest level in seven years in the latest week as the 30-year fixed-rate mortgage rose to 4.97%, the highest since April 2011, reports the Mortgage Bankers Association (MBA). In a strengthening economy and tight labor market, rates have no where else to go but higher, though because of the ridiculously low rates abroad, there is a limit to how high rates can go in the near term. The MBA went on to report that that purchase and refinance indexes both rose last week.

It's Fed Day! U.S. financial markets are cautious ahead of the Fed statement and expected hike to the short-term Fed Funds Rate, due out at 2:00 p.m. ET. The rate hike is already baked into the markets but what the monetary policy statement reveals could potentially move the markets. The Fed could reveal the path of future rate hikes and some signals on the inflation picture. The statement will most likely confirm a strong economy and tight labor market.

Sales of new single-family houses rebounded in August after the two-month decline, signaling the housing market is still alive and well. New Home Sales rose 3.5% from July to an annual rate of 629,000, in line with expectations. However, July was revised lower to 608,000 from the 627,000 originally reported. Sales were up 12.7% from August 2017. Sales soared in the Northeast, rose in the Midwest and West, and fell in the South. The median sales price of new houses sold in August 2018 was $320,200. There was a 6.1-month supply of homes for sale on the market, which is considered normal.

Tuesday - September 25  

A WORD FROM THE BOND PITS:

Mortgage Bonds closed higher in price and tighter on spread vs Treasuries amid lower trading volumes. 

CLOSING TECHNICAL SIGNAL:

The Fed delivered a nice gift to us in the mortgage business by saying inflation is going to run around 2% through 2021. There is no pressure on long-term rates without inflation. This could be a game changer in the near-term. It will be very interesting to see if the 10-year Note yield can get back beneath 3.00%.

MARKET WRAP:

Mortgage Bonds traded in a tight range today closing slighly lower weighed down by added supply and soft demand from today's $37B 2-yr offering. The Fannie Mae 30-yr 4% coupon closed at 100.72, -12bp. Stocks closed lower on the trade issues between the U.S. and China along with the headlines out of D.C. The Dow lost 181.45 points to 26,562.05, the S&P fell 10.30 points to 2,919.37 while th NASDAQ saw a 6.9 point gain to 7,993.24. WTI oil was last seen at $72.26, +$1.48. 10-yr yield 3.08%. ConsumerConfidence will be released tomorrow. The Treasury will sell $38B 5-yr Notes.

Late Morning Review:

Home price gains eased a bit in July and have begun to slow after the big gains seen in the past few years. The S&P/Case-Shiller 20-City Home Price Index rose 5.9% from July 2017 to July 2018, down from the 6.4% year-over-year gain seen in June. On a monthly basis, prices were up just 0.1% from June. "Rising homes prices are beginning to catch up with housing," said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. "Year-over-year gains and monthly seasonally adjusted increases both slowed in July for the S&P CoreLogic Case-Shiller National Index and the 10- and 20-City Composite indices."

Americans across the nation expressed high praises for the strengthening U.S.economy in September while saying there are plenty of available jobs. The Conference Board reported that the Consumer Confidence Index hit 138.4 this month, the highest since September 2000 and just below the all-time high of 144.7 hit in May of the same year. Lynn Franco, Director of Economic Indicators at The Conference Board says, "These historically high confidence levels should continue to support healthy consumer spending and should be welcome news for retailers as they begin gearing up for the holiday season.”

Freddie Mac released its Economic & Housing Research report for September showing that economic growth quickened in the second quarter. Second quarter Gross Domestic Product rose 4.2%, the fastest pace in almost four years due in part to an uptick in consumer spending. On the housing front, Freddie expects total home sales to decline 0.9% to 6.07 million in 2018, before increasing 1.8% to 6.18 million in 2019. Housing starts are now forecast to rise 7.5% this year and 4.7% in 2019. Mortgage rates are forecasted to average 4.50% this year and 5.1% in 2019.

