Monday Market Update – 03/04/2019

Strive not to be a success, but rather to be of value.

Albert Einstein

Your Weekly Update Begins Here

The major stock market indexes ended mixed for the week with the S&P 500 and Nasdaq Composite Indexes posting modest gains while the Dow Jones Industrial Average recorded a minor loss.  The broader S&P 500 Index at 2,803.69 is now bumping up against what could be a stiff resistance level at 2,800, and it will be interesting to see if the S&P 500 can manage to decisively move above this level or get turned away as it has three times since last October.

The week’s economic news was mostly disappointing, especially in the housing sector, but this was largely offset by news of progress in trade negotiations between the U.S. and China.  President Trump announced the U.S. would delay the application of higher tariffs on Chinese goods scheduled for March 1 after citing “substantial progress” has been made on a range of issues.  These issues include intellectual property protection, technology transfer, currency manipulation, and increases in Chinese purchases of U.S. agricultural products and services.

Although the administration’s chief trade negotiator, Robert Lighthizer, told a congressional committee “much still needs to be done” before an agreement could be reached, there was news U.S. officials were drafting a trade agreement President Trump and Chinese President Xi Jinping could sign as early as mid-March and this seemed to lift investor sentiment.

There were several housing reports released during the week.  Tuesday, the Commerce Department reported Housing Starts fell 11.2% month-over-month in December to a seasonally adjusted annual rate of 1.078 million.  This was below the consensus forecast of 1.254 million and was the lowest level in more than two years.  Over the past 12 months, Housing Starts have declined by 10.2%.

Single-family production declined 6.7% to 758,000 units while multifamily starts fell 20.4% to a seasonally adjusted annual rate of 302,000 units.

Despite the monthly loss, both single-family and multifamily starts posted an annual gain.  Single-family production increased 2.8% in 2018 to a rate of 872,800.

Multifamily starts posted 5.5% growth in 2018 to 373,700 units.

Building Permits on the other hand increased 0.3% month-over-month to a seasonally adjusted annual rate of 1.326 million, exceeding the consensus estimate of 1.290 million.  Among single-family houses, permits fell 2.2% in December and 5.5% from a year ago.

Further, the Federal Housing Finance Agency (FHFA) released their latest House Price Index (HPI) revealing U.S. house prices rose 1.1% in the fourth quarter of 2018.  On a year-over-year basis, house prices rose 5.7% from the fourth quarter of 2017 to the fourth quarter of 2018.  FHFA’s seasonally adjusted monthly index for December was up 0.3% from November.

Home prices increased in all 50 states and the District of Columbia between the fourth quarters of 2017 and 2018.  The areas showing the greatest annual appreciation were: Idaho 11.9%; Nevada 11.2%; Utah 9.8%; Georgia 8.2%; and Arizona 8.2%.  The areas showing the smallest annual appreciation were:  North Dakota 0.0%; Connecticut 0.9%; 3) West Virginia 1.6%; Louisiana 1.8%; and Oklahoma 2.0%.

Of the nine census divisions, the Mountain division showed the strongest four-quarter appreciation at an 8.1% percent gain while the weakest annual house price appreciation was seen in the West South Central division with 4.3% gain.

Wednesday, the National Association of Realtors (NAR) reported Pending Home Sales bounced back strongly in January with all four major regions seeing growth. 

The NAR’s Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 4.6% to 103.2 in January, up from 98.7 in December.  However, year-over-year contract signings fell 2.3%, making this the thirteenth straight month of annual decline.

Lawrence Yun, NAR chief economist, remarked “A change in Federal Reserve policy and the reopening of the government were very beneficial to the market.  Of the four major regions, three areas experienced a decline compared to one year ago, while the Northeast enjoyed a slight growth spurt.  Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers.”

For 2019, Yun is forecasting existing home sales of around 5.28 million, down 1.1% from the 5.34 million sold in 2018.  The national median existing-home price this year is expected to increase around 2.2%, down from 2018’s 4.9% increase.

Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) increased 5.3% for the week ended February 22, 2019.  The seasonally adjusted Purchase Index increased 6% from a week prior while the Refinance Index increased 5%. 

Overall, the refinance portion of mortgage activity decreased to 40.4% from 41.7% of total applications from the prior week.  The adjustable-rate mortgage share of activity fell to 7.3% of total applications from 7.7%.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.65% from 4.66% with points remaining at 0.42 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond lost 32.8 basis points to close at $101.813 while the 10-year Treasury yield increased 10.5 basis points to end at 2.759%.  The Dow Jones Industrial Average lost 5.49 points to close at 26,026.32.  The NASDAQ Composite Index added 67.81 points to close at 7,595.35.  The S&P 500 Index advanced 11.02 points to close at 2,803.69.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 11.57%, the NASDAQ Composite Index has gained 14.47%, and the S&P 500 Index has advanced 11.84%.

This past week, the national average 30-year mortgage rate rose to 4.57% from 4.45%; the 15-year mortgage rate increased to 4.14% from 4.05%; the 5/1 ARM mortgage rate increased to 4.44% from 4.36% while the FHA 30-year rate increased to 4.22% from 4.13%.  Jumbo 30-year rates increased to 4.37% from 4.29%.

Economic Calendar – for the Week of March 4, 2019

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Date Time ET Event /Report /Statistic For Market Expects Prior
Mar 04 10:00 Construction Spending Dec -0.3% 0.8%
Mar 05 10:00 ISM Non-Manufacturing Index Feb 57.2 56.7
Mar 05 10:00 New Home Sales Dec NA 657,000
Mar 05 14:00 Treasury Budget Jan NA $49.2B
Mar 06 07:00 MBA Mortgage Applications Index 03/02 NA 5.3%
Mar 06 08:15 ADP Employment Change Feb 175,000 213,000
Mar 06 08:30 Balance of Trade Dec -$57.8B -$49.3B
Mar 06 10:30 EIA Crude Oil Inventories 03/02 NA -8.6M
Mar 06 14:00 Fed’s Beige Book Mar NA NA
Mar 07 08:30 Initial Claims 03/02 224,000 225,000
Mar 07 08:30 Continuing Claims 02/23 NA 1,805K
Mar 07 08:30 Revised Unit Labor Costs Qtr. 4 1.5% NA
Mar 07 08:30 Revised Productivity Qtr. 4 1.7% NA
Mar 07 15:00 Consumer Credit Jan $17.0B $16.6B
Mar 08 08:30 Nonfarm Payrolls Feb 173,000 304,000
Mar 08 08:30 Nonfarm Private Payrolls Feb 165,000 296,000
Mar 08 08:30 Unemployment Rate Feb 3.8% 4.0%
Mar 08 08:30 Avg. Hourly Earnings Feb 0.3% 0.1%
Mar 08 08:30 Average Workweek Feb 34.5 34.5
Mar 08 08:30 Housing Starts Jan 1,180K 1,078K
Mar 08 08:30 Building Permits Jan 1,280K 1,326K

Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond

The FNMA 30-year 4.0% coupon bond ($101.813, -32.8) traded within a wider 40.7 basis point range between a weekly intraday high of $102.188 on Tuesday and Wednesday and a weekly intraday low of 101.781 on Friday before closing the week at $101.813 on Friday.

Mortgage bond prices trended lower last Wednesday through Friday falling below several support levels defined by the 25-day moving average ($102.048), 50-day moving average ($101.908), and the 61.8% Fibonacci retracement level ($101.856).  These levels now revert to becoming technical resistance levels.  The bond is not yet “oversold” so we could continue to see lower price movement toward the next levels of support as shown in the chart below.  If this coming Friday’s employment report is strong, bond prices will likely test the next support level at $101.578 resulting in slightly higher mortgage rates.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.