November 4th, 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=
Monday - November 25
Market Wrap - Mortgage Bonds opened and closed near unchanged once again today remaining trapped in a sideways pattern. The 10-yr yield settled at 1.76%. Stocks ended higher as the Dow (28,066), S&P (3,133) and NASDAQ (8,632) all closed in record high territory on positive trade headlines. WTI oil closed at $57.98/barrel, +$0.21. Today's $40B note auction was met with strong demand. New Home Sales and Consumer Confidence will be released tomorrow morning. The Treasury will sell $41B 5-yr Notes.
Late Morning Review - The Mortgage Bankers Association reports that independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of $1,924 on each loan they originated, up from $1,675 per loan in Q2 2019. The $1,924 is near a seven-year high. In addition, the average loan balance for first mortgages reached a study high of $276,053 in the third quarter, up from $268,520 in the second quarter. Marina Walsh, MBA's Vice President of Industry Analysis. "The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue."
U.S. stocks are being boosted higher today after Reuters reported that the US and China are "very close" to a "Phase One" deal. Trade hopes and solid corporate earnings have lifted the Dow, S&P and NASDAQ to record highs in November. Add a strong labor market, which should continue to support consumer spending and you have the makings for an expanding U.S. economy.
The American Farm Bureau Federation’s 34th annual survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $48.91, or less than $5.00 per person. This is a 1-cent increase from last year’s average of $48.90. The centerpiece on most Thanksgiving tables – the turkey – costs slightly less than last year, at $20.80 for a 16-pound bird. That’s roughly $1.30 per pound, down 4% from last year.
Next Week - The upcoming week is long on economic data, despite the Thanksgiving holiday on Thursday, and an abbreviated session on Friday.
All U.S. markets are closed on Thursday for Thanksgiving. On Friday, the Bond markets close at 2:00 p.m. ET while Stocks close at 1:00 p.m. ET.
All eyes will be on the inflation numbers from the Core PCE, the Fed's favorite inflation gauge. Inflation has been running low and should continue to run low for the foreseeable future.
Investors will also receive data from the housing sector, manufacturing, consumer confidence, and spending, along with GDP data.
Reports to watch:
Week in Review - "It's getting better all the time" -- Getting Better by The Beatles
That famous line describes the current wonderful backdrop for housing and the overall U.S. economy. Many are wondering what lies ahead for housing as we enter 2020.
There are many reasons why the U.S. housing sector should do well for the foreseeable future, but here's three main reasons for the bright outlook:
Bottom line: there is no recession in sight. The backdrop for housing is more of a Goldilocks scenario and makes for a wonderful time to purchase a home.
If you or someone you know has questions about home loans, give me a call. I'd be happy to help.
Friday - November 22
Market Wrap - Mortgage Bonds were stuck in a sideways pattern this week with no clear catalyst to push prices higher closing unchanged today. The yield on the 10-yr T Note settled at 1.77%. Stocks closed higher on trade hopes, economic data. Next week's holiday shortened week is long on economic data. WTI oil settled at $57.88/barrel, -$0.80. Have a great weekend!
Late Morning Review - All US markets are closed next Thursday for Thanksgiving. On Friday, the bond markets close early at 2:00 p.m. ET while stocks close at 1:00 p.m. ET. Next Friday is typically one of the lowest trading volume days of the year. This means next Friday could have market volatility if big news hits along with low trading volume, which exaggerates price moves.
Consumer Sentiment rose in November rose to a four month high due in part to strong employment, record high stock prices and prospects of a US-China trade deal. The Consumer Sentiment Index rose to 96.8 in November from 95.5 in October. Within the report it showed that the expectations index increased. With the US in its longest economic expansion period in history, consumers are helping to fuel the economy with solid consumer spending. The holiday shopping season should be good for retailers.
Thursday - November 21
Late Morning Review - Manufacturing in the Philadelphia region picked up this month which is good news for the sector given the recent slowdown due to the trade issues between China and the US. The Philadelphia Fed Index jumped 5 points in November to 10.4 and above the 5.5 expected. Most firms reported overall increases this month in manufacturing employment this month. In conclusion, firms remain generally optimistic on the economy.
