Instructions on how to read this blog: Below is the news for the month when it happened and the market’s reaction. For a full view of the month start at the bottom and work your way up. If want to know what just happened start at the top. All Times are Eastern Standard Time. When the price of Mortgage Backed Securities (MBS) goes down rates go up, and when the price goes up rates come down. Remember in the bond market Bad News is Usually Good News and Good News is Usually Bad news.
Views You Can Use updated monthly: http://www.mmgweekly.com/m/index.html?SID=78421a2e0e1168e5cd1b7a8d23773ce6
Newsletter updated weekly: http://www.mmgweekly.com/w/index.html?SID=fa7518562603d5c4a7ad69e2e5726f5f
Tuesday - July 31
Not much action in the Mortgage Bond markets today as prices hovered near unchanged to slightly higher levels during the session. Tame Core PCE inflation supported Bond prices but rebounding Stocks kept a lid on any higher moves for debt instruments. The Fannie Mae 30-yr 4% coupon closed at 101.56, -6bp. Stocks rallied on reports that the U.S. and China are looking to reignite trade talks as equities posted their biggest monthly gains since the beginning of the year. The Dow gained 108.36 points to 25,415.19, +4.7% for the month. The S&P 500 rose 13.69 points to 2,816.29, +3.6% for June while the NASDAQ finished higher by 41.78 points today to 7,671.78, +2% for the month. WTI oil had its worst monthly loss in two years on higher output in June settling at $68.73/barrel today, -$1.40. 10-yr yield 2.96%. Tomorrow's economic data includes ADP Private Payrolls and the ISM Manufacturing Index. The Fed statement will be released at 2:00 p.m. ET but the market does not expect a hike to the short-term fed Funds Rate. Rather, the statement will be dissected for clues that could solidify expectations for two more hikes in 2018.
Late Morning Review:
Home prices rose steadily across the nation in May though affordability issues may come into play in the months ahead. The S&P CoreLogic Case-Shiller 20-City Home Price Index rose 6.5% from May 2017 to May 2018. This was in line with expectations and just below the 6.7% recorded in April (revised from 6.6 percent). On a monthly basis, home prices were up 0.7% from April to May.
David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices says, “Home prices continue to rack up gains two to three times greater than the inflation rate.” In addition, “Affordability – a measure based on income, mortgage rates and home prices – has gotten consistently worse over the last 18 months. All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”
Consumer Confidence rose in July to its second highest level in 2018 with consumers feeling that economic growth is still strong. The Consumer Confidence Index rose to 127.4 in July, above 127.1 in June. Within the report it showed that those stating business conditions are “good” increased, while those saying business conditions are “bad” declined. Consumers’ assessments of the labor market were also more favorable. Those claiming jobs are “plentiful” increased, while those claiming jobs are “hard to get” were virtually unchanged.
Monday - July 30
Not much action in the Mortgage Bond market today ahead of the big risk-event-filled week. The Fannie Mae 30-yr 4% coupon closed at 101.50, -6bp. Stocks fell as the tech sector declined. The Dow closed at 25,306.83 -144.23 points, the S&P lost 16.21 points to 2,802.61, while the tech heavy NASDAQ plunge 107.41 points to end the session at 7,6730.00. WTI oil settled at $70.13/barrel, +$1.44 on signs of tight supply. 10-yr yield 2.97%. Tomorrow, risk events pick up with the Core PCE inflation data being released along with Personal Income and Spending, the inflation reading Employment Cost Index and the S&P Case-Shiller Home Price Index.
Late Morning Review:
This week, the U.S. capital markets will receive a full dose of economic data and risk-filled headlines that will impact investors. Coming up is the the two-day Fed meeting that kicks off on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the monetary policy statement. The Fed is expected to hold the benchmark Fed Funds Rate steady at the 1.75% - 2% level, but the statement always carries headline risk.
On the economic data front, the inflation reading Core PCE, Personal Income and Spending, housing, manufacturing and service sector data will be released this week. Economic data culminates on Friday with the Jobs Report for July. In addition, a slew of earnings will be released this week. With the month coming to an end, the S&P is up 3.7%, the Dow has gained 4.9% while the tech-heavy NASDAQ is up 3% due in part to strong earnings, solid economic growth, a tight labor market, and high consumer confidence and small business optimism levels.
The National Association of REALTORS® reports that Pending Home Sales in June rose 0.9% rising in all four major regions across the country. The 0.9% was above the 0.2% expected. Despite the increase in June, Pending Home Sales are down 2.5% from June 2017. Lawrence Yun, NAR chief economist, says "Even with slightly more homeowners putting their home on the market, inventory is still subpar and not meeting demand. As a result, affordability constraints are pricing out some would-be buyers and keeping overall sales activity below last year’s pace.” Mr. Yun went on to say that the good news is it is possible that the worst supply crunch affecting most of the country has passed.
