January 2019 (www.wigowir.com) What is going on with Interest Rates

January 1st, 2019

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=

Thursday - January 31

MARKET WRAP:

Mortgage Bonds closed modestly higher though off their best levels today. The Fannie Mae 30-yr 4% coupon closed at 102.31, +12bp. This morning, New Home Sales beat expectations while Chicago PMI fell short of estimates. Stocks closed mixed after yesterday's big rally. The closely watched S&P 500 is up 8% for January and up 15% from the low seen on Christmas Eve. The Dow lost 15.19 points to 24,999.67, the S&P 500 rose 23.05 points to 2,704.10 while the NASDAQ closed at 7,281.73. WTI oil settled at $54.02/barrel, -$0.21. 10-yr yield 2.63%. The January Jobs Report will be released at 8:30 a.m. ET. As always, be sure to be tuned in and look to the MMG Market News section for the numbers and the markets reaction.

Late Morning Review:

The partial government shutdown ended last Friday so the delay of sales of newly built homes for November was reported today with a big number. November New Homes Sales jumped 17% from October to an annual rate of 657,000 units, well above the 555,000 expected. However, sales were down 7.7% from November 2017. Across the country, sales jumped 100% in the Northeast, up 30.5% in the Midwest, up 20.6% in the South with a 5.9% decline in the West. There was a six-month supply of homes for sale om the market which is seen as normal. A solid report though somewhat backward looking due to the delay in reporting the numbers.

Mortgage rates were essentially unchanged in the latest week after the rise seen from January 2018 through November. Freddie Mac reports that the 30-year fixed-rate mortgage average 4.46% this week with an average 0.50 in points and fees. A year ago this time, the rate was 4.22%. Sam Khater, Freddie Mac’s chief economist, says, “Purchase applications were down this week after soaring early in the year. However, softening house price appreciation along with increasing inventory of homes on the market – and historically low mortgage rates – should give a boost to the spring homebuying season.”

Americans filing for first-time unemployment benefits rose to a near two and a half year high in the latest week. The partial government shutdown could be attributed to the jump in claims. Weekly Initial Jobless Claims rose 53,000 in the week ended January 26, above the 220,000 expected. The four-week moving average of initial claims, which irons out seasonal abnormalities, rose 5,000 to 220,250.

Wednesday - January 30  

Late Morning Review:

The labor market continues to produce strong numbers while the U.S. economy remains on solid ground. ADP reports that private employment grew by 213,000 in January, well above the 170,000 expected. December was revised lower to 263,000 from 271,000 and also a strong number. “The labor market has continued its pattern of strong growth with little sign of a slowdown in sight. Midsized businesses continue to lead job creation, however the share of jobs was spread a bit more evenly across all company sizes this month," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.

Contracts signed but not yet closed for home purchases fell again in December, according the National Association of Realtors (NAR). Pending Homes Sales fell 2.2% from November to December and are down nearly 10% from December 2017. It was the lowest December reading since December 2013 and marks 12 straight months of annual declines. Lawrence Yun, NAR chief economist, cited several reasons for the decline in pending sales. “The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December,” he said.

The Mortgage Bankers Association (MBA) reports that mortgage rates were essentially unchanged in the latest week and have remained near current levels for several weeks now. The MBA said the 30-year fixed-rate mortgage was at 4.76% in the week ended January 25 with 0.47 in points. Within the report it showed that the refinance index fell 6% while the purchase index fell 2%. The survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990.

 

Tuesday - January 29  

MARKET WRAP:

Not much action in the markets today as traders sat on their hands for the most part ahead of tomorrow's risk events. Lower Consumer Confidence numbers weighed on Stocks though earnings numbers were mostly positive this morning while U.S.-China trade issues linger. The Fannie Mae 30-yr 4% coupon closed at 101.91, +12bp. The S&P 500 fell 3.85 points to 2,640.00, the NASDAQ declined 57.39 points to 7,028.29 while the Dow squeaked out a meager gain of 51.74 points to 24,579.96. After the bell, Apple reported earnings and revenues that just beat expectations, which could be bullish for Stocks in the morning. WTI oil settled at $53.17/barrel, +$1.18. 10-yr yield declined to 2.71%. ADP Private Payrolls are due out at 8:15 a.m. ET tomorrow morning. The Fed statement will be released at 2:00 p.m. ET followed by Fed Chair Powell's press conference at 2:30 p.m. ET.

Late Morning Review:

Home price gains slowed in November and are now coming back down to more normal levels. The Case-Shiller 20-City Home Price Index rose 4.7% from November 2017 to November 2018, down from 5% in October. On a monthly basis, the 20-City Index rose 0.3%. The report read that stable 2% inflation, continued employment growth and rising wages are all favorable to the housing market ahead of the spring buying season.

Consumer Confidence edged lower in January from December to 120.2 from 126.6 though the index remains just below the all-time high levels, reported the Conference Board. Within the report it showed that those stating jobs are "plentiful" increased marginally, while those claiming jobs are "hard to get" also increased. "Shock events such as government shutdowns tend to have sharp, but temporary, impacts on consumer confidence. Thus, it appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months," said Lynn Franco, Senior Director of Economic Indicators.

Monday - January 28 

 MARKET WRAP:

Not much action in the Mortgage Bond markets today as prices closed slightly higher with Stocks closing lower though off their worst levels. The Fannie Mae 30-yr 4% coupon closed at 101.78, +12bp. Stocks fell on weak corporate earnings forecasts and as U.S.-China trade worries rise. The Dow fell by 208.98 points to 24,528.22, the S&P 500 lost 20.91 points to 2,643.85 while the NASDAQ was down 79.17 points to end at 7,085.68. WTI oil closed at $52.16/barrel, -$1.53. 10-yr yield 2.74%. S&P case-Shiller 20-City Index and Consumer Confidence will be released tomorrow morning. The Treasury will sell $32B 7-yr Notes.