The National Association of REALTORS reports that Existing Home Sales rose 2% in October from November to an annual rate of 5.46 million units, near expectations. Sales were also up 4.6% from a year ago. Across the nation, the Midwest and the South saw growth with the Northeast and the West both reporting a drop in sales. Lawrence Yun, NAR’s chief economist, said, “We will likely continue to see sales climb as long as potential buyers are presented with an adequate supply of inventory.”
Wednesday - November 20
Late Morning Review -
The Mortgage Bankers Association (MBA) reports that the Market Composite Index, a measure of total mortgage loan application volume, fell 2.2% in the week ending November 15, 2019. The Refinance Index decreased by 8% while the Purchase Index rose 7%. The 30-year fixed-rate mortgage was essentially unchanged at 3.99% with 0.33 points up from around 3.50% in early September. Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting said, "There may be signs that housing inventory is starting to meaningfully rise, which will help with affordability and provide more choices for potential homebuyers."
The US Senate voted in the Hong Kong Human Rights and Democracy Act on Tuesday night throwing support behind the Hong Kong protesters. This is adding escalating the US-China trade tensions. The geopolitical headlines are weighing on US stocks this morning as the Dow, S&P and NASDAQ trade near all-time highs. Mortgage Bond prices are flat while Treasuries push higher, yields lower. The closely watched S&P 500 is up a whopping 25% in 2019 due in part to an expanding economy, strong employment and low inflation.
Motor club AAA is reporting that more than 55 million travelers are expected to kick off the holiday season with a trip of 50 miles or more away from home this Thanksgiving. This will be the second-highest number since tracking began in 2000. This year there is expected to be a 2.9% increase in travelers or 1.6 million people more than in 2018. Wednesday before Thanksgiving is expected to be the worst travel period nationally. “With record levels of travelers, and persistent population growth in the country’s major metropolitan areas, drivers must prepare for major delays,” said Trevor Reed, transportation analyst at INRIX, a global transportation analytics company.
Tuesday - November 19
Late Morning Review - October Housing Starts rose 4% from September to an annual rate of 1.314 million units, above the 1.3 million expected while September was revised higher. Single-family starts rose for the fifth straight month. Building Permits, a sign of future construction, jumped 5% to an annual rate of 1.461 million, above estimates while September was also revised higher. Low rates and a strong job market are key metrics for the housing market.
Mortgage applications for new home purchases surged year over year and rose month over month as the new home purchase market continues to be strong. The Mortgage Bankers Association reports that new home purchase applications jumped nearly 32% from a year and were up 9% from September to October. The positive numbers reinforce that a strong job market and low rates continue to support the housing market.
Monday - November 18
Market Wrap - Mortgage Bond prices inched higher today but closed below best levels as stocks drifted to fresh record highs by the close of trading. The 10-yr yield settled at 1.81%. The Dow (28,036), S&P (3,122) and the NASDAQ (8,549) closed at record highs despite conflicting trade headlines. WTI oil closed at $57.04/barrel, -$0.68. Tomorrow's data includes Housing Starts and Building permits
Late Morning Review - Single-family home builders reported a positive environment in November due in part to low mortgage rates and continued job growth here in the US. The National Association of Home Builders said its Housing Market Index fell one point to 70 this month from 71 in October. This time last year the number stood at 60. Any number over 50 indicates that more builders view conditions as good than poor. Builders do see headwinds from lot shortages, affordability headwinds along with a lack of labor and regulatory restraints.
Fannie Mae released its November Economic and Housing Outlook revealing that housing is expected to remain supportive through the first half of next year. However, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity. Consumer spending is expected to remain the primary driver of economic growth for the forecast horizon as we head into the all-important holiday shopping season. Fannie Mae is forecasting near 2% economic growth in 2020. “Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan.
US stocks begin the week modestly lower after conflicting US-China trade headlines hit the wires the past few days. Over the weekend it was reported that there was a phone call on Saturday between high-level officials from both sides only to be met with Beijing now pessimistic over a trade due in part to the reluctance of the US to roll back tariffs. In addition, the Chinese may be more willing to concentrate on propping up its economy, a Chinese government source told CNBC's Eunice Yoon, by way of this morning's announcement of new stimulus by China's central bank.