Friday - July 27
GDP was released and offered little headline risk as the headline number came in strong while several inflation components edged lower. The Fannie Mae 30-yr 4% coupon closed at 101.53, +3bp. Stocks closed lower as the weak tech sector weighed on sentiment. The Dow lost 76.01 points to 25,451.06, the S&P 500 fell by 18.62 points to 2,818.82 while the NASDAQ closed at 7,737.41, -14.76 points. WTI settled at $68.69/barrel, -$0.93. 10-yr yield 2.96%. Next week's economic calendar is packed with the Jobs Report on Friday. The 2-day Fed meeting kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement. Have a great weekend!
Late Morning Review:
Economic growth surged in the second quarter of 2018 due in part to a big rise in consumer spending. The Bureau of Economic Analysis reported that Gross Domestic Product rose 4.1% from the 2.2% recorded in the first quarter, which was revised up from 2%. The 4.1% was in line with expectations. Within the report, it showed that consumer spending jumped 4 percent in the second quarter from the dismal 0.5% from the first quarter. Overall, it was a solid report. Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. It is considered the broadest measure of economic activity.
The investing community will have all eyes and ears glued to economic data next week as well as the Fed's monetary policy statement being released on Wednesday. The week's economic data includes reports on housing, manufacturing, consumer confidence, inflation and the granddaddy of all reports ... the Jobs Report for July. The Jobs Report includes Non-Farm Payrolls and the Unemployment Rate. The two-day Federal Open Market Committee meeting kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the Fed statement.
Gas prices at the pumps remained unchanged from last week as we are now well into the summer driving season. The national average price for a regular gallon of gasoline is at $2.85 today, unchanged from last week and up from $2.28 a year ago. Prices should begin to ease a bit sometime in September when Americans get back from vacations, school begins and when motorists tend to drive less.
Thursday July 26
Mortgage Bonds ended near unchanged today giving up some early morning gains as traders square positions ahead of tomorrow's GDP report. The Fannie Mae 30-yr 4% coupon closed at 101.50, -3bp. Stocks closed mixed as trade optimism boosted the Dow while Facebook weighed on the NASDAQ and the S&P as they closed lower. The Dow gained 112.97 points to 25,527.07, +112.97 points, the S&P lost 8.63 points to 2,837.44 while the NASDAQ fell by 80.05 points to end at 7,852.18. WTI oil closed at $69.61/barrel, +$0.31. 10-yr yield settled at 2.98%. The GDP report will be released at 8:30 a.m. ET tomorrow. As always, be sure to be tuned in.
Late Morning Review:
Mortgage rates edged a bit higher this week and are at their highest level since late June, though from an historic perspective, they remain at the low end of the spectrum. Freddie Mac reports that the 30-year fixed-rate mortgage rose two basis points to 4.54% with an average 0.5 in points and fees. Freddie Mac says, "Home affordability pressures are increasingly a concern in many markets, as the combination of continuous price gains and higher mortgage rates appear to be giving more prospective buyers a pause."
A recent survey by Bankrate shows Americans shifting attitudes when it comes to their investments. The survey revealed that 32% of Americans prefer to invest in Stocks, followed by 24% who say cash investments are best and 22% in real estate. Real estate was the No. 1 choice in 2016. In addition, 9% of Americans also like to invest in gold and precious metals, 8% prefer Bonds while only 2% would invest in bitcoin and cryptocurrency.
Shares of social media giant Facebook are plunging today making it Facebook's largest decline ever, 19% in one day. Facebook reported that profit margins would plunge for several years due to the costs of improving safeguards and slowing usage in its biggest advertising markets, reports Reuters. In addition, today's losses would be the largest Stock market loss for a U.S. company ever with a $120 billion loss in market capitalization. CEO Mark Zuckerberg personally lost nearly $17 billion today. But with a net worth of $77 billion, he will probably be able to pay his bills going forward.
Wednesday - July 25
Mortgage Bond prices were able to peak into positive territory earlier in the day but the meager gains were eliminated after news from the White House read that the EU will give concessions on the trade issues. The Fannie Mae 30-yr 4% coupon closed at 101.50, -12bp. Stocks reversed course and ended higher on the news from the White House. The Dow gained 172.16 points to 25,414.10, the S&P 500 closed at 2,846.07, +25.67 points while the NASDAQ rose 91.47 points to end at 7,932.23. WTI oil settled at $69.30, +$0.78. 10-yr yield 2.96%.
Late Morning Review
Sales of new single-family homes fell to an eight-month low in June. The ongoing hurdles of rising lumber costs and shortages of labor and land are partly to blame. June New Home Sales fell 5.3% from May to an annual rate of 631,000 units, below the 670,000 expected. However, from June 2017 to June 2018, sales rose 2.4%. New Home Sales surged in the Northeast, but were weighed down by declines in the West, Midwest and South.
Black Knight Financial Services reports that foreclosure starts fell in June to their lowest level in 17 years. Foreclosure starts declined 3% from May to June while active foreclosures continued to drop, falling below 300,000 for the first time in nearly 12 years. Mortgage delinquencies pushed higher in June, but remain 1.6% below 2017 levels.