Late Morning Review:

This week the U.S. financial markets will get a big dose of economic data along with a central bank meeting. The week features the two-day Fed meeting which kicks off on Tuesday and ends Wednesday with the monetary policy statement release at 2:00 p.m. ET. There is a zero percent chance of a hike at this meeting. The jobs data will come by way of Wednesday's ADP Private Payrolls and Friday's government Jobs Report, both for January.

If that weren't enough, the Treasury will be selling a total of $113 billion in Treasury securities. In addition, the heart of earnings season takes place this week and the results could impact the markets. Caterpillar reported an earnings miss and lower future guidance today, which is weighing on stocks this morning. U.S. China trade talks will also take place this week.

The partial government shutdown temporarily ended on Friday as federal workers are eager to get back to work and receive their back pay. The Congressional Budget Office (CBO) reports that the shutdown cost the U.S. economy $11 billion, though a big portion of the $11 billion will be reversed as the government opens and workers return to work though $3 billion of the $11 billion will be permanently lost. Lawmakers now have until February 15 to hammer out a long-term deal.

Friday - January 25  

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Next Week:

Boom! This could be a very important week for the financial markets and home loan rates. 

The FOMC (Fed) meeting kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement. The Fed will not hike the short-term Fed Funds Rate, but what they say in the statement could influence the next directional move for home loan rates. 

The last time the Fed spoke back on January 4th, Stocks and rates both moved higher and have been doing so ever since. Those shopping for a home would be wise to follow what the Fed says on Wednesday. 

Another very real threat to rates will be the January ADP Private Payrolls Report and Jobs Report. The last Jobs Report was a spectacular reading and home loan rates moved higher as a result. 

Throw in a whopping $113 billion in new Bond supply from the Treasury along with the heart of corporate earnings season and it sets the markets up for a very important week for rates...

Reports to watch:

  • Housing data will come from Tuesday's S&P Case-Shiller Home Price Index followed by Pending Home Sales on Wednesday.
  • Consumer Confidence will be delivered on Tuesday with Consumer Sentiment on Friday.
  • Manufacturing data comes from Thursday's Chicago PMI and Friday's ISM National Manufacturing Index.
  • Key labor market data will be released on Wednesday with ADP Private Payrolls and Friday's government Jobs Report.

 

Week in Review:

Despite bond friendly news with the unresolved US/China trade relations and the ongoing government shutdown, rates actually touched 2019 highs midweek...this as stocks continue to move higher. 

Home loan rates have been on the rise ever since the last Jobs Report and Fed Speech back on Friday Jan 4th -- next week we are seeing another Jobs Report and Fed Meeting...more on those big events below. 

The Housing market showed a surprising decline in Existing Home Sales in December. Despite the poor reading to finish the year, 2019 is setting up to be a good year. Historically low home rates, a slowing rate of home price increases along with the highest wage gains in a decade will see to that. 

If you or someone you know has questions about home loans, give me a call. I'd be happy to help.

MARKET WRAP:

Mortgage Bonds traded in a tight range in today's session weighed down by rising Stock prices. The Fannie Mae 30yr 4% coupon closed at 101.69, -6bp. Stocks ended higher on solid earnings along with the end of the gov't shutdown. The Dow rose 183.96 points to 24,737.20, the S&P ended at 2,664.76 while the NASDAQ closed at 7,164.76 up 91.40 points. WTI oil settled at $53.69/barrel, +$0.56. 10-yr yield 2.75%. Next week is a big one folks! We have a Fed Meeting and Jerome Powell press conference on Wednesday. If they do tip their hand on slowing QT and continue on the new "dovish" stance, Stocks may start partying again which could threaten Bonds. January ADP and Non-Farm Payrolls will be released next week. The Treasury will sell $113B in Treasury Notes. Have a great weekend!

 

Late Morning Review:

Zillow reports that median home prices rose 7.6% year-over-year in December 2018, to $223,900, just above the 7.4% recorded in December 2017. Rents increased at an annual pace of 1.4%, the largest increase since June 2018. When looking more closely at local conditions in the country's biggest markets revealed a sometimes-notable slowdown in a majority of them. In addition, housing inventories fell 0.4% since December 2017.

U.S. stocks are on the rise today as the week comes to an end. Strong corporate earnings and optimism that the government shutdown will soon come to an end are boosting equities. The Dow Jones Industrial Average was up 300 points at the time of this writing and is up nearly 14% since the lows seen at the close on Christmas Eve, 2018. Next week the markets will have to cope with two key labor market reports and the two-day Fed meeting.

Gas prices rose this week though they remain below levels seen a year ago. Demand for gasoline has risen in the last few weeks, prompting slightly higher prices. The national average for a regular gallon of gasoline at the pump is at $2.27, up a few cents on the week but below last month's prices. The highest price ever recorded was $4.11 back on July 17, 2008.

 

Thursday - January 24  

MARKET WRAP:

Mortgage Bonds closed with modest gains in today's session supported by weak economic data out of Europe and Asia along with mixed Stock prices. The Fannie Mae 30-yr 4% coupon closed at 101.78, up 12bp. The Dow closed at 24,553.24 down 22.38 points, the S&P gained 3.63 points to end at 2,642.33 while the NASDAQ was up 47.69 points to end at 7,073.46. WTI oil settled at $53.15, +$0.53. 10-yr yield 2.71%. There are no economic reports due out tomorrow.

