Monday Market Update – 04/01/2019

Spring Selling Should Sizzle!

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The stock market performed well despite weaker economic news with the major indexes erasing most of the previous week’s losses while recording the best quarter for stocks in a decade. The week’s economic news was generally downbeat, especially in housing data that mostly missed consensus expectations. Personal income and spending data released on Friday also missed forecasts, prompting the Commerce Department to slightly lower its estimate of fourth-quarter gross domestic product (GDP) growth. The weaker economic data allowed bond yields to edge a little lower during the week.

The stock market may have been provided some support from news that U.S. – China trade negotiations are progressing toward a deal. Friday, Bloomberg reported Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer completed two days of trade talks with their Chinese counterparts to go over the wording of the English and Chinese language versions of a trade deal. Despite reports of ongoing disparities between the U.S. and China, both sides are reportedly eager to conclude a deal by the end of April that would head off an escalation of a trade war that is negatively impacting China’s economy.

In housing, the Census Bureau reported last Tuesday that Housing Starts decreased 8.7% month-over-month in February to a seasonally adjusted annual rate of 1.162 million units. This was slightly below the consensus forecast of 1.210 million units. However, January Starts were upwardly revised to 1.273 million units from 1.230 million.

Building Permits decreased 1.6% month-over-month for February to 1.296 million and were also below a consensus estimate of 1.308 million. January’s Permits were also downwardly revised to 1.317 million from 1.345 million.

Single-family starts decreased 17.0% month-over-month to 805,000 while single-family permits that serve as a leading indicator for future home building activity were unchanged month-over-month at 821,000. Housing Starts are now down 9.9% year-over-year while Permits are 2.0% lower year-over-year.

Regionally, single-family starts in February were down 42% in the Northeast; down 8.3% in the Midwest; 12.1% lower in the South; and were 24.4% lower in the West. Regionally, single-family permits were 16.4% higher in the Northeast; 7.9% lower in the Midwest; 0.7% higher in the South; and 1.5% lower in the West.

Also Tuesday, the Federal Housing Finance Agency (FHFA) reported U.S. house prices rose in January, up 0.6% from December 2018 according to their seasonally adjusted monthly House Price Index (HPI). The previously reported 0.3% increase for December 2018 remained unchanged.

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. From January 2018 to January 2019, house prices were up 5.6%.

For the nine census divisions, seasonally adjusted monthly house price changes from December

2018 to January 2019 ranged from a negative -0.7% in the New England division to +1.1% in the East North Central division. The 12-month changes were all positive, ranging from +4.3% in the Pacific division to +7.8% in the Mountain division.

Thursday, the National Association of Realtors (NAR) reported a slight drop in Pending Home Sales for February. According to NAR’s Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, there was a slight 1.0% decrease in the index to 101.9 in February from 102.9 in January.  

Year-over-year contract signings declined 4.9%, making this the fourteenth straight month of annual decreases.

Regionally, the PHSI fell 0.8% in the Northeast to 92.1 in February and is 2.6% below a year ago. The PHSI fell 7.2% in the Midwest to 93.2, 6.1% lower year-over-year.

The PHSI in the South was 1.7% higher to 121.8, which is 2.9% lower year-over-year. The PHSI in the West increased 0.5% to 87.5 and fell 9.6% year-over-year.

Friday, the Census Bureau and the Department of Housing and Urban Development jointly reported New Home Sales increased 4.9% month-over-month in February to a seasonally adjusted annual rate of 667,000. This was above the consensus forecast of 618,000 and an upwardly revised 636,000 in January. On a year-over-year basis, new home sales increased by 0.6%.

The median sales price fell 3.6% year-over-year to $315,300 while the average sales price increased 1.6% to $379,600. Homes priced at $399,999 and less accounted for 71% of total homes sold in February versus 74% in January.

Regionally, new home sales were

4.9% higher in the Northeast; 28.3% higher in the Midwest; 1.8% higher in the South; and were unchanged at 0.0% in the West. The inventory of new homes for sale dropped to a 6.1-months’ supply in February from 6.5-months’ supply in January. It appears a decrease in median sales price is stimulating an increase in new home sales.

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 8.9% for the week ended March 22, 2019. The seasonally adjusted Purchase Index increased 6% from a week prior while the Refinance Index increased 12%.

Overall, the refinance portion of mortgage activity increased to 40.4% from 39.2% of total applications from the prior week. The adjustable-rate mortgage share of activity increased to 7.2% of total applications from 7.1%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.45% from 4.55% with points decreasing to 0.39 from 0.42 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond gained 1.5 basis points to close at $102.828 while the 10-year Treasury yield decreased 4.6 basis points to end at 2.409%. The Dow Jones Industrial Average gained 426.36 points to close at 25,928.68. The NASDAQ Composite Index added 86.65 points to close at 7,729.32. The S&P 500 Index rose 33.69 points to close at 2,834.40.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 11.15%, the NASDAQ Composite Index has gained 16.49%, and the S&P 500 Index has advanced 13.07%.

This past week, the national average 30-year mortgage rate dropped to 4.11% from 4.15%; the 15-year mortgage rate decreased to 3.82% from 3.85%; the 5/1 ARM mortgage rate decreased to 4.00% from 4.05%; and the FHA 30-year rate decreased to 3.92% from 3.95%. Jumbo 30-year rates decreased to 4.00% from 4.05%.

Economic Calendar – for the Week of April 01, 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
Apr 01 08:30 Retail Sales Feb 0.2% 0.2%
Apr 01 08:30 Retail Sales excluding automobiles & light trucks Feb 0.3% 0.9%
Apr 01 10:00 Business Inventories Jan 0.5% 0.6%
Apr 01 10:00 ISM Manufacturing Index Mar 54.1 54.2
Apr 01 10:00 Construction Spending Feb -0.3% 1.3%
Apr 02 08:30 Durable Goods Orders Feb -0.9% 0.4%
Apr 02 08:30 Durable Goods Orders excluding transportation Feb 0.2% -0.1%
Apr 03 07:00 MBA Mortgage Applications Index 03/30 NA 8.9%
Apr 03 08:15 ADP Employment Change Mar 178,000 183,000
Apr 03 10:00 ISM Non-Manufacturing Index Mar 57.9 59.7
Apr 03 10:30 EIA Crude Oil Inventories 03/30 NA +2.8M
Apr 04 08:30 Initial Jobless Claims 03/30 217,000 211,000
Apr 04 08:30 Continuing Jobless Claims 03/23 NA 1,756K
Apr 05 08:30 Nonfarm Payrolls Mar 170,000 20,000
Apr 05 08:30 Nonfarm Private Payrolls Mar 160,000 25,000
Apr 05 08:30 Average Hourly Earnings Mar 0.2% 0.4%
Apr 05 08:30 Unemployment Rate Mar 3.8% 3.8%
Apr 05 08:30 Average Workweek Mar 34.5 34.4
Apr 05 15:00 Consumer Credit Feb $18.0B $17.0B

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

The FNMA 30-year 4.0% coupon bond ($102.828, +1.5) traded within a 40.6 basis point range between a weekly intraday low of $102.703 on Tuesday and a weekly intraday high of 103.109 on Wednesday before closing the week at $102.828 on Friday. Mortgage bonds peaked in price on Wednesday before slipping slightly lower by Friday’s market close. The trading action from Wednesday through Friday resulted in a negative stochastic crossover sell signal from a highly overbought position on Friday signaling bond prices could continue lower toward the 50% Fibonacci retracement support level at $102.618. Should this move play out, mortgage rates could slide slightly lower for the week.

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