Monday Market Update – 04/22/2019

Hope you all had a wonderful Easter or Passover holiday. We spent ours with old friends and beloved family. I wish you all an amazing Monday! Go out and get what belongs to you. You deserve it. Here’s a terror-ible puns to start your week.

Image result for easter puns

Your Weekly Update Begins Here

Although there were a number of better than forecast major quarterly earnings reports released, trading was rather quiet with the major stock indexes finished “mixed.” This may have been due to the holiday-shortened trading week with the financial markets being closed in observance of Good Friday and the beginning of Passover.

Economic news outside of housing was strong, stimulating a moderate rise in longer-term bond yields with the 10-year Treasury note yield reaching a one-month high on Wednesday. March retail sales rebounded more than expected from a small decline in February indicating consumer strength. Also, weekly initial jobless claims plunged to a new five-decade low for the second consecutive week.

In housing, the Commerce Department reported last Tuesday that Housing Starts declined 0.3% month-over-month in March to a seasonally adjusted annual rate of 1.139 million units. This was below the consensus forecast of 1.247 million and lower than a downwardly revised 1.142 million units in February.

Meanwhile, Building Permits were also lower, declining 1.7% month-over-month to 1.269 million. This was also below the consensus forecast of 1.300 million and lower than a downwardly revised 1.291 million in February.

Single-family housing starts fell 0.4% month-over-month to 785,000 and were 11.0% lower year-over-year. Single-family permits declined 1.1% month-over-month to 808,000 and were 5.1% lower year-over-year. Regionally, single-family starts in March were up 18.8% in the Northeast; 21.2% lower in the Midwest; 2.8% lower in the South; and 13.9% higher in the West.  Single-family permits were down 14.5% in the Northeast; 3.8% lower in the Midwest; 0.9% higher in the South; and unchanged in the West.

Joel Kan, the Mortgage Bankers Association’s Associate Vice President of Economic and Industry Forecasting, remarked “Despite a strong economy and job market, which continues to spur housing demand, home builders still face challenges such as labor shortages and high labor costs. These headwinds continue to slow the pace of construction, and on a year-over-year basis, single-family starts have fallen in five of the last six months. While severe winter weather in the Midwest likely led to the significant drop in that region, the overall building trend is not heading into the right direction. There needs to be more new inventory to satisfy the solid buyer demand in most of the country, especially for the lower-priced, first-time buyer segment of the market.”

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 3.5% for the week ended April 12, 2019. The seasonally adjusted Purchase Index increased 1% from a week prior while the Refinance Index decreased 8%. Overall, the refinance portion of mortgage activity decreased to 41.5% from 44.1% of total applications from the prior week. The adjustable-rate mortgage share of activity decreased to 6.6% of total applications from 7.6%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.44% from 4.40% with points decreasing to 0.42 from 0.47 for 80 percent loan-to-value ratio (LTV) loans.

For the week, the FNMA 4.0% coupon bond gained 6.30 basis points to close at $102.469 while the 10-year Treasury yield decreased 0.20 of one basis point to end at 2.560%. The Dow Jones Industrial Average added 147.24 points to close at 26,559.54. The NASDAQ Composite Index gained 13.90 points to close at 7,998.06. The S&P 500 Index retreated 2.38 points to close at 2,905.03. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 13.86%, the NASDAQ Composite Index has gained 20.54%, and the S&P 500 Index has advanced 15.88%.

This past week, the national average 30-year mortgage rate climbed to 4.34% from 4.25%; the 15-year mortgage rate increased to 4.04% from 3.95%; the 5/1 ARM mortgage rate rose to 4.10% from 4.06%; and the FHA 30-year rate was unchanged at 4.00%. Jumbo 30-year rates increased to 4.25% from 4.17%.

Economic Calendar – for the Week of April 22, 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 22 10:00 Existing Home Sales Mar 5.37M 5.51M
Apr 23 09:00 FHFA Housing Price Index Feb NA 0.6%
Apr 23 10:00 New Home Sales Mar 646,000 667,000
Apr 24 07:00 MBA Mortgage Applications Index 04/20 NA -3.5%
Apr 24 10:30 EIA Crude Oil Inventories 04/20 NA -1.4M
Apr 25 08:30 Initial Jobless Claims 04/20 215,000 192,000
Apr 25 08:30 Continuing Claims 04/13 NA 1,653K
Apr 25 08:30 Durable Goods Orders Mar 0.9% -1.6%
Apr 25 08:30 Durable Goods Orders excluding transportation Mar 0.3% 0.1%
Apr 26 08:30 Advance Estimate of 1st  Qtr. GDP Qtr. 1 1.9% 2.2%
Apr 26 08:30 Advance Estimate of 1st Qtr. GDP Deflator Qtr. 1 1.4% 1.7%
Apr 26 10:00 Final Univ. of Michigan Consumer Sentiment Index Apr 96.7 96.9

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

The FNMA 30-year 4.0% coupon bond ($102.469, +6.30) traded within a narrower 17.2 basis point range between a weekly intraday low of $102.328 on Wednesday and a weekly intraday high of 102.500 on Thursday before closing the week at $102.469 on Thursday prior to the Good Friday holiday. Mortgage bonds traded down to the 50-day moving average support level on Tuesday and Wednesday before bouncing a little higher on Thursday.

Mortgage bonds are “oversold” so we could see a continuation bounce higher toward a dual layer of resistance beginning with the 25-day moving average ($102.6019) and ending at the 50% Fibonacci retracement level ($102.618). We should see little movement in rates this coming week as long as mortgage bonds remain range-bound between nearest support and resistance levels as seen in the chart below. Overall, there is a slight technical bias toward improved bond prices and slightly lower rates.

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