The ongoing trade issues continue today after Reuters reported that the European Commission is drawing up a list of $20 billion worth of U.S. goods to hit with duties if Washington imposes tariffs on imported cars. However, President Trump will be meeting with Cecilia Malmstrom today, the head of EU trade policy. There is hope this matter could be worked out and if so, the good news could help Stocks and hurt Bonds. Currently, U.S. Stocks are mixed with the Dow Jones Industrial Average lower, being weighed down by disappointing earnings results from GM and Boeing.
Tuesday - July 24
Not much movement in Mortgage Bonds today as prices hovered near unchanged levels pressured by higher Stock prices. The Fannie Mae 30-yr 4% coupon closed at 101.62, +6bp. Stocks rose as robust earnings from Google buoyed earnings optimism. The Dow gained 197.59 to 25,241.88, the S&P 500 closed at 2,820.40, up 13.42 points. The NASDAQ hit a fresh record intraday high of 7,928.79 before some profit taking set in closing at 7,840.76, just below break even. WTI oil closed at $68.52, +$0.63. 10-yr yield 2.95%. June New Home Sales will be reported tomorrow morning. The Treasury will sell $36B 5-yr Notes, results at 1:00 p.m. ET.
Late Morning Review:
A shortage of homes for sale on the market continued to drive home prices higher in May, reports the Federal Housing Finance Agency (FHFA). The FHFA's House Price Index (HPI) rose 0.2% in May from April, +6.4% from May 2017 to May 2018. The FHFA monthly HPI is calculated using home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac.
RE/MAX reports that home prices surged in June to a fresh record high, while inventories shrank. The national median home sale price in June was $258,500, a new record for the nine years that RE/MAX has tracked the housing market. As far as the amount of homes for sale on the market, 42 of the 54 metro areas reported a decline to a 2.7-month supply, an 8.8% drop from a year earlier and the lowest inventory number ever recorded for June. “Lack of inventory has become a theme for the year,” said RE/MAX CEO Adam Contos. “Having fewer homes to choose from poses a challenge for buyers, who need to be ready to act decisively and quickly.”
U.S. Stocks are rallying in response to a strong corporate earnings season. Google reported better-than-expected earnings yesterday, which is lifting all Stocks and FAANG (Facebook, Apple, Amazon, Netflix, Google) shares this morning. Of the 90 companies in the S&P 500 that have reported earnings so far, 82% have exceeded expectations. The U.S. economy is humming. In addition, Consumer Confidence is near all-time highs while small business optimism is at peak levels.
Monday - July 23
Fears of central banks cutting back on accommodation or reducing QE sent Bond prices lower today, yields higher. Bond traders shrugged off the weak June Existing Home Sales and took to selling mid-to-late morning. The Fannie Mae 30-yr 4% coupon closed at 101.56, -25bp. Stocks closed mixed. The Dow lost 13.83 points to 25,044.29, the S&P 500 gained 5.15 points to 2,806.98 while the NASDAQ was up 21.67 points to end at 7,841.87. WTI oil settled at $67.89/barrel, -$0.37. 10-yr yield rose to 2.96% from the early morning low of 2.88%. There are no economic reports due for release tomorrow. The Treasury will sell $35B 2-yr Notes, results at 1:00 p.m. ET.
Late Morning Review:
Sales of existing homes fell for the third straight month in a row due in part to high home prices and a low inventory of homes for sale on the market. The National Association of REALTORS® (NAR) reports that June Existing Home Sales fell 0.6 percent from May to an annual rate of 5.38 million annualized units, below the 5.45 million expected. From June 2017 to June 2018, sales fell 2.2 percent. Sales were up in the Northeast, flat in the Midwest, while declines were seen in the South and West.
Within the report it showed that the median existing home price was $276,900 in June, a new all-time high. Inventory of homes for sale on the market was at a 4.3-month supply, below the 6-month supply seen as normal. Lawrence Yun, NAR chief economist says, “The root cause is without a doubt the severe housing shortage that is not releasing its grip on the nation’s housing market. What is for sale in most areas is going under contract very fast and in many cases, has multiple offers."
Freddie Mac released its July forecast reporting that home sales could increase if inventory levels improve. Freddie says that exceptionally low housing supply and weaker affordability slowed the housing market in the first half of 2018, but total sales in 2018 should still slightly top 2017 levels. Total home sales are likely to increase 2.5% for the year while home prices are expected to rise 6.7%.
Friday - July 20
Mortgage Bonds ended the week at their lowest for the five trading days after failing to rise above stiff resistance, which ushered in some selling. There were no economic reports today. The Fannie Mae 30-yr 4% coupon closed at 101.81, -22bp. Stocks ended just below the flatline as tariff fears offset strong earnings from Microsoft. The Dow lost 6.38 points to 25,058.12, the S&P 500 closed at 2,801.83 while the NASDAQ lost 5.09 points to end the week at 7,820.19. WTI oil settled at $70.46/barrel, +$0.85. Next week's economic standout will be Q2 2018 GDP where it is expected to rise by 4.1% after 2% in Q1. Have a great weekend!
