Great Britain’s referendum (the so-called Brexit vote) on whether or not the country would leave the European Union (EU) dominated market sentiment throughout the week. Bonds trended lower for much of the week until exploding higher on Friday while stocks reached their highs on Thursday when many market investors believed the polling and betting numbers that Britons would vote to remain in the EU. The Brexit poling data during the week was thought-provoking. Last Monday, the polling data out of Great Britain suggested there had been a shift in sentiment among those likely to vote toward remaining in the EU with the probability to “remain” moving to 72% from 65%. On Wednesday, a polling survey conducted by Opinium Research showed the “Leave” side ahead by one point, 45% to 44%, with the 9% who were undecided likely to determine the final outcome. Thursday, an Ipsos MORI survey showed 52% of 1,592 people surveyed wanting to stay in the EU compared to 48% wanting to exit while Opinium Research’s final survey of 3,000 people before the referendum put the Leave vote at 45% and Remain at 44%. However, stock futures plunged in Thursday overnight trading after it became clear the vote for exiting the EU would win. Indeed, British nationalism was in full display as citizens in the island nation voted by a large four point margin to leave the EU, shocking global equity markets. In fact, Great Britain’s exit may be the first step in the breakup of the entire EU. Politicians in France and the Netherlands are now calling for their own referendums on EU membership while Italy's Five Star movement is seeking a vote on the euro. Regardless, the Brexit vote outcome triggered a plunge in global equities on Friday while bond prices soared with yields cascading lower. The ensuing global financial turmoil will certainly put the Federal Reserve on hold with respect to another rate hike, and investors are now seeing the Fed Funds Futures showing the probability for a rate cut is higher than that of a rate hike for every FOMC meeting through February 2017! During the week there were several favorable housing reports. First, the Federal Housing Finance Agency (FHFA) reported home prices rose 0.2% year-over-year in April gaining 5.9% from April 2015. The consensus forecast for April had called for a month-over-month increase of 0.6%. Additionally, the National Association of Realtors (NAR) reported Existing Home Sales increased 1.8% in May, to a seasonally adjusted annual rate of 5.53 million. This was the highest rate in nine years, with all major regions other than the Midwest recording strong sales increases. The median existing home price for all housing types increased 4.7% year-over-year in May to $239,700, the 50th consecutive month of rising home prices. Housing inventory increased by 1.4% in May, to 2.15 million homes, which is equal to a 4.7 month supply and was unchanged from April.
Meanwhile, New Home Sales fell 6.0% in May to a seasonally adjusted annual rate of 551,000 units. The consensus forecast had called for an annual rate of 560,000. Also, April's sales level was revised lower to 586,000 units from the previously reported 619,000 units, but was still the highest sales rate since February 2008. Still, New Home Sales were 8.7% higher from the year ago period. New home inventory increased 1.2% in May to 244,000, the highest since September 2009, and with May’s sales rate it would take 5.3 months to clear inventory, up from 4.9 months in April. Further, the median new home price increased 1.0% from a year ago to $290,400.
Elsewhere, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending June 18
th showing the overall seasonally adjusted Market Composite Index rose 2.9%. The seasonally adjusted Purchase Index decreased 2.0%, while the Refinance Index increased 7.0%. Overall, the refinance portion of mortgage activity increased to 57.7% of total applications from 55.3%. The adjustable-rate mortgage share of activity increased to 5.7% from 5.3% of total applications. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased from 3.79% to 3.76%, the lowest level since May 2013. For the week, the FNMA 3.0% coupon bond gained 29.7 basis points to end at $103.27 while the 10-year Treasury yield decreased 4.96 basis points to end at 1.56%. Stocks ended the week with the Dow Jones Industrial Average losing 274.41 points to end at 17,400.75. The NASDAQ Composite Index lost 92.36 points to close at 4,707.98, and the S&P 500 Index fell 33.81 points to close at 2,037.41. Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 0.14%, the NASDAQ Composite Index has dropped 6.36%, and the S&P 500 Index has declined 0.32%. This past week, the national average 30-year mortgage rate fell to 3.49% from 3.53% while the 15-year mortgage rate decreased to 2.78% from 2.92%. The 5/1 ARM mortgage rate fell to 2.97% from 3.00%. FHA 30-year rates held steady at 3.25% while Jumbo 30-year rates decreased to 3.60% from 3.65%.