Late Morning Review:

Fannie Mae released its January 2019 Economic and Housing Outlook showing that slower economic growth is expected in 2019, but a patient Fed could put housing on a firmer footing. The report went on to say that with the forecast of a slower pace of housing price gains this year, stable rates should support affordability and buyer confidence. Fannie Mae predicts that economic growth, or Gross Domestic Product, will grew at a 2.2% pace in 2019, down from last year's estimated pace of 3.1%.

Americans filing for first time unemployment benefits have fallen to lows seen in November of 1969 in the latest survey. Weekly Initial Jobless Claims fell 13,000 in the latest week to 199,000 and below the 217,000 expected. The labor market remains strong while the U.S. economy is on solid footing. The four-week moving average of claims, which irons out seasonal abnormalities, rose 1,250 to 1.73 million.

Next week is shaping up to be a big week for economic data along with a key meeting by the Federal Reserve. The big reports will be Wednesday's ADP Private Payrolls Report and Friday's Non-Farm Payrolls Report, both for January. The two-day Federal Open Market Committee meeting will kick off on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement. There is a zero percent chance of a hike to the benchmark Fed Funds Rate at this meeting but what the Fed says could be market moving.

8:10 AM ET 10-yr yield falls to 2.71% from 2.75%.

Wednesday - January 23  

MARKET WRAP:

Not much action once again today in the Mortgage Bond markets as Stocks started the day in positive territory, fell into the red, only to close with gains. There were no glaring economic data released today. The Fannie Mae 30-yr 4% coupon closed at 101.72, unchanged. Stocks were boosted by strong earnings from blue-chip Dow components P&G, United Technologies and IBM. The Dow gained 171.14 points to 24,575.62, the S&P rose 5.80 points to 2,638.70, while the NASDAQ closed at 7,025.76 up 5.41 points. WTI ended at $52.62/barrel, -$0.39. 10-yr yield 2.74%. Economic data is limited to Weekly Initial Jobless Claims.

Late Morning Review

This morning, JPMorgan Chase CEO Jamie Dimon said the U.S. economy should continue growing steadily but mentioned the big hurdles in Brexit, China and the government shutdown. He said if the Fed gets it right and if Congress can straighten out the shutdown, GDP could grow at a consistent 3% rate. This week is a bit quiet as far as economic data, but looking ahead, next week is huge with a Fed meeting and the January Jobs Report.

Home prices continued steady gains in November, reported the Federal Housing Finance Agency (FHFA). The FHFA's House Price Index rose 0.4% from October 2017 to November 2017 and was up 5.8% from November 2017 to November 2018. The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

Mortgage rates were essentially unchanged in the latest week, reports the Mortgage Bankers Association (MBA). The 30-year fixed-rate mortgage was unchanged in the week ended January 18 with 0.44 in points. The refinance index fell 5% while the purchase index declined 2% from one week earlier. The Market Composite Index, a measure of total mortgage loan application volume, fell 2.7% after the 40% gain seen in the previous two weeks. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.

8:12 am 10-yr yield edges higher to 2.77% from yesterday's close of 2.73%.

Tuesday - January 22  

Late Morning Review:

The National Association of REALTORS® reports that Existing Home Sales fell 6.4% in December from November to an annual rate of 4.99 million annualized units versus the 5.25 million expected. Lower sales in December were due in part to higher mortgage rates in early December along with an ease in buyers due to the holiday season. Sales were down 10.3% from December 2017. Monthly inventories are at a 3.7-month supply, below 6 months that is seen as normal. "With mortgage rates lower, some revival in home sales is expected going into spring,” said Lawrence Yun, NAR's chief economist.

The International Monetary Fund (IMF) cut its global economic growth forecast to 3.5% from 3.7%, not a big move lower and cites weakness in Europe. However, the U.S. economy remains strong in the global economy and continues humming along with solid growth, as also said by the Federal Reserve. The IMF cited the U.S.-China trade war, Brexit and China's slowing economy for the downgrade.

Earnings season continues with Dow components Travelers missing on earnings, beats on revenues while J&J exceeded expectations on both the top and bottom lines. With about 11% of the S&P 500 companies having reported, three-quarters have beaten on profits, while half have beaten on revenues, reports CNBC.

8:18 am ET  Treasury securities push into positive territory on Stock weakness. The yield on the 10-yr T Note edges lower to 2.75% from Friday's close of 2.78%.

Friday - January 18th

Next Week:

We kick off the week remembering Martin Luther King Jr. and the financial markets will be closed.

This is otherwise a light news week and with the government partially closed some reports, like New Home Sales and Durable Orders may not be reported.

Corporate quarterly earnings season ramps up this week after mostly positive numbers thus far.

Stocks continued their winning ways and have done so thanks to the Fed Powell speech back on Jan 4th.

Speaking of the Fed -- there will be no Fed members speaking this coming week ahead of the two-day Fed meeting on January 29-30. There is zero chance of a rate hike in January.

The markets will be listening closely to the Fed's thoughts on future hikes. At the moment, there is a very good chance the Fed Funds Rate will finish 2019 at current levels -- meaning no rate hikes.
Reports to watch:

  • Existing Home Sales will be released on Tuesday followed possibly by New Home Sales on Friday.
  • As usual, Weekly Initial Jobless Claims will be released on Thursday.
  • Durable Orders may be released on Friday. 

Week in Review:

Home loan rates finished this week near unchanged and remain near 9-month lows -- so we have that going for us.

Most of the week's news was pretty bond friendly, including Brexit uncertainty, ongoing Government shutdown, ongoing US/China trade dispute, low inflation and more.

So why haven't rates improved further with these bond-friendly tailwinds?

The first Friday of 2019 was the day things changed for the Bond Market when a blockbuster Jobs Report and overly "dovish" Fed Chair Powell speech were delivered, which has helped Stocks move steadily higher at the expense of Bonds.