Late Morning Review:
Home purchase loan closings rose in June while refinancing activity declined, reports Ellie Mae. Ellie Mae's Origination Insight for June revealed that 71% of all loans in June represented home purchases, up from 70% in May and a new high since the report began in 2011. Refinance closings fell to 29% from 30%, as home loan rates have pushed higher since the end of 2017. Times to close all loans rose slightly to 42 days from 41 days with the breakdown being 44 days for purchases, 37 days for refinancing.
President Trump spoke to CNBC yesterday saying that he is "not thrilled" with interest rate hikes. "I'm not thrilled," President Trump said. "Because we go up and every time you go up they want to raise rates again. I don't really - I am not happy about it. But at the same time, I'm letting them do what they feel is best." One thing we don't ever want is the Fed's independence challenged. The Fed is likely going to hike the short-term Fed Funds Rate in September but may pause after that, as the U.S. dollar continues to strengthen against global currencies.
The Mortgage Bankers Association recently reported that new home purchase applications fell year over year. Builders remained constrained due in part to a shortage of workers, and rising costs, particularly lumber costs. The MBA Builder Application Survey for June 2018 fell nearly 9% from June 2017. "Applications for new home purchases fell in June, both compared to last year at this time and relative to May, which fits the seasonal pattern. So far this year, new home applications are up 2.5% relative to the first 6 months of 2017," said Mike Fratantoni, MBA Chief Economist and Senior Vice President of Research and Industry Technology.
Thursday - July 19
Mortgage Bonds were able to produce gains today as risk off was the trade with Stocks closing lower. Bond prices were able to shrug off low Weekly Initial Jobless Claims and a strong Philly Fed. The Fannie Mae 30-yr 4% coupon closed at 102.03, +16bp. Stocks closed lower on renewed trade issues and weak earnings. The Dow lost 134.79 points to 25,064.50, the S&P fell 11.13 points to 2,804.49 while the NASDAQ closed at 7,825.29, -29.14 points. WTI oil closed at $69.46/barrel, +$0.60. 10-yr yield 2.84%. There are no economic reports due for release tomorrow.
Late Morning Review:
The number of Americans filing for first-time unemployment benefits fell to the lowest levels in more than 48 years as the labor market continues to gain strength. Weekly Initial Jobless Claims fell by 8,000 to 207,000, below the 220,000 expected, in the week ended July 14. It was the lowest level since early December 1969. In a recent report from the Labor Department, it showed that there were 6.6 million unfilled jobs in May, signaling that companies cannot find qualified workers.
Mortgage rates were essentially unchanged in the latest week as manufacturing output and consumer spending showed improvements, but construction activity was a disappointment, Freddie Mac reports. Freddie says this meant that there was no driving force to move mortgage rates in any meaningful direction. The 30-year fixed-rate mortgage is at 4.52% this week with an average 0.4 in points and fees. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.
Fannie Mae released its July 2018 Economic and Housing Outlook on Wednesday revealing that economic growth is estimated to have picked up strongly in the second quarter of 2018 despite rising trade tensions. Fannie Mae forecasts Gross Domestic Product (GDP) or economic growth will rise 2.8% for the full year in 2018. Fannie sees second quarter 2018 GDP at 4.2%, up from 2% in the first quarter. On the housing front, Fannie Mae says the same inventory constraints continue to haunt affordability and sales, with demand outstripping supply and home prices continuing to rise at a fast clip as a result.
Wednesday - July 18
Mortgage Bonds continued to trade below stiff resistance supplied by the 100-day Moving Average weighed down by modestly higher Stock prices. Sellers appeared late afternoon in the Mortgage Bond arena as Treasury yields edged higher. Not even a weak Housing Starts number could spark a rally in Bond prices today. The Fannie Mae 30-yr 4% coupon closed at 101.88, -3bp as it traded in an extremely tight range. Stocks were able to produce gains today with the S&P closing at a 5-month high of 2,815.62, +6.07 points. The NASDAQ closed near unchanged at 7,854.44 while the Dow gained 79.40 points to 25,199.29. WTI oil closed at $68.75/barrel, +$0.68. 10-yr yield settled at 2.88%. Weekly Initial Jobless Claims and the Philly Fed will be released tomorrow.
Late Morning Review:
U.S. home builders broke ground on fewer homes than expected in June, due in part to higher costs for lumber, a lack of available land to build on land and a shortage of construction workers. June Housing Starts fell 12.3% in June from May to an annual rate of 1.173 million units versus the 1.318 million expected. Starts were down 4.2% from June 2017. This was their lowest level since September 2017, as Housing Starts fell in all four major regions of the country.