Newsletter updated weekly: http://www.mmgweekly.com/w/index.html?SID=
The upcoming week's economic calendar will highlight the housing sector which has been gaining momentum in this "Goldilocks Economy" due in part to a strong labor market, rising wages, and historically low home loan rates.
With earnings season winding down, investors will continue to be trapped in the trade headlines from the U.S. and China as a "phase one" signing is expected to happen in the coming weeks.
Reports to watch:
Week in Review - "Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely." -- Fed Chairman Jerome Powell, 11/13/2019
This quote from our Fed Chair on Capitol Hill this past week was the definition of a "Goldilocks Economy" and reaffirmed the markets that there is no recession in sight!
Thanks to this strong economic backdrop, Mr. Powell also said it's highly unlikely the Fed will cut rates again in December. Remember, Fed rate cuts don't affect home loan rates, so don't expect a sharp uptick in mortgage rates. Why?
As the Fed's quote states, inflation remains low and near the Fed's target. If inflation moves higher, home loan rates move higher. The opposite is also true.
Bottom line: home loan rates improved from the worst levels of the week and head into mid-November still hovering near three-year lows. What an opportunity when coupled with the Goldilocks backdrop.
If you or someone you know has questions about home loans, give me a call. I'd be happy to help
Friday - November 15
Market Wrap - The Mortgage Bond market was quiet today with little movement seen as prices closed near unchanged weighed down by yet another record high for the closely watched S&P 500 (3,117). It was the sixth consecutive week of gains for the S&P fueled by a sustained economic expansion, strong labor market, solid earnings and positive trade news. The Dow (28,004) and the NASDAQ (8,540) also closed at record highs. The 10-yr yield inched higher to close at 1.83%. WTI oil ended at $57.75/barrel, +$0.98. Next week's economic data leans towards the housing market, which has been gaining momentum.
Late Morning Review - The consumer is alive and well and continues to drive the U.S. economy. October Retail Sales rose 0.3%, higher than the 0.2% gain expected boosted by auto sales and higher gasoline prices. Consumer spending making up nearly 70% of Gross Domestic Product. Retail Sales grew 2.9% year over year. Consumers have been supported by a strong labor market and rising wages.
The Mortgage Bankers Association reports that mortgage delinquencies fell in the third quarter of 2019 as a strong labor market helps Americans to pay their bills on time. The delinquency rate is at 3.97%, the lowest since the first quarter of 2019. “Mortgage delinquencies decreased in the third quarter across all loan types – conventional, VA, and in particular, FHA,” said Marina Walsh, MBA’s vice president of industry analysis. “The labor market remains healthy and economic growth has been stronger than anticipated. These two factors have contributed to the lowest level of overall delinquencies in almost 25 years.”
Thursday - November 14
Late Morning Review - Wholesale inflation as defined by the Core Producer Price Index (PPI) for October came in at 1.5% year-over-year from 1.7% in September. The headline PPI fell to 1.1% annually from 1.4% in September, the smallest increase since October 2016. From September to October, PPI rose 0.4%, the most in six months led by a rise in the cost of goods and services. PPI measures the average change over time in the selling prices received by domestic producers for their output.
Total household debt hit a fresh record high in the third quarter of 2019 led by a big gain in mortgage debt, reports the New York Federal Reserve. Total household debt hit $14 trillion, an increase of $92 billion. It was the 21st consecutive quarter with an increase. Mortgage balances, the largest component of household debt, rose by $31 billion in the third quarter to $9.44 trillion. Mortgage originations, which include mortgage refinances, stood at $528 billion this quarter compared to $445 billion in Q3 2018. Student loan debt rose by $20 billion to $1.5 trillion.
There were no surprises from Fed Chair Powell yesterday in his testimony on the US economic environment and monetary policy. Mr. Powell said, "Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely." Translation - no recession in sight! Mr. Powell will be in front of the Senate around 10:00 a.m. ET tod
Wednesday - November 13
Market Wrap - Bond markets close at the lows of the days erasing the early gains while stocks closed at all-time highs. Mortgage Bonds closed off their best levels. The yield on the 10-yr Note inched lower to 1.89%, though above the 1.86% session low. The Dow and S&P closed at record highs while the NASDAQ saw a minor loss. WTI oil settled at $57.08/barrel, +$0.28. PPI and Weekly Claims will be released tomorrow morning. Fed Chair Powell will be in front of the Senate tomorrow but we don't see any new rhetoric.