Here's an important word to consider as we head into the Spring home buying season and that's disinflation, which means a slowing growth rate of inflation. We are seeing signs of this today and if the trend continues, home loan rates will benefit as 2019 progresses.

If you or someone you know has questions about home loans, give me a call. I'd be happy to help.

190118

Late Morning Review:

The partial government shutdown, tariffs, unstable financial markets and fears of a global economic slowdown sent Consumer Sentiment lower this month. The University of Michigan's Consumer Sentiment Index fell to 90.7 from 98.3 in December and below the 96 expected. It was the lowest reading since October 2016. The report went on to say that the details do not yet indicate the start of a sustained downturn in economic activity.

U.S. Stocks continue build on the gains in 2019 boosted by the strong December Jobs Report reported on January 4 while a possible pause in interest rate hikes has been signaled by the Federal Reserve. The closely watched S&P 500 is up 12% since the lows seen on Christmas Eve after the correction seen in December. Stocks are higher today on optimism surrounding trade talks with China.

Thursday - January 17th

MARKET WRAP:

Mortgage Bonds edged lower as Stocks continued to rise on trade hopes. The Fannie Mae 30-yr 4% coupon closed at 101.81, -6bp. The Dow gained 162.94 points to 24,370.10, the S&P rose 19.86 points to 2,635.96 while the NASDAQ was up 49.77 points to end at 7,084.46. WTI oil was last seen at $52.26/barrel, near unchanged in after hours trading. 10-yr yield rose to 2.74%. January Consumer Sentiment will be released tomorrow.

 

Late Morning Review:

The Mortgage Bankers Association (MBA) reports that applications to purchase new homes declined for the second month in a row in December. The MBAs Builder Application Survey fell 6.1% from a year ago while applications declined by 13% compared to November. Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting said, “Looking ahead, if mortgage rates remain low, housing inventory rises, and home-price growth continues to steady, we expect to see a rebound in purchase activity this spring."

Mortgage rates held steady in the latest survey after declining for six consecutive weeks. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged at 4.45% with an average 0.40 in points and fees. However, Freddie Mac said, "Consumer mortgage demand and homebuilder construction sentiment are on the mend, which indicates that lower interest rates are beginning to have a positive impact on some segments of the economy.

10:12 AM ET Freddie Mac reports that mortgage rates were essentially unchanged this week. The 30-yr fixed-rate mortgage remained at 4.45% with an average 0.4 in points and fees.

8:16 AM 10-yr yield 2.71% near unchanged.

Wednesday - January 16th

MARKET WRAP:

Mortgage Bonds opened and closed near unchanged in today's session weighed down by the risk on trade as U.S. stocks continued to gain strength. The Fannie Mae 30-yr 4% coupon closed at 101.88, near unchanged. The Dow rose 141.57 points to 24,207.16, the S&P 500 rose 5.80 points to 2,616.10 while the NASDAQ was up 10.85 points closing at 7,034.69. WTI oil settled at $52.33/barrel, +0.22. 10-yr yield 2.72%. Weekly Initial Jobless Claims and the Philly Fed will be released tomorrow.

Late Morning Review:

Declining mortgage rates lifted home builder confidence in January while low unemployment, strong job growth should support housing demand in the coming months, reports the National Association of Home Builders (NAHB). The NAHB Housing Market Index rose two points this month from December to 58, above the 56 expected. NAHB Chief Economist Robert Dietz said, “Lower interest rates that peaked around 5% in mid-November and have since fallen to just below 4.5% will help the housing market continue to grow at a modest clip as we enter the new year.”

Low mortgage rates also contributed to a surge in mortgage application volumes in the latest week. The Mortgage Bankers Association (MBA) reports that its market Composite Index, a measure of total mortgage loan application volume, rose 13.5% in the week ended January 11. The Refinance Index jumped nearly 19% while the Purchase Index rose 9.1%. "The spring home buying season is almost upon us, and if rates stay lower, inventory continues to grow, and the job market maintains its strength, we do expect to see a solid spring market," said Mike Fratantoni, MBA Vice President and Chief Economist.

Solid earnings from Bank of America and Goldman Sachs lifted U.S. stocks to four-week highs in today's session and well above the lows seen on Christmas Eve. The closely watched S&P 500 Index has risen 11% from the December 24 low of 2,351 to the current level of 2,615. A signal from the Fed that rate hikes may be on hold, a solid U.S. economy, strong labor market and plain old fashioned bargain hunting are a few reasons behind the recent advance in the equity markets.

 8:44 AM ET The MBA reports that the 30-yr fixed-rate mortgage was unchanged at 4.74% with an average 0.50 point.

8:12 AM ET 10-yr yield 2.73% from 2.70% at yesterday's close.

 

Tuesday - January 15th

MARKET WRAP:

Stocks rallied today on headlines that China may be stimulating its economy and as tech Stocks also fueled the rally. Mortgage Bond prices ended flat while yields edged higher. The Fannie Mae 30-yr 4% coupon closed at 101.91, near unchanged. The Dow gained 155.75 points to 24,065.59, the S&P 500 rose 27.69 points to 2,610.30 while the NASDAQ jumped 117.91 points to end the session at 7,023.83. WTI oil settled at $52.11/barrel, +$1.60. 10-yr yield 2.71%. The NAHB Housing Market Index will be released tomorrow.

 

Late Morning Review:

Inflation at the wholesale level declined in December due in part to a drop in energy costs. The December Producer Price Index (PPI) fell 0.2% versus the -0.1% expected while the Core rate declined 0.1%, below the +0.2% expected. The tame PPI report comes after last week's tame Consumer Price Index, reinforcing the notion that overall inflation remains contained. This is good for long-term rates, like mortgages.