Within the housing report it also showed that single-family starts, which make up the bulk of residential housing, fell 9.1% from May, while essentially unchanged from a year ago. Multi-family dwelling fell 20.2% month over month, down 15.3% year over year. Building Permits, a sign of future construction, declined 2.2% from May to an annual rate of 1.273 million, below the 1.330 million expected.
Mortgage rates were essentially unchanged in the latest week and remain historically low. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage rose to 4.77% in the latest week, just above the 4.76% seen in the previous week. That rate carries an average 0.46 in points. The report also read that the MBAs refinance index rose 2% while the purchase index fell 5% from one week earlier.
Tuesday - July 17
Mortgage Bonds traded in an extremely tight range again today as they hover just beneath stiff resistance levels. The Fannie Mae 30-yr 4% coupon closed at 101.91, unchanged. Stocks got a boost from positive economic comments from Powell. The Dow ended higher by 55.53 points to 25,119.89, the S&P 500 gained 11.12 points to 2,809.55 while the NASDAQ closed at 7,855.11, up 49.39 points. WTI oil closed near unchanged at $68.08/barrel. 10-yr yield edged higher to 2.86%. June Housing Starts/Building Permits will be released at 8:30 a.m. ET tomorrow. Fed Chair Powell will be in front of the House tomorrow but we don't see any big changes or market moving talk.
Late Morning Review:
Foreclosure activity continues to decline and is down significantly from the peak seen in early 2010. ATTOM Data Solutions reports that there were 362,275 properties with foreclosure filings, default notices, scheduled auctions or bank repossessions in the first half of 2018, down 15% from the same period last year. In addition, foreclosure filings are down a whopping 78% from the 1,654,634 filed in the first six months of 2010. The report went on to reveal that properties foreclosed in the second quarter of 2018 took an average of 720 days from the first public foreclosure notice to complete the foreclosure process.
Builder confidence remained elevated in July for newly-built single-family homes, reports the National Association of Home Builders (NAHB). The NAHB Housing Market Index was unchanged this month at 68 where any number over 50 indicates that more builders view conditions as good rather than poor. “Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.
Fed Chair Powell is testifying on the state of the U.S. economy this morning in front of the Senate Banking Committee. Mr. Powell says that that gradual increases to the Fed Funds Rate is necessary while second quarter 2018 economic growth is considerably stronger than the first quarter. Mr. Powell sees solid economic growth abroad and U.S. unemployment declining further. Wage growth has been trending higher, but is not causing high inflation.
Monday - July 16
Mortgage Bonds continued in their sideways pattern today beneath resistance at the 100-day Moving Average capped by a strong Retail Sales report. The Fannie Mae 30-yr 4% coupon closed at 101.91, -6bp. Stocks closed mixed as higher financial shares off-set lower energy shares due to declining oil prices. The Dow gained 44.95 points to 25,064.36, the S&P 500 lost 2.88 points to 2,798.43 while the NASDAQ closed at 7,805.71, -20.25 points. WTI oil closed at $69.06/barrel, -$2.97 on easing supply issues. 10-yr yield 2.85%. Tomorrow, Fed Chair Powell will be on Capitol Hill in front of the Senate Banking Committee testifying on the current state of the U.S. economy. Economic data is limited to the NAHB Housing Market Index.
Late Morning Review:
The July 2018 NABE (National Association for Business Economics) Business Conditions Survey indicates strong sales and steady profit margins in the second quarter of 2018, as well as increasing materials costs and wages. The survey revealed that additional investment and job gains are expected. In addition, the report said that labor market conditions are tight, with skilled labor shortages driving firms to raise pay, increase training, and consider additional automation.
The Commerce Department reported that Retail Sales rose 0.5% in June from May, in line with estimates, while May was revised higher to 1.3% from 0.8%. From June 2017 to June 2018, sales rose 6.6%. Consumers spent their hard-earned dollars at health and personal care stores, motor vehicle and parts dealers, gasoline stations, nonstore retailers, and food services and drinking places. The Retail Sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of businesses in retail trade throughout the nation.
The U.S. Government Accountability Office (GAO) issued a report on 6/21/18 on the "Nation's Fiscal Health." The analysis, 60 pages long, describes our country's "likely fiscal future if policies don't change." The study concluded our government's "current fiscal path is unsustainable" and that the longer "action is delayed, the greater and more drastic the changes will have to be." The total debt of the USA was $21.2 trillion as of July 12, 2018, up from $9.5 trillion of debt on July 12, 2008.
Friday - July 13
Not much action again today in the Mortgage Bond markets as prices traded in a tight range ending a bit higher. The Fannie Mae 30-yr 4% coupon closed at 102.0, +12bp with any further moves higher capped by rising Stock prices. The S&P 500 closed at a 5-month high as some tech companies hit fresh record highs ... namely Amazon closing at $1,813. The S&P closed at 2,801.31, +3.02 points, the Dow gained 94.52 points to end at 25,019.41 while the closed up a meager 2.06 points to end at 7,825.97. WTI oil closed at $71.01/barrel, +0.58. 10-yr yield 2.82%. Next week's economic calendar features data on housing, manufacturing and Retail Sales. Fed Chair Powell will be on Capitol Hill in front of Congress for two days giving testimony on the state of the U.S. economy. Have a great weekend!