 

Monday - September 24  

MARKET WRAP:

Mortgage Bonds traded in a tight range today closing slighly lower weighed down by added supply and soft demand from today's $37B 2-yr offering. The Fannie Mae 30-yr 4% coupon closed at 100.72, -12bp. Stocks closed lower on the trade issues between the U.S. and China along with the headlines out of D.C. The Dow lost 181.45 points to 26,562.05, the S&P fell 10.30 points to 2,919.37 while th NASDAQ saw a 6.9 point gain to 7,993.24. WTI oil was last seen at $72.26, +$1.48. 10-yr yield 3.08%. ConsumerConfidence will be released tomorrow. The Treasury will sell $38B 5-yr Notes.

Late Morning Review:

The last week of the month and end of the third quarter is underway with several hurdles for the U.S. markets to jump this week. The two-day FOMC meeting begins tomorrow with the monetary policy statement being delivered at 2:00 p.m. ET on Wednesday. The Treasury will sell a total of $106B in securities this week. The August Core PCE will be released on Friday, after the Fed meeting, and always carries headline risk. The Core PCE is the Fed's favorite inflation gauge. New Home Sales and several home price indexes will also be released this week.

The Federal Reserve is expected to raise the short-term interest, the Federal Funds Rate, this week. The Fed Funds Rate is the rate in which banks and credit unions lend reserve balances held at the Federal Reserve to other depository institutions overnight, on an uncollateralized basis. A move in the Fed Funds Rate will impact credit card rates, and student, auto, and personal loans. Rates on home equity lines of credit will also rise.

 

 

Friday - September 21  

MARKET WRAP:

Mortgage Bonds ended off their worst levels today and up from the Wednesday lows. There were no economic reports released today and no major geopolitical headlines to impact trading. The Fannie Mae 30-yr 4% coupon closed at 100.84, near unchanged. Stocks ended the week in record high territory though the S&P and NASDAQ closed slightly underwater today. The S&P closed at a record high yesterday and lost 1.08 points today to end at 2,929.67 while the NASDAQ lost 41.27 points to close at 7,986.95. The Dow closed at a fresh record high of 26,743.50, +86.52. WTI oil wast last seen at $70.85/barel, +$0.53. 10-yr yield 3.06%. Next week the Bond market has to contend with $106B in Treasury supply, FOMC statement, Core PCE, housing and consumer attitude indexes. Have a great weekend!

Late Morning Review:

Despite the strong job market here in the U.S., banking and lending giant Wells Fargo plans on cutting up to 26,500 jobs, or 10% of its workforce, over the next three years. The bank said that the move into digital banking and the firm's efficiency programs would result in the layoffs along with normal attrition. The plans come as the U.S. economy is on the upswing, the labor market tight and as rival JPMorgan Chase announced plans to open more branches.

Next week, the U.S. financial markets have several hurdles to jump over, which comes as the Dow, S&P and NASDAQ Stock indices are at all-time highs. The two-day Fed meeting kicks offs on Tuesday with the monetary policy statement being released on Wednesday at 2:00 p.m. ET. There will be a hike to the Fed Funds Rate, which is most likely already priced in but the statement has the potential to move the markets. The week will also feature the Fed's favorite inflation gauge, the Core PCE, which could also shake up the markets. The final read on second quarter Gross Domestic Product will be released.

Fannie Mae released its September Economic and Housing Outlook showing that Gross Domestic Product in the third quarter of this year is estimated to be 3.2%. Fannie Mae said there will be an expected slowdown in consumer spending and business fixed investment growth. On the housing front, Doug Duncan from Fannie Mae said, "We expect housing to be a drag once again this quarter. But in a welcome development, some construction material prices have softened, which should help builders to continue to build smaller or less expensive homes most in demand from potential first-time homebuyers. Additionally, the crunch on for-sale inventories of existing homes has eased slightly, hopefully setting up an improvement in the housing market next year.”