Business activity grew slightly in January and well below what was seen in December. The January Empire Manufacturing Index fell to 3.9 from 11.5 in December and well below the 12.2 expected. It was the lowest reading in over a year and the forecast read that the firms surveyed were less optimistic about the six-month outlook than they were last month. Within the data it showed that labor market indicators pointed towards a modest increase in employment and hours worked.

The biggest bank by assets in the U.S. reported mixed earnings in the latest quarter's data with its mortgage banking numbers taking a hit. JPMorgan Chase reports that revenues slid further in the fourth quarter but were up from the same period last year. The banks home lending sector dropped 8% driven lower by a decline in net production and lower volumes.

 

 8:09 AM 10-yr yield near unchanged at 2.69%.

Monday- January 14th

MARKET WRAP:

Stocks fell in today's session but couldn't spark a rally in the Bond markets as prices closed near unchanged. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 101.94, -3bp. Stocks fell after China reported a year-over-year decline in both imports and exports in December, which stoked global growth fears along with earnings worries. The Dow fell by 86.11 points to 23,909.84, the S&P 500 lost 13.65 points to 2,582.61 while the NASDAQ was lower by 65.56 points to end the session at 6,905.91. WTI oil settled at $50.51/barrel, -$0.85. 10-yr yield 2.70%. The wholesale inflation reading Producer Price Index and the Empire Manufacturing Index will be released tomorrow morning.

Late Morning Review:

U.S. stocks are lower to begin the week after reports that Chinese exports slowed to their lowest pace in two years, solidifying slowing global growth. Questions regarding tomorrow's Brexit vote are also weighing on Stocks around the globe. Throw in the lingering government shutdown here in the U.S. and there are a few hurdles for Stocks to begin the week. Earnings season kicks off slowly this week with Citigroup's numbers missing expectations. JPMorgan and Bank of America will report later in the week but the bulk of the numbers takes place next week.

There are no economic reports due for release today. As far as economic data for the week, Retail Sales, Housing Starts and Building Permits have been knocked off the calendar due to the government shutdown as it enters its 24th day, its longest on record. More than 800,000 federal workers have been impacted by the shutdown with many of those workers deemed essential and are working without pay.

Gas prices at the pumps continue to run on the low end of the scale for the past few months due in part to oversupply and less demand during the winter months. The national average price for a regular gallon of gasoline is at $2.25, up a meager penny this week after declining for 12 weeks in a row, reports motor club AAA. “As the global crude market continues to be oversupplied, oil prices are dropping, continuing last week’s trend,” said Jeanette Casselano, AAA spokesperson. “This is good news for motorists filling up at the pump.”

 8:17 AM 10-yr yield 2.67% from Friday's close of 2.70%.

 

Friday - January 11th

190111

Next Week

The Fed is very much "data-dependent", meaning they will watch the incoming economic reports to help them determine their next move with interest rates. And this week brings a full slate of economic reports including numbers on housing, manufacturing, consumer spending and overall sentiment.
It would take a surprising positive change in economic data to cause the Fed to hike rates before June.

Some economic data, like Retail Sales and Housing Starts, may not be released if the government shutdown continues.

The uncertainty behind the ongoing U.S. government shutdown and U.S./China trade dispute continues to provide support for Bonds and home loan rates. Should these events come to a positive resolution, Bonds may drop, and rates may rise. The opposite is true.

Reports to watch:

  • The wholesale inflation reading Producer Price Index will be released on Tuesday.
  • Manufacturing data from Tuesday's Empire State Index will be followed by the Philadelphia Fed Index on Thursday.
  • Retail Sales may be released on Wednesday, given the government shutdown situation.
  • Housing data from the NAHB Housing Market Index will be delivered on Wednesday and possibly Housing Starts and Building Permits on Thursday.
  • Weekly Initial Jobless Claims will be announced on Thursday.
  • Friday brings Consumer Sentiment

Week in Review:

We are good where we stand right now"... Fed President James Bullard - 1/10/19

Stocks continued to react positively to Fed Chair Powell's Jan 4th speech, where he essentially said, "we have your back"...meaning that the Fed will be "flexible" and may not raise rates at all in 2019.

There is an old saying in the financial markets - "don't fight the Fed." This means that if the Fed is saying or doing something (hinting no rate hikes) that helps Stocks, that theme will continue until the story changes.

Typically, when stocks move higher, so do long-term rates, like home loans. And this past week, we saw the recent nice trend of lower rates get disrupted.

Even though the recent trend of lower rates, the lowest since the Spring, is very much at risk - we should not expect long-term rates to move too high. Why? Inflation is not a threat.

Fed President Bullard, quoted above, also said he expects inflation to be near current levels for the next FIVE years. If that is the case, home loan rates will remain relatively attractive for longer than most expect.      

MARKET WRAP:

Mortgage Bonds were able to improve today due to low inflation data from the CPI along with Stocks pausing after their recent rally. The Fannie Mae 30-yr 4% coupon closed at 101.97, +19bp. Stocks paused after their recent rally. The Dow, S&P and NASDAQ all closed near unchanged at 23,995.95, 2,596.26 and 6.971.47, respectively. WTI oil closed at $51.59/barrel, -$1.00. 10yr yield 2.69%. Next week's economic calendar is on the heavy side. Have a great weekend!

Late Morning Review:

Consumer inflation remained subdued in December due in part to declining energy prices, reports the Bureau of Labor Statistics. The Consumer Price Index (CPI) fell 0.1%, the first decline in nine months and inline with expectations. The Core CPI, which strips out volatile food and energy, was also inline rising 0.2%. On an annual basis, the headline CPI fell to 1.9% from 2.2% while the Core rate was unchanged at 2.2%. The Federal Reserve will take the tame inflation data into consideration when setting monetary policy later this month.

