Your Weekly Review Begins Here:
The major stock market indexes traded “mixed” for the week and without much conviction. Daily stock trading volumes posted new year-to-date lows on Monday, Wednesday, and Thursday. Investors appeared to take a wait and see approach as first quarter earnings for 2019 got underway with better-than-expected quarterly earnings reports from banking giants JP Morgan and Wells Fargo on Friday. However, the earnings growth rate for S&P 500 corporations is projected by analysts to decline to around 5% for the first quarter 2019, a far cry from the 20% earnings growth from the same time last year.
In economic news, a couple of inflation reports showed inflation remains well contained. Although the Consumer Price Index increased by a more than expected 0.4% in March, the core rate of inflation (excluding food and energy) only increased by 0.1% for the month and 2.0% on a year-over-year basis, its slowest rate in 13 months. This will likely keep the Federal Reserve “on hold” as far as raising interest rates are concerned. Thursday, the Labor Department reported weekly jobless claims had fallen to their lowest level since 1969 when the labor market was only about 60% of its current size. This historical strength in the labor market is signaling to the bond market that we have a strong economy and as such, longer-term Treasury yields moved modestly higher for the week.
In housing, last Tuesday CoreLogic released their latest Loan Performance Insights Report for January 2019 showing the overall delinquency and foreclosure rates in the U.S. were the lowest in at least 20 years. The overall delinquency rate includes all home loans 30 days or more past due, including those in foreclosure.
Overall, the nation’s home mortgage delinquency rate was 4%. This was down from 4.9% a year earlier. The serious delinquency rate, defined as 90 days or more past due, including loans in foreclosure was 1.4% in January 2019, down from 2.1% in January 2018.
No state recorded an annual gain in its serious delinquency or foreclosure rate with only North Dakota posting a gain in the overall delinquency rate. The foreclosure inventory rate, the share of mortgages in some stage of the foreclosure process, was 0.4% in January 2019, down from 0.6% a year earlier.
Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications declined from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 5.6% for the week ended April 5, 2019. The seasonally adjusted Purchase Index increased 1% from a week prior while the Refinance Index decreased 11%.
Overall, the refinance portion of mortgage activity decreased to 44.1% from 47.4% of total applications from the prior week. The adjustable-rate mortgage share of activity decreased to 7.6% of total applications from 9.5%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.40% from 4.36% with points increasing to 0.47 from 0.44 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 $102.406 while the 10-year Treasury yield increased 6.31 basis points to end at 2.562%. The Dow Jones Industrial Average retreated 12.69 points to close at 26,412.30. The NASDAQ Composite Index added 45.47 points to close at 7,984.16. The S&P 500 Index advanced 14.67 points to close at 2,907.41. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 13.22%, the NASDAQ Composite Index has gained 20.33%, and the S&P 500 Index has advanced 15.98%.
This past week, the national average 30-year mortgage rate climbed to 4.25% from 4.21%; the 15-year mortgage rate increased to 3.95% from 3.92%; the 5/1 ARM mortgage rate rose to 4.06% from 4.05%; and the FHA 30-year rate was unchanged at 4.00%. Jumbo 30-year rates increased to 4.17% from 4.13%.
Economic Calendar – for the Week of April 15, 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 15||08:30||New York Empire State Manufacturing Index||Apr||9.0||3.7|
|Apr 15||16:00||Net Long-Term TIC Flows||Feb||NA||-$7.2B|
|Apr 16||09:15||Industrial Production||Mar||0.2%||0.1%|
|Apr 16||09:15||Capacity Utilization||Mar||79.1%||78.2%|
|Apr 16||10:00||NAHB Housing Market Index||Apr||63||62|
|Apr 17||07:00||MBA Mortgage Applications Index||04/13||NA||-5.6%|
|Apr 17||08:30||Balance of Trade||Feb||-$54.0B||-$51.1B|
|Apr 17||10:00||Wholesale Inventories||Feb||0.4%||1.4%|
|Apr 17||10:30||EIA Crude Oil Inventories||04/13||NA||+7.0M|
|Apr 17||14:00||Federal Reserve’s Beige Book||Apr||NA||NA|
|Apr 18||08:30||Retail Sales||Mar||0.9%||-0.2%|
|Apr 18||08:30||Retail Sales excluding automobiles & light trucks||Mar||0.7%||-0.4%|
|Apr 18||08:30||Initial Jobless Claims||04/13||208,000||196,000|
|Apr 18||08:30||Continuing Jobless Claims||04/06||NA||1,713K|
|Apr 18||08:30||Philadelphia Fed Manufacturing Index||Apr||11.0||13.7|
|Apr 18||10:00||Business Inventories||Feb||0.4%||0.8%|
|Apr 18||10:00||Index of Leading Economic Indicators||Mar||0.4%||0.2%|
|Apr 19||08:30||Housing Starts||Mar||1,247K||1,162K|
|Apr 19||08:30||Building Permits||Mar||1,300K||1,296K|
Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond
The FNMA 30-year 4.0% coupon bond ($102.406, -32.8) traded within a wider 39.0 basis point range between a weekly intraday high of $102.781 on Monday and a weekly intraday low of 102.391 on Friday before closing the week at $102.406 on Friday. Mortgage bonds traded in a sideways direction along support levels provided by the 50% Fibonacci retracement level ($102.618) and the 25-day moving average ($102.579) until Friday when technical support was broken to the downside. These former support levels now become nearest resistance levels.
Technical support is now found at the 50-day moving average ($102.326) and the 61.8% Fibonacci retracement level ($101.856). The slow stochastic indicator shows the bond remains trading on a sell signal while not yet “oversold” suggesting further downside movement could be seen this coming week. If the 50-day moving average fails to hold as support, mortgage bond prices will retreat toward secondary support and 30-year mortgage rates could rise toward 4.50%.