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Thursday - September 20  

MARKET WRAP:

The Fannie Mae 30-yr 4% coupon has lost 100bp since September 7 while mortgages rates are at their highest point since May. The Bond closed at 100.81, near unchanged. Record breaking levels for Stocks have pushed Bond prices lower along with a strong economy, tight labor market, solid earnings and sky high consumer confidence. The Dow closed at 26,657.25, up 252.42 points while the S&P settled at 2,930.79, up 22.84 points, both record high closes. The NASDAQ closed at 8,028.23, +78.19 points. WTI oil was last seen at $70.80/barrel, -$0.35 in after hour trading. 10-yr yield at 3.06%, highest since May. There are no economic reports due for release tomorrow.

Late Morning Review:

The National Association of REALTORS® reports that after four straight months of declines, Existing Home Sales were unchanged in August from July at an annual rate of 5.34 million units. That was below the 5.37 million expected. Flat sales were due to a balance of gains in the Northeast and Midwest and losses in the South and West. From August of last year, sales were down 1.5%. The median existing home price in August was $264,800, up 4.6% from $253,100 of August 2017. Unsold inventory of existing homes in August was at a 4.3-month supply, below the 6-month supply considered normal.

Mortgage rates continued to edge higher in the latest week as Bond prices fell due in part to a strong U.S. economy, an uptick in wage growth along with a strong labor market. Freddie Mac reports that the 30-year fixed-rate mortgage rose to 4.65% this week with an average 0.50 in points and fees. Freddie Mac said, "Purchase applications have risen on an annual basis for five consecutive weeks. However, given the widespread damage caused by Hurricane Florence in the Carolinas, the next few months of housing activity will likely be somewhat volatile."

Americans filing for first-time unemployment benefits continue to hover near lows seen in the late 1960s, when the labor market was smaller. The Labor Department reports that Weekly Initial Jobless Claims fell to 201,000 in the latest week, down 3,000. It was the lowest number since November 1969. The jobs market is at or near full employment due to a strong U.S. economy

Wednesday - September 19  

MARKET WRAP:
MBS closed slightly lower. The Dow closed near a record high. This morning's Housing Starts data came in at 1.282M vs 1.229M expected, while the Building Permits data showed 1.229M vs 1.310M expected.

The Fannie Mae 30-yr 4% coupon closed at $100.26. The yield on the 10-yr Treasury note ticked up to 3.06%. The Dow gained +158.80 points to 26,405.76, the S&P rose by +3.64 points to 2907.95, while the NASDAQ closed -6.06 points lower to 7,950.04. WTI oil settled at $71.50 barrel, +$1.65. Tomorrow's Economic Calendar consists of Existing Home Sales, Jobless Claims (initial), and the Philadelphia Fed Index.

Late Morning Review:

Housing Starts surpassed estimates in August, rising 9.2 percent from July to a seasonally adjusted annual rate of 1.282 million units. This was above the 1.229 million expected. Single-family starts, which make up the largest share of the residential housing market, rose 1.9 percent. 

However, the real boost in starts came from multi-family construction, which climbed 27.3 percent. Housing Starts were flat in the Northeast, but the Midwest, South and West all saw positive gains. New home construction is also 9.4 percent higher than August of last year. 
 

Building Permits, a sign of future construction, didn't fare as well. From July to August, Building Permits decreased 5.7 percent. They are also 5.5 percent lower than August 2017.

Tuesday - September 18 

MARKET WRAP:
Bonds were much lower. Stocks much higher, shrugging off trade worries. Both U.S. and China add new tariffs. The Fannie Mae 30-yr 4% coupon closed at $100.26. The yield on the 10-yr Treasury note climbed to 3.05%. The Dow gained 184.84 points to 26,246.96, its highest close since January 29th. The S&P rose 15.51 points to 2,904.31, while the NASDAQ closed 60.31 points higher to 7,956.11. WTI oil settled at $69.75/barrel, +$0.84. The Housing Market Index came in at 67 versus 66 expected. Housing Starts and Building Permits data will be reported at 8:30 am ET tomorrow.

Late Morning Review:

Home builder sentiment held steady at 67 in September, per the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Readings over 50 are considered positive. The price of lumber has declined since the highs seen in the spring, which is a welcome sign. NAHB Chairman Randy Noel noted, "Despite rising affordability concerns, builders continue to report firm demand for housing, especially as millennials and other newcomers enter the market."

