Weekly Review: week of April 18, 2016
Mortgage Rate Forecast with Chart
Economic Calendar – week of April 25, 2016
Federal Reserve FOMC Meeting Schedule & Current Rate Hike Probability
The major stock market indexes turned in a mixed performance for the week with the Dow Industrials gaining 0.59%, the S&P 500 Index advancing 0.52%, and the NASDAQ Composite Index losing 0.65%. Crude oil reached its highest price level for 2016 during the week to provide a lift for energy sector stocks. First quarter corporate earnings news and higher oil prices were the greatest influences on the stock market for the week.
Bond prices retreated and yields rose again this week as an overall positive tone in global equities sparked investor enthusiasm for higher-risk assets. Housing reports were mixed with the National Association of Home Builders’ Housing Market Index missing its forecast while Housing Starts and Building Permits fell sharply in March. However, March Existing Home Sales rebounded nicely.
The National Association of Home Builders’ Housing Market Index, a measure of homebuilder sentiment, was reported unchanged from March with a reading of 58 for April, just missing the forecast of 59. It was the third straight month the Index recorded a reading of 58 showing consistent, steady expansion.
The Commerce Department reported Housing Starts and Building Permits both declined more than anticipated in March. Housing Starts dropped 8.8% to a seasonally adjusted rate of 1.089 million while Building Permits declined 7.7% at an annualized rate of 1.086 million. The consensus forecasts had called for 1.170 million Starts and 1.200 million Permits. However, both Starts and Permits were revised higher for February with Housing Starts revised to 1.194 million from 1,178 million while Housing Permits were revised to 1.177 million from 1.167 million.
Starts on single-family homes fell 9.2% to a rate of 764,000, the lowest since October. However, the prior month of February saw single-family starts reach their highest level since October 2007. The weakness seen in Housing Starts may be due to accelerated home building as an outcome of a warmer than average winter. However, homes under construction increased to 990,000 in March from 985,000 in February.
The National Association of Realtors reported Existing Home Sales rebounded in March, boosted by strong sales in the Midwest and Northeast regions. Existing Home Sales jumped 5.1%, to a seasonally adjusted annualized rate of 5.33 million units from a downwardly revised 5.07 million in February. The median existing-home price for all housing types in March increased 5.7% to $222,700 from $210,700 in March 2015. The March home price increase resulted in the 49th consecutive month of year-over-year gains. Housing inventory for March grew 5.9% to 1.98 million existing homes for sale, 1.5% lower than the 2.01 million available for sale a year ago. At the current sales rate, unsold inventory is at a 4.5 month supply, an increase from the 4.4 month supply in February.
Additionally, the Federal Housing Finance Agency’s (FHFA) Housing Price Index increased 0.4% for February to match the consensus forecast. Compared to the year ago monthly period, house prices have increased 5.6%. The prior month’s reading for January was revised lower to 0.4% from 0.5%. The FHFA reported tight inventories and strong housing demand are helping to drive home prices higher.
In the world of mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending April 16th showing the overall seasonally adjusted Market Composite Index increased 1.3%. The seasonally adjusted Purchase Index fell 1.0%, while the Refinance Index increased 3.0%. Overall, the refinance portion of mortgage activity increased to 55.4% of total applications from 54.9%. The adjustable-rate mortgage share of activity was unchanged at 5.0%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance increased from 3.82% to 3.83% with 0.32 points paid.
For the week, the FNMA 3.0% coupon bond lost 59.4 basis points to end at $102.03 while the 10-year Treasury yield increased 13.8 basis points to end at 1.8913%. Stocks ended the week with the Dow Jones Industrial Average gaining 106.29 points to end at 18,003.75. The NASDAQ Composite Index lost 31.99 points to close at 4,906.23, and the S&P 500 Index advanced 10.85 points to close at 2,091.58.
Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 3.21%, the NASDAQ Composite Index has lost 2.06%, and the S&P 500 Index has gained 2.28%. This past week, the national average 30-year mortgage rate rose to 3.75% from 3.64% while the 15-year mortgage rate increased to 3.02% from 2.94%. The 5/1 ARM mortgage rate rose to 3.00% from 2.97%. FHA 30-year rates edged higher to 3.35% from 3.25% and Jumbo 30-year rates increased to 3.66% from 3.58%.