Late Morning Review - Consumer inflation edged higher in October and was the largest gain since March, fueled by higher gas prices. The Consumer Price Index (CPI) rose 0.4% versus the 0.3% expected while the year-over-year number saw a 1.8% increase from 1.7% in September. Core CPI rose 0.2%, in line with estimates, while the year-over-year number was up 2.3% from a gain of 2.4% in September. Core PCE, the Fed's favorite inflation gauge, is running at 1.7% annually, just below the Fed's target of 2%. Inflation is low and as the Fed has been saying, it will remain subdued for quite some time.
Mortgage rates rose in the latest week and remain at historic lows. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage rose five basis points to 4.03% for the week ending November 13, 2019. That rate carries a 0.31 in points. Despite the increase in rates, the Purchase Index rose 5.1% while the Refinance Index increased 12.9%. The Market Composite Index, a measure of total mortgage application volume, rose 9.6%. The survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990.
The National Retail Federation reports that consumers are expected to spend 4% more this holiday shopping season than in 2018. The average consumer says they will spend an average of $1,047.83 this season, up from $1,007.24 last year. Shoppers between the ages of 35 and 44 plan to spend the most at $1,158.63. Total consumer spending in this holiday shopping season is expected to be between $727.9 billion and $730.7 billion. “Consumers are in good financial shape and willing to spend a little more on gifts for the special people in their lives this holiday season,” NRF President and CEO Matthew Shay said.
Tuesday - November 12
Market Wrap -Not much action in the US financial markets today as Mortgage Bonds and Treasury prices closed near unchanged. Stocks also closed near unchanged though the Dow (27,691) and NASDAQ (8,486) squeaked out record high closes. 10-yr yield 1.92%. CPI will be released tomorrow. Fed Chair Powell will be in front of the House tomorrow and the Senate on Thursday speaking about the US economy.
Late Morning Review - The Mortgage Bankers Association reports that mortgage credit availability increased for the second straight month in October driven mainly by an increase in conventional loan programs. The Mortgage Credit Availability Index (MCAI) rose 0.9% in October to 185.1. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The increase was also due to programs for borrowers with lower credit scores as well as for investors and second home loans.
The NFIB Small Business Optimism showed a strong historical reading of 102.4 in October, up from September. Within the report, eight of the 10 Index components increased, as talk of a recession waned in October. NFIB President and CEO Juanita D. Duggan said, "Small business owners are continuing to create jobs, raise wages, and grow their businesses, thanks to tax cuts and deregulation, and nothing is stopping them except for finding qualified workers."
This week features a key economic report that measures the strength of the US consumer. Solid consumer spending has been one of the highlights of the US economy in 2019 and should continue given the strong labor market. Retail sales for October will be released on Friday as we head into the holiday shopping season. The National Retail Federation is expecting that holiday shoppers plan to spend 4% more this season than in 2018.
The upcoming holiday-shortened week will feature a few key economic reports from consumer spending, manufacturing, and consumer inflation.
The Bond markets are closed on Monday in observance of Veterans Day.
On the inflation front, last week, Chicago Fed President Charles Evans said it's very difficult to generate inflation in the current U.S. economic environment. If inflation doesn't go up, there is a limit to how high home loan rates can go -- which is a good thing.
With earnings season just about ending, the markets will continue to follow the biggest story, the U.S./China trade headlines.
Reports to watch:
Week in Review - Right now, the biggest news story to follow is the U.S. and China trade negotiations.
This past week, home loans started inching higher but were "saved" momentarily midweek when reports came out suggesting a delay of a "phase one" trade deal signing. Remember that Bonds and home loan rates like bad news, so a disruption or delay of the trade signing was the reason for rates to improve off the worst levels midweek.
However, come Thursday, word that both the U.S. and China would roll back tariffs as a deal gets put together was very good news which pushed Stocks to all-time highs at the expense of Bonds and home loan rates.