The Fed's two-day Federal Open Market Committee meeting begins next Tuesday, and it is expected that the Fed will raise its benchmark Fed Funds Rate. This is the rate at which banks lend money to each other overnight and it does not directly impact long-term rates like those for purchase and refinance home loans. There are growing expectations that the Fed may also hike the Fed Funds Rate at its December meeting, though this could be impacted if the threat of a prolonged trade war continues.

Mortgage Bonds continue to struggle in early trading.

 

Monday - September 17  

MARKET WRAP:
Stocks ended just above session lows. Earlier today, U.S. 10-year and 30-year yields hit a 4 month high, but were unable to stay at that level. President Trump is expected to make an announcement on $200B in China tariffs after the markets close today. Amazon, Apple, and other tech stocks were weighed down by increased trade concerns. This morning’s Empire State Index came in at 19.0, down from 25.6 the prior month.

The Fannie Mae 30-yr 4% coupon closed at $101.04. The yield on the 10-yr Treasury note remains at 2.99%. The Dow lost -92.55 points to 26,062.12, the S&P fell by -16.18 points to 2888.80, while the NASDAQ closed -114.25 points lower to 7,895.79. WTI oil settled at $68.74/barrel, -$0.26. The Housing Market Index is due to be released tomorrow at 10:00 am ET, and the Housing Starts and Building Permits data will be reported at 8:30 am ET on Wednesday.

Late Morning Review:

Housing data dominates the headlines this week with news on August Housing Starts and Building Permits releasing on Wednesday and Existing Home Sales on Thursday. Housing Starts rebounded slightly in July after hitting a nine-month low in June, while sales of existing homes saw a fourth straight month of declines in July, their slowest pace in more than two years. Low inventory has been an issue for many homebuyers across the country this year, and it will be especially important to see what the data for August shows in that regard.

In the manufacturing sector, the Empire State Index fell to 19 points in September. This was down nearly 7 points from August's reading of 25.6, which was a 10-month high.

Mortgage Bonds fell below a key support level and have neared 2018 lows.

Friday - September 14  

MARKET WRAP:
Bonds were lower, Stocks ended relatively flat. President Trump gave the go ahead on seeking $200B in China tariffs. August’s Retail Sales data showed 0.1% vs 0.4% estimated, while Retail Sales ex-auto came in at 0.3% vs 0.5% estimated. July numbers were revised higher as Consumer Sentiment strengthens, a trend we expect to continue. Bonds have drifted lowed since the release of last Friday’s Hourly Earnings data. We’re seeing solid economic news as well as a wage-based threat of inflation – this is preventing bonds from moving any higher. 

The Fannie Mae 30-yr 4% coupon closed at $101.03. The yield on the 10-yr Treasury note rose to 2.99%. The Dow gained 8.68 points to 26,154.67, the S&P rose by 0.80 points to 2,904.98, while the NASDAQ closed -3.66 points lower to 8,010.04. WTI oil settled at $68.96/barrel,+$0.36. Next week’s Economic Calendar consists of Housing data, Jobless claims (initial), and the Empire State and Philadelphia Fed Indices, which are both solid reports on manufacturing.

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Late Morning Review:

Retail Sales disappointed in August, up just 0.1% from July. This was the smallest gain in six months. However, July's figure was revised higher from 0.5% to 0.7%. Consumers cut back on spending for cars and clothing, whiles sales were led by non-store retailers and from receipts at gasoline stations. On an annual basis, Retail Sales were up 6.6% from August 2017.

There are signs that China’s economy is slowing, materially, which could help further the negotiations regarding tariffs. China’s Stock market, the Shanghai Index, is down 20% in the last year and in bear market territory.