After their recent decline in December, Stocks have surged back so far in the new year after Fed Chair Powell assured the markets that the Fed would be patient on interest rate hikes. The closely watched S&P 500 Stock Index, is up 10% from the low seen on the Christmas Eve meltdown. U.S. Stocks are lower this morning as the week draws to a close. The S&P 500 is a stock market index based on the market capitalizations of 500 large companies listed on the NYSE or NASDAQ.

 

Thursday - January 10  

Late Morning Review:

Freddie Mac reports that mortgage rates fell to their lowest levels in nine months after the big rise seen in 2018 up until mid-November. The 30-year fixed-rate mortgage fell six basis points to 4.45% with an average 0.50 in points and fees. Freddie Mac said, "In response (to low rates), mortgage applications jumped more than 20%. Lower mortgage rates combined with continued income growth and lower energy prices are all positive indicators for consumers that should lead to a firming of home sales."

Refinancing mortgages is becoming more attractive to Americans now that rates have crept lower in the past two months. At the end of December, a report from Black Knight stated that 2.4 million borrowers could qualify to reduce their interest rates by 0.75% by refinancing. However, while this represents a 29% rise from what was a 10-year low, the total number of refinance candidates is down 50% from last year.

A recent survey by ATTOM Data Solutions revealed that home prices are rising faster than wages in 80% of the markets covered. The result is that renting is becoming more affordable option for Americans. “With rental affordability outpacing home affordability in the majority of U.S. housing markets, and home prices rising faster than rental rates, the American dream of owning a home, may be just that ... a dream, “said Jennifer von Pohlmann, director of content and PR at ATTOM Data Solutions.

Wednesday - January 9

MARKET WRAP:

Stocks rose for a fourth straight session on the Powell bid and on trade optimism between the U.S. and China. Mortgage Bond prices ended near unchanged while yields were also near unchanged. The Fannie Mae 30-yr 4% coupon closed at 101.94, near unchanged. The Dow gained 91.67 points to 23,879.12, the S&P rose 10.55 points to 2,584.96 while the tech heavy NASDAQ closed at 6,957.07, up 60 points. Stocks closed off session highs after talks to reopen the gov't fell apart again today. The Fed minutes signaled that the Fed can be patient about future rate hikes, but that was already spelled out by Powell last Friday. WTI oil gushed higher by $2.58 to $52.36/barrel on Saudi output cuts and U.S.-China trade talks. Economic data is limited to Weekly Initial Jobless Claims tomorrow. The Treasury will sell $16B 30-yr Bonds and comes after today's strong demand for the 10-yr offering.

Late Morning Review:

Mortgage rates continued to edge lower in the latest week to levels not seen since the spring of last year. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell 10 basis points to 4.74% with 0.47 in points. "This drop in rates spurred a flurry of refinance activity - particularly for borrowers with larger loans - and pushed the average loan size on refinance applications to the highest in the survey (at $339,800)," said Joel Kan, MBA's Associate Vice President.

Home price gains are beginning to ease back to more normal levels after the big increases seen since the housing market recovery began. Black Knight reports that home price growth has slowed in 33 states and in 71 of the 100 largest markets. Black Knight said the West saw the most deceleration with California the hardest hit. Gains of +7% or more year-over-year couldn't last forever.

The Fed minutes from the December meeting will be released today at 2:00 p.m. ET. The minutes are sort of in the rear view mirror after Fed Chair Powell spoke last Friday and sparked a rally in the U.S. stock markets with his dovish remarks on monetary policy. Fed Fund Futures show a zero percent chance of a rate hike at least through the first half of this year and maybe none at all in 2019, given the current low inflation environment. A dovish tone means that Fed members favor looser, more accommodating interest rate policies. A hawkish policy is the opposite.

8:19 AM 10-yr yield rises to 2.74%.

Tuesday - January 8  

Late Morning Review:

The NFIB Small Business Optimism Index was essentially unchanged in December just below record highs at 104.4. The NFIB said that unfilled jobs and the lack of skilled qualified applicants continue to be the primary driver of the frothy index, with job openings setting a record high and job creation plans strengthening. “Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects," said NFIB President and CEO Juanita D. Duggan.

The JOLTS report (Job Openings and Labor Turnover Survey) showed that there were 6.9 million job openings at the end of November, just below record high of 7.1 million set back in August, strengthening the data from the NFIB. Job openings increased in transportation, warehousing, and utilities while declines were seen in other services and construction. The December Jobs Report showed a whopping 312,000 new workers were hired as the labor market continues to move to greener pastures.

Monday - January 7  

MARKET WRAP:

Higher Stock prices weighed on the Bond markets today as Mortgage Bond prices opened in positive territory only to slowly lose the gains as the session dragged on. The Fannie Mae 30-yr 4% coupon closed at 101.97, -9bp. The Dow gained 98.19 points to 23,531.35, the S&P 500 rose 17.75 points to 2,549.69 while the NASDAQ closed higher by 84.61 points to end at 6,823.47. WTI oil closed at $48.52, +$0.56. 10-yr yield rose to 2.69% from Friday's early morning low of 2.54%. There are no major economic reports due for release tomorrow. The Treasury will sell $38B 3-yr Notes, results at 1:00 p.m. E

Late Morning Review

Online real estate company Zillow reports that the total value of the U.S. housing market rose $1.9 trillion in 2018 to $33.3 trillion, a 6.2% increase. That is up $10.9 billion since the market bottom in 2012, a third of the gains seen in California. New York comes in number one with the highest amount of total value of all homes at $3 trillion, accounting for 9.1% of the country's total hosing value. To put it in perspective, the $33.3 trillion in total U.S. housing value is equivalent to the combined Gross Domestic Products of the U.S. ($19.4 trillion), China ($12.2 trillion) and Canada ($1.7 trillion).