Late Morning Review
Consumer Sentiment edged lower in early July but remains near lofty levels. The continued strength in the index is due in part to favorable job and income prospects. The preliminary July Consumer Sentiment Index came in at 97.1 versus the 97.8 expected and down from 98.2 in June. Looking ahead, there are rising concerns about the potential negative impact of tariffs on the domestic economy. In comparison, in July 2017 the index was at 93.4.
Three of the largest banks in the nation reported earnings this morning showing mixed results. JPMorgan Chase reported a record quarterly profit of $8.3 billion, an increase of 18% from the same period last though below first quarter profits of $8.7 billion. Citigroup reported revenues that were below forecasts while earnings per share beat expectations. Wells Fargo reported that revenues and earnings missed expectations.
Next week Fed Chair Powell will be on Capitol Hill as he will give his semi-annual testimony on the state of the U.S. economy to Congress on Tuesday and Wednesday. It was formerly known as the Humphrey-Hawkins testimony - a reference to the 1978 law that requires Fed Chairs to deliver testimony twice a year. Mr.Powell's testimony comes two weeks before the next Federal Open Market Committee meeting on July 31-August 1.
Thursday - July 12
Late Morning Review:
The Bureau of Labor Statistics reports that the inflation reading Consumer Price Index (CPI) rose 2.9% in the 12-months ending in June from 2.8% in May. It was the largest increase since the year ending February 2012. The energy index increased 12.0% over the past year, as the gasoline index increased 24.3%.
CPI increased 0.1% in June versus the 0.2% expected after rising 0.2% in May. The Core CPI, which strips out food and energy rose 0.2% in June, in line with estimates, up 2.3% year over year. The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Mortgage rates were essentially unchanged in the latest week and remain historically low. Freddie Mac reports that the 30-year fixed-rate mortgage was 2.53% with an average 0.50 in points and fees for the week ended July 12. Freddie Mac said, "A record number of people quit their job last month, most likely for a new opportunity with higher wages and better benefits. This positive trend, along with these lower mortgage rates, should increasingly give some previously priced-out prospective homebuyers the financial wherewithal to resume their home search."
Wednesday - July 11
Stocks fell today due in part to the ongoing trade issues after the recent rally and profit taking. However, Mortgage Bond prices continue to trade in a sideways pattern unable to push higher from current levels. Today's hotter PPI weighed on Mortgage Bond prices. The Fannie Mae 30-yr 4% coupon closed at 101.81, unchanged as it continues to trade in a tight range. The Dow lost 219.21 points to 24,700.45, the S&P fell by 19.82 points to 2,774,02 while the NASDAQ closed at 7,716.61, -42.58 points. WTI oil fell by $3.73 to $70.38/barrel on supply concerns and as investors also took profits after the recent rise. 10-yr yield 2.83%. Tomorrow's economic data includes Weekly Initial Jobless Claims and CPI for June.
Late Morning Review:
Higher energy costs pushed wholesale prices higher in June which led to the biggest annual increase in prices in 6 1/2 years. The Producer Price Index (PPI) rose 3.4% annually in June while month over month saw an increase of 0.3%. The so-called Core PPI, which strips out volatile food and energy, rose 0.3% from May, year-over-year +2.7%. The Producer Price Index is a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services.
U.S. Stocks are lower though off their worst levels after the White House levied additional tariffs on $200B in Chinese exports coming into the U.S. last night. This sell off comes after a nice multi-day rally. Stocks have pushed higher lately and have easily shrugged off tariff headlines due in part to a strengthening economy, strong consumer confidence, relatively low inflation and a sense of strong quarterly earnings this week.
After rising since the beginning of 2018 until mid-May, mortgage rates have now edged lower in recent weeks. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell three basis points in the latest week to 4.76% with an average 0.43 in points while the jumbo 30-year rate also fell three basis points to 4.68%. Within the report it also stated that the purchase index climbed 6.5% while the refinance index fell 3.8%.
Tuesday - July 10
Mortgage Bonds ended the session slightly lower weighed down by rising Stock prices. The Stock rally was fueled by higher shares of PepsiCo on strong earnings along with easing trade issues. The Fannie Mae 30-yr closed at 101.91, near unchanged and just below resistance one (R1) at the 100-day Moving Average (101.97). The Dow gained 143.07 points to 24,919.66, the S&P 500 was up 9.67 points to 2,793.84 while the NASDAQ squeaked out a meager 2.99 point gain to end at 7,759.19. WTI oil settled at $74.11/barrel, +$0.26. 10-yr yield 2.87%. Wholesale inflation (PPI) will be released tomorrow morning. The Treasury will sell $22B 10-yr Notes and comes after today's weak demand for the 3-yr offering
Late Morning Review:
The NFIB Small Business Optimism Index remains historically high as sales and profits maintained strength in June. The Small Business Optimism Index hit 107.2 in June, down 0.6 from May, its sixth highest reading in survey history. "The first six months of the year have been very good to small business thanks to tax cuts, regulatory reform, and policies that help them grow," said NFIB President and CEO Juanita Duggan. Since December 2016, the Index has averaged lofty levels of 105.4, well above the 45-year average of 98 and just below the all-time high of 108.0 from July 1983. The biggest problem employers are now facing is finding qualified workers to fill positions.