Mortgage Rate Forecast with Chart
For the week, the FNMA 30-year 3.0% coupon bond ($102.03, -59.4 bp) traded within a wider 72 basis point range between a weekly intraday low of $102.00 and a weekly intraday high of 102.72 before closing at $102.03 on Friday.
The bond failed to respond to a bullish buy signal at the end of the prior week and resumed its downward trend during this past week while plunging below several key support levels on Wednesday as the stock market gained strength throughout the session. Wednesday’s trading resulted in a two-day bearish engulfing lines candlestick pattern, a moderately strong sell signal. This sell signal was confirmed with a strong negative stochastic crossover in the slow stochastic oscillator. Furthermore, the bond also fell below its 25-day and 50-day moving averages. These levels now serve as nearest resistance.
The bond continued lower on Thursday and Friday with small downward gaps or “falling windows.” The slow stochastic oscillator continues to trend lower but has not yet reached “oversold” status indicating we could still see further price weakness in the near-term, and should this happen mortgage rates could worsen slightly. Support is now found at the 38.2% Fibonacci retracement level at $101.78 while the 50-day moving average at $102.28 remains as overhead resistance.
If the stock market regains its positive footing in the coming week on more favorable than anticipated corporate earnings news, we could see bond prices slip a little lower with yields rising and mortgage rates worsening slightly. However, there is also the potential for disappointing earnings and economic news and a Federal Reserve monetary policy statement that could provide a lift for bond prices and an improvement in mortgage rates.
Chart: FNMA 30-Year 3.0% Coupon Bond
Economic Calendar – for the Week of April 25, 2016
The economic calendar this week features reports on Housing, Inflation, 1st Quarter GDP, and the Federal Reserve’s latest monetary policy decision. Other reports of interest include weekly Initial Jobless Claims, Crude Oil Inventories, and Personal Income and Spending. Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
|Event /Report /Statistic||For||Market Expects||Prior|
|Apr 25||10:00||New Home Sales||Mar||521,000||512,000|
|Apr 26||08:30||Durable Goods Orders||Mar||1.7%||-2.8%|
|Apr 26||08:30||Durable Goods excluding transportation||Mar||0.5%||-1.0%|
|Apr 26||09:00||Case-Shiller 20-city Index||Feb||5.6%||5.7%|
|Apr 26||10:00||Consumer Confidence Index||Apr||NA||96.2|
|Apr 27||07:00||MBA Mortgage Index||04/23||NA||NA|
|Apr 27||10:00||Pending Home Sales||Mar||0.3%||3.5%|
|Apr 27||10:30||Crude Oil Inventories||04/23||NA||2.08M|
|Apr 27||14:00||FOMC Interest Rate Decision||Apr||0.5%||0.5%|
|Apr 28||08:30||Advance 1st Quarter GDP||1st Qtr.||0.9%||1.4%|
|Apr 28||08:30||Advance 1st Quarter Chain Deflator||1st Qtr.||0.6%||0.9%|
|Apr 28||08:30||Initial Jobless Claims||04/23||259,000||247,000|
|Apr 28||08:30||Continuing Jobless Claims||04/16||NA||2,137,000|
|Apr 29||08:30||Employment Cost Index||1st Qtr.||0.3%||0.2%|
|Apr 29||08:30||PCE Prices||Mar||0.2%||0.1%|
|Apr 29||08:30||Personal Income||Mar||0.1%||0.1%|
|Apr 29||08:30||Personal Spending||Mar||0.6%||0.6%|
|Apr 29||09:45||Chicago PMI||Apr||53.3||53.6|
|Apr 29||10:00||Final Univ. of Michigan Consumer Sentiment||Apr||90.0||89.7|
Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability **
|April 2016||26-27, (Tuesday-Wednesday)||2% Chance|
|June 2016||14-15, (Tuesday-Wednesday)*||21% Chance|
|July 2016||26-27, (Tuesday-Wednesday)||36% Chance|
|September 2016||20-21, (Tuesday-Wednesday) *||47% Chance|
|November 2016||1-2, (Tuesday-Wednesday)||52% Chance|
|December 2016||20-21 (Tuesday-Wednesday)*||66% Chance|
|February 2017||01/31-02/01 (Tuesday-Wednesday)*||68% Chance|
* Meeting associated with a Summary of Economic Projections and a press conference by the Chairman.
** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.