Mortgage Rate Forecast with Chart For the week, the FNMA 30-year 3.0% coupon bond ($103.27, +29.7 basis points) traded within a wider 92 basis point range between a weekly intraday high of $103.50 and a weekly intraday low of $102.58 before closing at $103.27 on Friday. After trending lower ahead of the Brexit vote, the bond shot higher in a large opening gap or “rising window” on Friday above primary resistance at $103.33 and then closely approximated a secondary resistance level located at $103.52 before pulling back below primary resistance. The session’s extreme upward move triggered a positive stochastic crossover buy signal as the slow stochastic oscillator moved toward an “overbought” level. The pull-back below the $103.33 level may continue to back-fill more of the “rising window” as the bond seeks to stabilize in a volatile market. It wouldn’t be too surprising to see a pull-back to the $103.00 level near the middle of the “rising window” support level. Should this happen, mortgage rates would erode slightly from Friday’s best rate level.
Chart: FNMA 30-Year 3.0% Coupon Bond
Economic Calendar - for the Week of June 27, 2016 The economic calendar expands this coming week with several housing and inflation reports that will attract investor attention. Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
| Date | TimeET | Event /Report /Statistic | For | Market Expects | Prior |
| Jun 27 | 08:30 | International Trade in Goods | May | -$59.2B | -$57.5B |
| Jun 28 | 08:30 | 3rd Estimate of 1st Qtr. GDP | Qtr. 1 | 1.0% | 0.8% |
| Jun 28 | 08:30 | 3rd Estimate of 1st Qtr. GDP Deflator | Qtr. 1 | 0.6% | 0.6% |
| Jun 28 | 09:00 | Case-Shiller 20-city Index | Apr | 5.5% | 5.4% |
| Jun 28 | 10:00 | Consumer Confidence Index | June | 93.1 | 92.6 |
| Jun 29 | 07:00 | MBA Mortgage Index | 06/25 | NA | 2.9% |
| Jun 29 | 08:30 | Personal Income | May | 0.3% | 0.4% |
| Jun 29 | 08:30 | Personal Spending | May | 0.3% | 1.0% |
| Jun 29 | 08:30 | Core PCE Price Index | May | 0.2% | 0.2% |
| Jun 29 | 10:00 | Pending Home Sales | May | -1.4% | 5.1% |
| Jun 29 | 10:30 | Crude Oil Inventories | 06/25 | NA | -0.917M |
| Jun 30 | 08:30 | Initial Jobless Claims | 06/25 | 265K | 259K |
| Jun 30 | 08:30 | Continuing Jobless Claims | 06/18 | NA | 2142K |
| Jun 30 | 09:45 | Chicago Purchasing Managers Index (PMI) | June | 50.8 | 49.3 |
| Jul 01 | 10:00 | ISM Index | June | 51.4 | 51.3 |
| Jul 01 | 10:00 | Construction Spending | May | 0.5% | -1.8% |
| Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability ** |
| July 2016 | 26-27, (Tuesday-Wednesday) | 0% Chance |
| September 2016 | 20-21, (Tuesday-Wednesday)* | 0% Chance |
| November 2016 | 1-2, (Tuesday-Wednesday) | 1.8% Chance |
| December 2016 | 20-21 (Tuesday-Wednesday)* | 17.8% Chance |
| February 2017 | 01/31-02/01 (Tuesday-Wednesday)* | 18.9% 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. 