Job openings remained at near all-time highs in May as the labor markets continues to gain strength. The Bureau of Labor Statistics reports that there was 6.6 million job openings on the last business day of May, just below the series high of 6.8 million in April, according to its JOLTS (Job Openings and Labor Turnover Survey) report. The report is closely monitored by the members of the U.S. Federal Reserve.
Mortgage delinquency rates have been edging lower as the economy and job markets strengthen. CoreLogic reports that the 30 days or more delinquency rate for April 2018 was 4.2%. In April 2017, 4.8% of mortgages were delinquent by at least 30 days or more including those in foreclosure. This represents a 0.6% decline in the overall delinquency rate compared with April 2017. CoreLogic says that delinquency rates are nearing historic lows, reflecting a long period of strict underwriting practices and improved economic conditions.
Monday - July 9
Mortgage Bonds began the week lower pressured by rising Stock prices. Easing trade fears and expectations of strong quarterly earnings lead Stocks higher. There were no economic reports released today. The Fannie Mae 3-yr 4% coupon closed at 101.94, -12bp and just below resistance at the 100-day Moving Average. The Dow soared by 320.11 points to 24,776.59, the S&P 500 gained 24.35 points to 2,784.17, while the NASDAQ rose by 67.81 points to end at 7,756.20. WTI oil settled at $73.85/barrel, near unchanged. 10-yr yield 2.85%. There are no economic reports due for release tomorrow. The Treasury will sell $33B 3-yr Notes.
Late Morning Review:
Sentiment in the home purchase market slipped in June from May, reports Fannie Mae. The Fannie Mae Home Purchase Sentiment Index (HPSI) fell 1.6 points in June from May to 90.7. The net share of Americans who said now is a good time to purchase a home was unchanged. Americans expressed a decreased sense of job security, with the net share who say they are not concerned about losing their job falling 2 percentage points this month. The HPSI reflects consumers’ current views and forward-looking expectations of housing market conditions and complements existing data sources to inform housing-related analysis and decision making.
Quarterly earnings kick off this week with JPMorgan Chase, Wells Fargo and Citigroup set to report on Friday. It is expected that S&P 500 companies will report 21% growth in earnings according to Thomson/Reuters. Investors will focus on warnings for future earnings surrounding recent tariffs. U.S. Stock markets are higher to begin the week as traders and investors shrug off the global trade issues.
Time to get off the couch to better health. According to the Center for Disease Control and Prevention, just 23% of American adults meet the "national physical activity guidelines," i.e., they complete at least 2.5 hours per week of "moderate-intensity aerobic physical activity" or at least 1.25 hours per week of "vigorous-intensity aerobic physical activity," or some equivalent combination.
Friday - July 6
Late Morning Review:
The Bureau of Labor Statistics reports that Non-Farm Payrolls rose by 213,000 in June, above the 195,000 expected. April and May were revised higher by a total of 37,000. The Labor Force Participation Rate edged higher to 62.9 from 62.7 as more Americans entered the labor force. On the negative side of the data, average hourly earnings came in at 0.2% from the 0.3% in May, year-over-year was recorded at 2.7%, unchanged. The U6 number, or total unemployed, rose to 7.8% from 7.6%. The Unemployment Rate rose to 4.0%. Overall, it was a good report.
U.S. Stock markets pushed higher on Friday after the June Jobs Report was released. On Thursday night, Washington imposed $34B in tariffs on imported goods from China as the trade issues continue. Howerver, concerns about the conflict escalting have capped equity prices from futher gains. U.S Stocks were modestly higher in mid-morning trading.
Holiday hiring in July! Say it isn't so! Recently, Kohl's announced that it will be hiring seasonal workers for the back-to-school, fall and holiday shopping months earlier than ever before. With a tight labor market, Kohl's feels it will be getting a jump on top talent before they're gobbled up by the other retailers. We are hiring seasonal associates earlier than ever to ensure our teams are fully staffed, trained and ready to support peak shopping seasons," Ryan Festerling, executive vice president of human resources at Kohl's, said in a statement.
Thursday - July 5
Not much action in the Mortgage Bond markets today with many traders and investors away for the week. Today's ADP and ISM Service data had little impact. The Fannie Mae 30-yr 4% coupon closed at 101.97, unchanged. Stocks rallied as trade fears ease. The Dow gained 181.92 points to 24,356.74, the S&P 500 gained 23.39 points to 2,736.61, while the NASDAQ closed at 7,586.42, up 83.75 points. WTI oil closed at $72.94/barrel, -$1.20. 10-yr yield 2.83%. The June Jobs Report will be released tomorrow morning at 8:30 a.m. ET. As always, be sure to be tuned in to get the numbers and the markets reaction.