 

Thursday - September 13  

MARKET WRAP:

Bonds were lower, Stocks higher with Apple leading the way on Wall Street.Trade concerns eased a bit. Today's Consumer Price Index data had little impact on the markets, coming in at .2% vs .3%, slightly lower than expected. Weekly jobless claims were reported at 204k vs. 210k expected, a new 50 year low.The Fannie Mae 30-yr 4% coupon closed at $101.28. The yield on the 10-yr Treasure note rose to 2.97%. The Dow gained 147.07 points to 26,145.99, the S&P rose by 15.26 points to 2,904.18, while the NASDAQ closed 59.48 points higher to 8,013.71. WTI oil settled at $68.81/barrel, -$1.56. Today's $15B 30-yr Treasury Bonds auction showed solid demand, as the yield ticked up to 3.10%. The Retail Sales Report and Consumer Sentiment Index will be released tomorrow, results at 8:30 am ET and 10:00 am ET, respectively.

Late Morning Review

The Consumer Price Index (CPI) for August rose 0.2%, in line with estimates as higher costs for gasoline and rents were offset by declining costs for healthcare and apparel. On an annual basis, CPI fell to 2.7% from 2.9% in July while the Core CPI fell to 2.2% from 2.4%. The data also accelerated Stock futures as lower inflation data could somewhat slow interest rate hikes in the future.

Mortgage rates rose for the third straight week due in part to strong job and consumer credit growth in August. Freddie Mac reports that the 30-year fixed-rate mortgage rose to 4.60% with an average 0.5 in points and fees. Rates had stalled mid-summer but moved in a slightly higher pattern though they remain historically attractive. Freddie Mac said, "Overall, this spectacular stretch of solid job gains and low unemployment should help keep homebuyer interest elevated. However, mortgage rates will likely also move up, as the Federal Reserve considers short-term rate hikes this month and at future meetings."

Wednesday - September 12  

MARKET WRAP:

Mortgage Bond prices didn't stray far from unchanged today trading in an extremely tight range, unable to produce gains as Stocks closed near the flat line. Today's lower wholesale inflation data had little impact on the markets. The Fannie Mae 30-yr 4% coupon closed at 101.25, +6bp. Stocks closed in mixed fashion as the Dow and S&P edged out meager gains, while lower shares of Apple weighed on the NASDAQ. The Dow gained 27.86 points to 25,998.92, the S&P saw a 1.03 point gain to 2,888.92, while the NASDAQ closed down by 18.24 points to 7,954.22. WTI oil settled at $70.37/barrel, +$1.12. 10-yr yield 2.96%. The Consumer Price Index and Weekly Initial Jobless Claims will be released tomorrow. The Treasury will sell $15B 30-yr Bonds, results at 1:00 p.m. ET.

Late Morning Review

Inflation at the wholesale level declined in August from July due in part to lower costs for food and a range of services. The Producer Price Index (PPI) fell 0.1% versus the 0.2% expected, while the Core PPI, which strips out volatile food and services, fell 0.1%, below the +0.2% expected. On a year-over-year basis, both the PPI and Core PPI were below estimates. The more closely watched Consumer Price Index will be released tomorrow showing data on consumer inflation.

The Mortgage Bankers Association reports that its Market Composite Index, a measure of total mortgage loan application volume, fell 1.8% for the week ended September 7, 2018. The refinance index fell 6% while the purchase index increased 1%. The 30-year fixed-rate mortgage increased to 4.84% from 4.80%, with an average 0.46 in points. The 30-year fixed-rate mortgages with jumbo loan balances rose to 4.72% from 4.67%, with points increasing to 0.47.

Middle-class incomes rose to an all-time high in 2017 while the official poverty rate decreased 0.4% due in part to a strong U.S. economy. Middle-class incomes rose to $61,372 in 2017, an increase of 1.8% from 2016, which was the third annual increase, reports the U.S. Census Bureau. The nation’s official poverty rate in 2017 was 12.3%, with 39.7 million people in poverty. A strong economy lifts all boats.