Even with the recent uptick, home loan rates are at the same level they were at back on July 31st when the Fed cut rates for the first time in 10 years. The Fed has since cut rates two more times and home loan rates have not improved any further.
A word of caution: long-term rates like mortgages can move up very fast, and it is in a complacent environment like today when things suddenly change. Using history as an example, the 10-year Note yield has traded at 1.40% or lower on three separate occasions in the past seven years. In the two previous times -- 2012 and 2016 -- the 10-year yield quickly spiked to 3% and 2.75% respectively in just six months. This sharp move higher in yield also weighed on home loans, which also rose sharply.
Bottom line: if you or someone you know is considering a new mortgage, now may be an opportune time before this window closes.
If you or someone you know has questions about home loans, give me a call. I'd be happy to help.
Friday - November 8
Market Wrap - Not much action in the US capital markets today in the absence of any impacting economic data while the tariff tug-of-war continues. Mortgage Bonds closed near unchanged as did the 10-yr yield at 1.93% - we are closing watching the 2% level. The closely watched S&P 500 (3,093) notched its fifth straight weekly gain and yet another record high close. WTI oil settled at $57.21/barrel, near unchanged. Next week's economic data - CPI, PPI and Retail Sales. In advising clients, you should only consider floating clients that are not closing soon - like a few months. The bond markets are closed on Monday in observance of Veterans Day, stocks are open for a normal session. Look for our Next MMG Daily on Tuesday. Have a great weekend!
Late Morning Review - Redfin reports that the luxury housing market stabilized in the third quarter after a weak first half in 2019. The average sale price for luxury homes nationwide rose 0.3% year over year to $1.6 million in the third quarter of 2019. Despite the meager gain, it was the first time luxury prices did not decline after three straight quarters of declines. "Because recession fears peaked over the summer, I expected luxury home prices and sales to dip. But it appears that nerves alone weren't enough to scare off wealthy homebuyers," said Redfin chief economist Daryl Fairweather.
US markets are on the quiet side this morning after a few weeks of volatility that saw the 10-year yield rise to almost 2% in yesterday's trading. Positive trade headlines, strong earnings and an upbeat jobs report for October recently pushed the major US stock indexes to all-time highs. Positive news usually weighs on bond prices, pushed yields higher as investing dollars shift into more riskier assets such as equities and commodities.
The bond markets are closed on Monday in observance of Veterans Day while US stocks undergo normal trading hours.
Thursday - November 7
Market Wrap - Mortgage Bonds ended lower but off their worst levels and with the Fannie Mae 30-yr 3.5% ending below support one at the 50-day Moving Average and is sitting on support two at the 100-day. The 10-yr yield closed at 1.92% from a 1.80% low and a 1.97% high. After the positive early morning trade headlines, a late day negative report said there may be some opposition on the tariff rollbacks in the White House. The S&P 500 and the Dow closed at record highs. WTI oil ended at $57.11, +$0.76. Consumer Sentiment will be released tomorrow. If you are a refinance and are willing to wait you might consider floating like a few months. Because right now, the path of least the trend looks like we are going higher for now. Things change quickly, so stay tuned in.
Late Morning Review - US stocks are trading at fresh record highs today on reports that the US and China are moving closer to a deal that would include rolling back tariffs ahead of the "Phase One" signing in the near future. In addition to the positive trade headlines, solid earnings and a strong labor market are also a few of the catalysts that are lifting the equity markets. The US-China story is the biggest news item to follow and it sure seems something good is coming of it causing global yields to climb for the past few weeks.
Fannie Mae released its Home Purchase Sentiment Index (HPSI) revealing that consumer home purchase sentiment remained robust in October. The HPSI fell 2.7 points to 88.8 from September though up 3.1 points compared to the same time last year. However, despite low mortgage rates, the 'good time to buy' component declined while the 'good time to sell' also dropped. Doug Duncan, Senior Vice President, and Chief Economist said, "Low mortgage rates and a strong labor market are supporting the index’s overall strength, which is consistent with our expectation for a modest expansion in home purchase activity in the fourth quarter.”