Late Morning Review
After rising throughout the first five months of 2018, mortgage rates declined in the latest week and have declined in five of the past six weeks. Freddie Mac reports that the 30-year fixed-rate mortgage fell to 4.52% this week from the 4.55% seen last week with an average 0.50 in points and fees. Freddie Mac went on to say, "Although the current economic expansion is in its 10th year, residential single-family real estate was initially slow to recover. Now, backed by the demographic tailwind provided by millennials reaching the peak age to buy their first home, the housing market should have some room to grow going forward."
The first of two key labor market reports was released today. The ADP Private Payrolls Report shows that employers added 177,000 new workers in June, below the 180,000 expected while May was revised higher to 189,000 from 178,000. Within the report, it showed that small businesses added 29,000 workers; medium size 80,000; while large businesses added 69,000. Mark Zandi, chief economist of Moody’s Analytics, said, “Business’ number one problem is finding qualified workers. At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.” The government's Jobs Report for June will be released on Friday morning.
The Institute for Supply Management (ISM) reports that the service sector of the U.S. economy grew for the 101st consecutive month in June. The ISM Service Index rose to 59.1 last month, above the 58.3 expected and up from 58.6 recorded in May. Seventeen of the non-manufacturing industries reported growth in June as the economy continues to expand. 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.
Tuesday - July 3
Stocks reversed course and closed in negative territory today, which lifted Mortgage Bond prices. There were no economic reports released today. The Fannie Mae 30-yr 4% coupon closed at 101.97, +19bp, right at the 100-DMA resistance after opening at 101.75. On Thursday, ADP Private Payrolls will be released along with Weekly Initial Jobless Claims and the ISM Service Index. The June Fed minutes will also be released Thursday afternoon. WTI oil was last seen at $73.93/barrel, unchanged. 10-yr yield 2.83%. All U.S. capital markets are closed tomorrow for Independence Day. Have a happy and safe 4th!
Late Morning Review:
Home prices continue to rise due in part to a shortage of homes for sale on the market. CoreLogic reports that home prices, including distressed sales, rose 7.1% from May 2017 to May 2018, up 1.1% month over month from April to May. Looking ahead, CoreLogic forecasts that home prices will rise 5.1% from May 2018 to May 2019. From May 2018 to June 2018, prices are expected to increase by 0.3%.
CoreLogic also reported that during the first quarter of 2018, about 50% of all existing homeowners had a mortgage rate of 3.75% or less. May's mortgage rates averaged a seven-year high of 4.6%, with an increasing number of homeowners keeping the low-rate loans they currently have, rather than sell and buy another home that would carry a higher rate. In closing, CoreLogic states that despite high home prices, renters want to get out of their rental property and purchase a home.
Monday - July 2
Not much action in today's lackluster trading session in this holiday shortened week. The Fannie Mae 30-yr 4% coupon closed at 101.78, -12bp. Stocks had some volatility. The Dow was down nearly 200 points but closed higher by 35.77 points to end at 24,307.18. The S&P closed at 2,726.71, +8.34 points while the tech heavy NASDAQ closed higher by 57.38 points, at 7,567.68. WTI oil closed at $73.94/barrel, -$0.21. 10-yr yield 2.86%. There are no economic reports due for release tomorrow. Tomorrow, the Stock market closes at 1:00 p.m. ET and Bonds at 2:00 p.m. All markets are closed on Wednesday for Independence Day.
Late Morning Review:
Americans are putting home equity to work for them in 2018, and the numbers are expected to increase in the future. ATTOM Data Solutions reports that the use of home equity lines of credit (HELOCs) rose 18% in the first quarter of 2018 from the final quarter of 2017. HELOCs are also up 14% from the first quarter of 2017. In the first three months of 2017, nearly 350,000 borrowers took out HELOCs. The current HELOC dollar volume is $67 billion, far below the $140 billion seen in 2006. Freddie Mac says it expects HELOCs to continue its steady climb due in part to riding interest rates and home prices.
Manufacturing activity across the nation surged in June and the overall economy grew for the 110th consecutive month in June. The ISM Manufacturing Index registered 60.2 in June from the May reading of 58.7. The new orders and employment index were near unchanged while the other four components rose. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates that it is generally contracting.
With Independence Day on Wednesday, here are a few food facts: Over 74 million Americans are planning to grill out for the 4th of July. Burgers (85%), steak (80%), hot dogs (79%), and chicken (73%) are the most popular foods for the grill. Every 4th of July, 150 million hot dogs are consumed in the U.S. 750 million pounds of chicken are purchased leading up to the 4th of July. Americans spend much more on condiments than chips and dip for their Independence Day barbecues. Have a safe and happy 4th!
Friday's Chart Below