Fannie Mae reports that housing confidence deteriorated in December as more Americans believe it's a bad time to buy a home. The Fannie Mae Home Purchase Sentiment Index fell 2.7 points in December from November to 83.5. The index has resumed its downward trend after a slight increase in November. The report read that the net share of Americans who say it is a good time to buy a home fell 12 percentage points from last month to 11%. This component is down 13 percentage points from the same time last year. "Looking ahead, consumers expect the pace of home price growth to slow over the course of 2019, which may temper growing concern over housing affordability," said Doug Duncan, senior vice president and chief economist at Fannie Mae.

Gas prices at the pumps continue to edge lower due in part to oversupply and less demand during the winter months. The national average price for a regular gallon of gasoline is at $2.24 and has declined for 12 weeks in a row, reports motor club AAA. “As the global crude market continues to be oversupplied, oil prices are dropping, continuing last week’s trend,” said Jeanette Casselano, AAA spokesperson. “This is good news for motorists filling up at the pump.”

Friday - January 4

Next Week: 

It will be back-to-business this week for the first full workweek of 2019 after the two-previous holiday shortened weeks.
The closely watched Consumer Price Index for December will be released with the Fed keeping close eyes on the inflation reading ahead of the January 30th Fed Meeting. Speaking of the Fed - as of right now, financial markets are pricing in a 91% probability the Fed Funds Rate will be unchanged in 2019 - meaning no more rate hikes this year.

The U.S. government may be enduring a partial shutdown, but that doesn't stop them from borrowing money to run our country and this coming week the U.S. Treasury will sell $78B worth of Bonds in that effort. With rates and bond yields at the lowest levels in a year, it will be interesting to see the investor appetite at these Treasury auctions. If investors demand more yield at the auctions, expect rates, including home loan rates, to tick higher.

Reports to watch:

  • The ISM Service Index will be released on Monday.
  • Weekly Initial Jobless Claims will be announced on Thursday.
  • On Friday, the Consumer Price Index will be released.

I-Phone maker, Apple, was a downer this week as the company announced a surprise weak sales and earnings forecast for the first quarter of 2019.

Week in Review: 

Stocks and interest rates fell on the bad news, concerned that Apple, the first big tech firm to report weak growth in 2019, is the "canary in the coalmine" and that more companies will report weaker sales and earnings.

Regardless of Apple's current woes, the U.S. economy is still humming along as was evident in Friday's Jobs Report which showed an "eye-popping" 312,000 jobs created in December.

Adding to the good news in the Jobs Report was a 3.2% hike in wage gains year over year - the highest level in a decade.

Remember, jobs buy houses, not rates, so the positive jobs numbers and wage growth are great for housing.

But while we are on the subject of rates, the "bad Apple" news helped rates improve again this week to the lowest levels in nearly a year.

Rates have been steadily improving since early November. What happened in early November? Congress became divided. Bonds and home loan rates love uncertainty, chaos, stalemates and bad news - Congress can provide plenty of it from time to time.       

Friday - January 4

MARKET WRAP:

A big reversal higher for Stocks from yesterday's steep losses pushed Bond prices lower, yields higher in today's session. The strong jobs report, positive trade headlines and dovish remarks from Fed Chair Powell pushed the Dow up nearly 850 points before closing just off the highs. The Fannie Mae 30-yr 4% coupon closed at 102.06, -38bp. The Dow gained 746.16 points to 23,433.16, the S&P 500 rose 84.05 points to 2,531.94 while the NASDAQ closed at 6,738.85 up 275.35 points. WTI oil settled at $47.96/barrel, +$0.87. 10-yr yield rose to 2.66% from the early morning low of 2.54%. Next week, the FOMC minutes from the December meeting will be released. CPI will be released. Have a great weekend!

180104

 

Late Morning Review:

The Labor Department reported on Friday that 312,000 new workers were added in December, well above the 180,000 expected, and brings the three-month average to a frothy 254,000K! The 312,000 was the largest increase since February 2018's 324,000 while October and November were revised higher by a total of 58,000. Payroll growth totaled 2.6 million in 2018, the highest since 2015 and above the 2.2 million in 2017.

On the wage front, average hourly earnings rose 0.4%, above the 0.3% expected, while year-over-year growth rose 3.2%, tied with October for the best annual increase since April 2009. The Labor Force Participation Rate ticked up to 63.1% as more Americans entered the workforce, up from 62.7% from a year ago. The U6 number, or total unemployed, remained at 7.6%, down from 8.1% a year ago. The Unemployment Rate edged higher to 3.9% from 3.7%. Overall, a very strong Jobs Report.

 

8:44 AM 10-yr yield rises to 2.62% after the strong jobs data.

8:31 AM December Non-Farm Payrolls 312K vs 180K expected.

 

Thursday - January 3  

MARKET WRAP:

U.S. Stocks plunged today due to the Apple news, weak manufacturing data and continued fears of slowing global growth. The environment lifted Bond prices and drove yields lower. The Fannie Mae 30-yr 4% coupon closed at 102.44, +38bp. The Dow fell by 660.02 points to 22,686.22, the S&P 500 lost 62.14 points to 2,447.89 while the NASDAQ dropped 202.43 points to end at 6,463.50. WTI oil was last seen at $47.11/barrel, +$0.57 in after hours trading. 10-yr yield 2.55%. The December Jobs Report will be released at 8:30 a.m. ET tomorrow morning where it is expected that U.S. employers added 180K workers. Be tuned in just before 8:30 to get the headlines and the market reaction.

Late Morning Review:

Mortgage rates continued to decline this week due in part to U.S. Stocks melting down, which pushed Bond prices higher and rates lower. Freddie Mac reports that the 30-year fixed-rate mortgage fell four basis points to 4.51% with an average 0.50 in points and fees. Freddie Mac said, "Low mortgage rates combined with decelerating home price growth should get prospective homebuyers excited to buy."