Wednesday - November 6
Market Wrap - Mortgage Bonds closed modestly higher today after headlines read that the US-China "Phase One" trade deal could be delayed until December. The 10-yr yield edged lower to 1.81%. The 10-yr Note auction was met with solid demand and supported bond prices this afternoon. Stocks closed in mixed fashion on the trade headlines.
Late Morning Review - Home loan rates edged lower last week but have inched higher this week and remain at historically attractive levels. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell seven basis points to 3.98% in the week ending November 1, 2019. That rate does carry 0.37 in points. The Market Composite Index, a measure of total mortgage loan application volume, was near unchanged. The Refinance Index rose 2% while the Purchase Index fell 3%. The survey covers over 75% of all US retail residential mortgage applications and has been conducted weekly since 1990.
TransUnion reports that the housing sector could receive a boost by first-time homebuyers in the next three years. A new report projects that at least 8.3 million first-time homebuyers will enter the mortgage market between 2020 and 2022. That number could rise as high as 9.2 million if economic growth exceeds expectations. Joe Mellman, senior vice president and mortgage business leader at TransUnion said, "We are optimistic that first-time homebuyers will contribute more to homeownership than at any time since the start of the Great Recession.”
Tuesday - November 5
Market Wrap - Mortgage Bonds declined today though the losses in the Treasury markets were more severe. Bonds were weighed down by positive trade headlines along with a strong ISM Service Index. The 10-yr yield rose to 1.85%. Stocks closed mixed with the Dow and NASDAQ hitting new closing highs while the S&P closed modestly lower. WTI oil settled at $57.24/barrel, +$0.70.
Late Morning Review -The service sector of the US economy continues to be a bright spot in the US economy. The Institute for Supply Management (ISM) reports that economic activity in the non-manufacturing sector grew for the 117th consecutive month, said the nation's purchasing and supply executives. The ISM Service Index registered 54.7 in October, up from the reading of 52.6 in September. Within the data, it showed that the employment index rose 3.3 points to 53.7. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.
CoreLogic reports that home prices, including distressed sales, rose 3.5% year over year in September 2019 compared to September 2018, up 0.4% monthly from August to September. Looking ahead, CoreLoogic is forecasting a 5.6% increase from September 2019 to September 2020. “Mortgage rates were a full percentage point lower this September compared to a year ago, boosting affordability for first-time buyers and supporting a rise in homeownership. In addition to lower interest rates, personal income grew faster than home prices during the past year. This provided an additional lift for first-time buyer affordability and helped to boost the homeownership rate to the highest level in more than five years.”
The continued rally in US stocks has sent the major major indexes to record highs this week. Positive trade headlines, a largely better-than-expected earnings season along with an upbeat Jobs Report for October are a few of the reasons behind the move higher for equities. Year-to-date, the Dow is up 18%, S&P up 23% while the NASDAQ has gained 27%. If a trade deal can get done between the US and China, stocks could push to new high levels.
Monday - November 4
Market Wrap -Positive trade headlines pushed the major US stock averages to record highs today as the rally marches on, due in part to positive trade headlines. However, Mortgage Bonds closed near unchanged but Treasury prices declined. The 10-yr yield rose to 1.77% from 1.72% at Friday's close. There were no economic reports released today and the rest of the week's calendar is extremely light. WTI oil settled at $56.69/barrel, +$0.49. The ISM Service Index will be released tomorrow. The Treasury will sell $38B in three-year notes tomorrow.
Late Morning Review - Freddie Mac released the Economic & Housing Research Forecast late last week revealing that the housing market remains strong while an economic slowdown looms. Freddie Mac forecasts that 30-year mortgage rates will be 3.7% for the remainder of 2019 and will inch higher to 3.8% in 2020. Also, home sales will rise to 6 million in 2019 before increasing to 6.1 million in 2020. House prices will rise by 3.3% in 2019 and 2.8% in 2020. In conclusion, expect overall annual mortgage origination levels of $2.0 trillion in 2019 and $2.1 trillion in 2020.