Tuesday - September 11  

MARKET WRAP:

Bond prices dropped, yields edged higher today as investors shifted to riskier assets. Small business optimism soared while the number of job openings hit a record high of near 7 million at the end of July. The Fannie Mae 30-yr 4% coupon closed at 101.29, -19bp. The Dow gained 113.99 points to 25,971.06, the S&P rose 10.76 points to 2,887.89, while the NASDAQ closed at 7,972.47, up 48.31 points. WTI oil settled at $69.25, +$1.71. 10-yr yield 2.98%. Economic data is limited to the wholesale inflation reading Producer Price Index for August. After the close of trading, hedge fund Bond expert Jeffrey Gundlach said that inflation rate is accelerating, due to tax cuts and tariff battle. The treasury will sell $23B 10-yr Notes tomorrow, results at 1:00 p.m. ET

 

Late Morning Review

Small business optimism soared in August to record high levels as the U.S. economy continues to grow. The NFIB Small Business Optimism Index rose to 108.8 in August, the highest in its 45-year history and above the previous record of 108.0 recorded in July 1983. The report showed that job creation plans and unfilled job openings both set new records in August. “I’m hearing everyday from small business owners that business is booming. As the tax and regulatory landscape changed, so did small business expectations and plans,” said NFIB President and CEO Juanita D. Duggan.

The strong economy and labor market is also helping U.S. homeowners remain current on their mortgages, though natural disasters in some areas have caused an uptick in delinquencies. Data analytics firm CoreLogic reports that the 30 days or more delinquency rate for June 2018 was 4.3% as opposed to 4.6% seen in June 2017. That delinquency rate is near a 10-year low. CoreLogic says, "The continued improvement in mortgage performance bodes well for the health of the U.S. market in 2018."

Hurricane Florence is bearing down on the East coast mid-Atlantic states. It has been upgraded to a Category 4 Storm and is expected to gain even further strength. South Carolina, North Carolina and Virginia state officials have ordered the evacuations of 1 million people from the areas that will be impacted. The storm is expected to make landfall Thursday night. The storm winds are now at 130-miles-per hour. The storm could be upgraded to Category 5, the highest classification, meaning the area could see sustained winds exceeding 156-milers-per-hour.

Monday - September 10  

MARKET WRAP:

Not much action in the Bond markets today as prices traded near unchanged for most of the session. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed near unchanged at 101.47. Stocks also underwent a ho-hum session. The Dow fell 59.47 points to 25,857.07, the S&P 500 gained 5.45 points to 2,877.13 while the NASDAQ closed at 7,924.16, up 21.61 points. WTI oil settled at $67.54/barrel, -$0.21. 10-yr yield 2.93%. There are no major economic reports due for release tomorrow. The Treasury will sell $35B 3-yr Notes, results at 1:00 p.m. ET.

Late Morning Review:

Due in part to the rise in home prices over the past few years, tappable homeowner equity rose to its highest level ever in the second quarter of 2018. Data and analytics firm Black Knight, Inc. reports that tappable homeowner equity rose by $256 billion in the second quarter of 2018 to a total gain of $636 billion for 2018. There is now a little over $6 trillion total in tappable homeowner equity across the nation. Black Knight went on to reveal that some 44 million homeowners have equity that could be tapped out via cash out refinances or home equity lines of credit.

Fannie Mae released its Home Purchase Sentiment Index for August, which rose for the first time since May, up 1.5 points to 88. The report showed that the increase in the index was attributed to increases in the job- and income-related components. The net share of Americans who say they are not concerned about losing their job rose 15 percentage points to 80% after last month’s steep decline, reaching a new survey high. The net share of those who say their household income is significantly higher than it was 12 months ago rose 1 percentage point to 22%, reaching a new survey high for the second consecutive month. On the housing front, the report went on to reveal that the net share of Americans who say it is a good time to buy a home fell 3 percentage points from July to August to 21%.

U.S. Stock markets are trying to rebound from last week's decline spurred on by trade tensions with China along with NAFTA issues with Canada. The closely watched S&P 500 Stock Index recently hit a record closing high due in part to a strong economy, a tight labor market, relatively low interest rates and sky-high consumer confidence. In addition, earnings season produced solid gains as after-tax profits across the U.S. jumped 16% in the second quarter of 2018 from the same period in 2017.