National manufacturing activity continued to expand in December while the overall economy grew for the 116th consecutive month, reports the Institute for Supply Management (ISM). In its latest reading, the ISM National Manufacturing Index fell to 54.1 in December, a decline of 5.2 points from the November reading of 59.3 and below the 57.8 expected. Two key components within the report, new orders and employment, both declined during the month. Those executives surveyed saw continued business strength, but at much lower levels.

Shares of popular iPhone maker Apple are plunging this morning after weak sales in a slowing China economy was announced. The current trade war between the U.S. and China are also impacted revenues at Apple. Apple expected revenues for October, November and December of 2018 to come in $84 billion, down from the previous projection of $89 billion. In addition, upgrades to new iPhones were not as strong as expected. Shares of Apple were trading around $144, down from its high of $234 back in early October.

Thu, Jan 03 11:07 AM 10-yr yield slides lower to 2.57%.

Thu, Jan 03 10:18 AM Freddie Mac reports that the 30-yr fixed rate mortgage fell 4bp this week to 4.51%, down from 4.94% in the first half of November. The rate carries an average point of 0.50.

Wednesday - January 2  

Wed, Jan 02 4:30 PM
A WORD FROM THE BOND PITS:

Mortgage Bonds struggled to close with meager gains and closed wider on spread vs Treasuries in the wake of gyrating equity markets. 

CLOSING TECHNICAL SIGNAL:

Home loan rates start 2019 at the best levels since spring. With two headline risk events coming tomorrow and Friday, by way of the ADP and Jobs Reports, 

MARKET WRAP:

Not much movement for Mortgage Bonds today despite seesaw trading in the equity markets. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 102.03, +6bp while Treasury prices saw bigger gains. The Dow closed at 23,346.24 up 18.78 points, the S&P rose 3.18 points to 2,510.03 while the NASDAQ was up 30.66 points to end at 6,665.93. WTI oil settled at $46.54/barrel, +$1.15 on news that Saudi Arabian exports are seen declining. 10-yr yield 2.64%. The ADP Private Payrolls Report will be released tomorrow along with Weekly Initial Jobless Claims and the ISM Manufacturing Index.

10 year 190102

Late Morning Review:

CoreLogic reports that home prices, including distressed sales, rose 5.1% from November 2017 to November 2018, just below the 5.4% gain seen in October. That is down from the 7% gain seen year-over-year in March of this year. On a month-over-month basis, prices rose 0.4% from to October 2018 to November. Looking ahead, CoreLogic sees a 4.8% increase from November 2018 to November 2019. “The rise in mortgage rates has dampened buyer demand and slowed home-price growth. Interest rates for new 30-year fixed-rate loans averaged 4.9 percent during December, the highest monthly average since February 2011,” said Chief Economist Frank Nothaft.

U.S. stocks begin the first day of trading lower in sympathy with declining equity markets after headlines read of weak economic data out of Europe and Asia. China manufacturing activity contracted for the first time in 19 months as the trade issues with the U.S. begin to take their toll. Last year was rough for Stocks as the closely watched S&P fell 6.2%, its worst loss in a decade and came after the 20% gain in 2017.

The first economic report of 2019 was released this morning showing that manufacturing activity slowed in the U.S. in December. The IHS Markit PMI/Manufacturing Index fell to 53.8 in December, down two points from November and a 15-month low for the index. Within the report it showed that job creation slowed to an 18-month low. In addition, the rate of inflation fell to an 11-month low in December while business confidence is at its lowest level since October 2016.

Wed, Jan 02 8:25 AM 10-yr yield at 2.65%, lowest since February, 2018.

This Week:

The first week of 2019 is also holiday shortened and may also be extremely volatile as the financial markets will react to the December Jobs Report on Friday. 

There is no expected delay on releasing the Jobs Report should the government still be partially closed. 
There will also be several manufacturing reports released during the week, but everything takes a back seat to the Friday Jobs release. 

Why? The Fed has stated they are "data-dependent" when it comes to future rate hikes, meaning they are looking at important readings like the Jobs Report in determining the future path of short-term interest rates. 

The recent selloff in Stocks has been largely caused by fears the Fed will be too aggressive hiking interest rates in 2019. The Jobs Report may give early clues on what to expect with rate hikes in 2019 and it could be a market moving event this week. 

Reports to watch:

  • The Chicago PMI will be released on Wednesday followed by the ISM National Manufacturing Index on Thursday.
  • ADP Private Payrolls will be released Thursday due to the holiday shortened week.
  • The government's Jobs Report for December will be released Friday and includes Non-Farm payrolls, the Unemployment Rate and Hourly Earnings.

Last week:

The financial markets had plenty to cheer about this week. On Wednesday, Stocks rallied a stunning 1,000+ points, enjoying their best one-day gain in history and then rallied over 800 points higher intraday on Thursday, erasing a huge midday loss. All in all, a great and welcome week in what was otherwise a miserable December for Stocks. 

Typically, higher stock prices mean higher home loan rates but that wasn't the case this holiday week. Yes, Bonds moved slightly lower and home loan rates slightly higher in response to the swift Stock rally, but rates ended the week and head into 2019 near the best levels since spring. 

The high volatility in the markets is likely to continue well into 2019 as Stocks and Bonds continue to bounce around in response to the U.S. government shutdown, U.S./China tariffs, China slowdown, European issues and uncertainty around the Fed. 

Is this good news for home loan rates and housing? Inflation is in line with the Fed's expectations and bond yields in other parts of the world remain low due to slower economic growth which means that home loan rates should remain relatively low for the foreseeable future. 

181228

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