Mortgage rates have been edging higher for the past two months. The 30-year fixed-rate mortgage hit 3.49% on September 6 but has recently risen to 3.78% for the week ended November 1. The uptick in rates has cut refi-eligible borrowers from 11.7 million in early September to 6.8 million in the final week of October, reports integrated technology and data analytics firm, Black Knight. The recent positive headlines from the US and China have shifted investing dollars out of the bond markets in into stocks, thus pressuring rates higher. However, despite the pull-backs, the refi-able US population is still almost 60% larger than this time last year, says Black Knight.
On the US-China trade front, Commerce Secretary Wilbur Ross said good progress is being made on the "Phase One" portion of the trade deal. The proposed deal includes licenses for US companies to do business with China's Huawei and a tariff hike on imports of foreign autos may be lifted. The US/China trade deal continues to move in the right direction and Bonds are not embracing the good news.
Forecaste for Next Week - After last week's risk-event filled reports, headlines, and earnings, the upcoming week's economic calendar and newsworthy events may pale in comparison.
The headlines that the markets will cling to will be the ongoing U.S./China trade issues. Late last week a Chinese official doubted a long-term deal with the White House could be hammered out but hopes for a "phase one" signing is bright in the next two to three weeks.
Corporate earnings season will also continue in the upcoming week with most companies already reporting and beating expectations. Of the S&P 500 companies that have reported thus far, about 75% have exceeded profit estimates.
The Treasury will be selling a boatload of notes and Bonds with the 10-year offering the highlight.
Reports to watch:
The only reports that could impact the markets this upcoming week are Tuesday's ISM Service Index and Friday's Consumer Sentiment Index.
Week in Review - This past week the Federal Reserve cut the Fed Funds Rate for the third time this year, by .25%. Along with the rate cut, the Fed released a statement that suggested a "pause" in further cuts, but stated they will be ready to act again should "slowing global conditions" continue or if inflation declines further.
Speaking of inflation, it is important to remind ourselves that the Fed rate cut does not affect home loan rates. Home loan rates are slightly higher than they were right before the Fed started cutting rates in July. The main driver of long-term rates is inflation. If inflation goes up, long-term rates go up. The opposite is also true.
With that said, here's an important quote from Fed Chairman Jerome Powell yesterday: "I think we would need to see a really significant move up in inflation that's persistent before we would consider raising rates to address inflation concerns." This means that the Fed is not likely to hike rates anytime soon, and long-term rates should not go too high too soon either because there is no threat of high inflation at this time.
Bottom line: home loan rates are near three-year lows and this week's modest price improvement can be quickly erased should good news regarding U.S./China emerge.
If you or someone you know has questions about home loans, give me a call. I'd be happy to help.
Market Wrap - A strong Jobs Report for October, a better than feared ISM Index along with positive trade news sent US stocks surging today with the major average closing at all-time highs. However, Mortgage Bonds showed resilience and closed near unchanged due in part to the past, current and most likely future low inflation levels. The yield on the 10-yr T Note closed at 1.71%, up 2bp for the day. WTI oil settled at $56.21/barrel, +$2.00. Next week's economic calendar is light while earnings season rolls on. The markets will also follow the US-China trade headlines. Have a great weekend!
Late Morning Review - And the survey says ... 128,000 jobs were created in October, nicely above the 80,000 expected. Adding to the positive tone, were strong upward revisions to both August and September, where another 95,000 jobs in total were added. The three-month average for Non-Farm Payrolls is at a strong 176,000, well above the pace needed to sustain the current unemployment rate. And if you factor in the losses from the GM strike and take out the temporary Census workers whom completed their jobs, the October number would have been much higher.
Within the report it showed that average hourly earnings rose 0.2% month-over-month, up 3% year-over-year. The Labor Force Participation Rate edged higher, the Unemployment Rate inched higher to 3.6% from 3.5% while the U6 number, or total unemployed, was unchanged at 7% - and more people entered the labor force. Overall, a strong report as the labor market continues to be a bright spot in the US economy.
Manufacturing across the US picked up in October though it remained in contraction mode for the third straight month. The ISM Manufacturing Index came in at 48.3 this month, just above the 47.8 registered in September. The New Orders Index rose while the Employment Index also saw a solid gain. The manufacturing sector has slowed in the past six months due in part to tariff and trade issues.