Friday - September 7  

MARKET WRAP:

Higher wage growth within the August Jobs Report stoked inflation fears which pushed both Bonds and Stocks lower today. Stocks feel higher inflation could lead to accelerated rate hikes. The Fannie Mae 30-yr 4% coupon closed at 101.44, -31bp. The Dow lost 79.33 points to 25,916.54, the S&P closed at 2,871.68 down 6.37 points while the NASDAQ was down 20.18 points to end at 7,902.54. WTI oil closed at $67.75/barrel, near unchanged. 10-yr yield edged higher to 2.94%. Next week's economic calendar features Retail Sales and the Consumer Price Index. The Treasury will sell $35B 3-yr Notes on Tuesday, $23B 10s on Wednesday and $15B 30-yr Bonds on Thursday. All three are up $1B. Have a great weekend!

 

Late Morning Review

The Bureau of Labor Statistics reports that U.S. employers hired 201,000 new workers in August, above the 187,000 expected. However, June and July were revised lower by a total of 50,000 jobs. The big number within the report was the 0.4%t gain in wages from July to August, while year-over-year wages increased by 2.9%, the highest annual increase in nine years. The Unemployment Rate remained at 3.9%. Overall it was a solid report as the labor market is near or at full employment.

ATTOM Data Solutions reports the rate of home flipping declined in the second quarter of 2018 to a four-year low as the survey revealed that the number of distressed or low-priced homes for sale on the market dropped. There were 48,768 single-family homes flipped in the second quarter, which makes up about 5.2% of all sales. That figure is down 5.4% from a year ago. A flip is defined as a home that has been sold more than once in a 12-month period. “Fewer distressed sales are limiting the ability of home flippers to find deep discounts even while rising interest rates are shrinking the pool of potential buyers for flipped homes,” says Daren Blomquist, ATTOM’s senior vice president.

The national average price for a regular gallon of gasoline rose to $2.85 this week, but lower prices can be seen on the horizon. With the arrival of fall in a few weeks, demand for gas will ease as there will be less drivers on the road with summer vacations behind us. “With summer in the rearview mirror, demand is expected to significantly drop off in the coming weeks which means motorists can expect to see gas prices steadily decline,” said Jeanette Casselano, AAA spokesperson. “AAA expects the national average to hit $2.70 or less this fall.”

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Thursday - September 6  

MARKET WRAP:

Mortgage Bonds were able to produce and hold gains today though they were modest ahead of tomorrow's Jobs Report for August. Stocks ended flat to lower as the tech sector weighed on equities, which buoyed Bond prices. The Fannie Mae 30-yr 4% coupon closed at 101.75, +12bp. Stocks ended mixed with tech shares weighing on the S&P and NASDAQ. The Dow squeaked out a meager gain of 20.88 points to 25,995.87, the S&P 500 fell 10.55 points to 2,878.05 while the tech heavy NASDAQ lost 72.44 points to end the session at 7,922.72. WTI oil was last seen at $67.94/barrel, -$0.78. 10-yr yield 2.88%. The Jobs Report for August will be released at 8:30 a.m. ET. As always, be sure to be tuned in for the numbers and the market's reaction.

Late Morning Review:

Optimism surrounding the strength of the U.S. economy pushed Bond prices lower this week while borrowing costs edged higher. Freddie Mac reports that the 30-year fixed-rate mortgage inched up two basis points to 4.54% with an average 0.5 in points and fees added on top of the rate. It was the second straight week rates pushed higher. Freddie Mac says, "Mortgage rates are now up three-quarters of a percentage point from last year and home prices – albeit at a slower pace – are still outrunning rising inflation and incomes."

In the latest week, Americans filing for first-time unemployment benefits fell to lows not seen since 1969 as the labor market continues to strengthen. Weekly Initial Jobless Claims fell 10,000 in the latest week to 203,000, below the 214,000 expected. The four-week moving average of claims, which irons out seasonal abnormalities, declined 2,750 to 209,500, also the lowest since 1969. Most economists feel that the U.S. is at or just near full employment.

The service sector of the U.S. economy grew for the 103rd consecutive month in August as 16 non-manufacturing industries reported growth. The ISM Service Sector Index rose to 58.5 in August, above the 56.5 expected and up from 55.7 recorded in July. Any reading over 50 indicates expansion. The service sector is made up of professional and healthcare services along with other non-manufacturing industries and makes up about two-thirds percent of U.S. Gross Domestic Product.

 

 

Wednesday - September 5  

MARKET WRAP:

Not much action in the Mortgage Bond markets today as prices didn't stray far from unchanged levels ahead of the two key labor market reports this week in the ADP and Non-Farm Payrolls report tomorrow and Friday morning. The Fannie Mae 30-yr 4% coupon closed at 101.62, unchanged. Stocks had a choppy outing due in part to the lingering trade iisues with China and NAFTA with Canada. The Dow gained a meager 22.51 points to 25,974.99, the S&P closed lower by 8.12 points to 2,888.60 while the NASDAQ lost 96.07 points to 7,995.17 as the tech heavy index was weighed down by Facebook, Amazon, Apple, Netflix and Google. WTI oil settled at $68.72/barrel -$1.15 as the Gulf storm moved away from oil producing areas and as demand fears rise. 10-yr yield 2.90%, at the high end of its short-term one month trading pattern. ADP Private Payrolls, Productivity, ISM Services and Weekly Initial Jobless Claims will be released tomorrow morning.

Late Morning Review:

Home loan rates were essentially unchanged in the latest week and remain near the low end when looking at rates going back 30 to 40 years. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage rose two basis points last week to 4.80%. In comparison, in the last week of August of 2008, the rate was 6.40% while the same week in 1988 saw a 10.67% rate. The 4.80% rate does carry an average point of 0.46. The MBA went on to report that the refinance index fell 1.4% while the purchase index rose 0.6%.

Short-term interest rates will most likely rise modestly at the end of the month as the Federal Reserve is expected to raise the short-term Fed Funds Rate. The Fed Funds Rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight. The Fed Funds Rate is currently at 2.0% and is expected to increase to 2.25% at the September 25-26 Federal Open Market Committee meeting. The Fed Funds Rate will most likely push rates for autos, credit cards, personal loans and student loans slightly higher.

 

 

Tuesday - September 4  

MARKET WRAP:

Mortgage Bonds ended the day lower as sellers took control with the new month underway. The Fannie Mae 30-yr 4% coupon closed at 101.62, -19bp. Stocks ended lower but well off their worst levels as investors shrugged off the trade issues and lower Nike shares. The Dow fell by 24.99 points to 25,939.83, the S&P finished at 2895.15 down 6.37 points, while the NASDAQ settled at 8081.05, down 28.49 points. WTI oil closed at $69.87/barrel, near unchanged. The yield on the 10-yr T Note rise to 2.90%. There are no major economic reports due for release tomorrow.

Late Morning Review:

Home prices rose at a solid pace in July, though the gains are beginning to moderate due in part to higher home loan rates and home prices, notes Frank Nothaft, Core Logic's chief economist. CoreLogic reports that home prices, including distressed sales, rose 6.2% from July 2017 to July 2018 and increased 0.3% from June to July 2018. The 6.2% annual increase in July comes after the 6.8% rise from June 2017 to June 2018. CoreLogic forecasts that home prices will rise 5.1% from July 2018 to July 2019.

National manufacturing rose to its highest level in 14 years in August as the economy continues to grow stronger. The ISM Index rose to 61.3 last month, due in part to strength in its core components ... new orders, production and employment. The 61.3 was well above the 57.6 expected and up from 58.1 in July. The report said that the U.S. economy grew for the 112th consecutive month in August. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates that it is generally contracting.

The Commerce Department reports that construction spending rose a modest 0.1% from June to July, up 5.8% from July 2017. Private residential spending rebounded in July, rising 0.6% from June after two straight months of declines. The report went on to reveal that spending increased in public and federal government construction while state and local government spending also increased.

12:00 PM EST Chart  Call me about the moving averages and further explanation. 

Thanks, John 205-266-5669

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