The stock moved lower for the week while bond prices, including those of mortgage bonds, moved modestly higher. Although the decline in the major stock market indexes was not severe, the S&P 500 Index suffered its worst weekly performance in over two months, suspending the rally that has been in place since the middle of February. Trading volumes declined during the week while traders took a wait and see approach toward the arrival of first-quarter corporate earnings reports beginning this week. There were a number of public comments made by Federal Reserve officials throughout the week demonstrating a lack of agreement concerning the number and pace of future interest rate hikes. These comments led to some extra volatility in the financial and crude oil markets. Stocks and bonds began the week by slipping lower, when investors were shocked by “hawkish” comments made by Boston Fed President Eric Rosengren on Monday that markets were being too slow in pricing in further rate increases. This was surprising because Rosengren is widely viewed as one of the more “dovish” members of the Federal Reserve. Elsewhere, Chicago Fed President Charles Evans said he believes two rate hikes in 2016 will be sufficient. These comments were tempered on Thursday evening when a more “dovish” tone was expressed by Fed Chair Janet Yellen and former Fed Chairman Ben Bernanke. Yellen and Bernanke voiced their beliefs that the economy is not in a “bubble” and a cautious stance toward future interest rate hikes remains justified. Furthermore, New York Fed Chair William Dudley said in a speech that he still favors moving slowly in raising rates. Also on Thursday, bond prices moved higher while the stock market struggled on investor concerns about stock valuations, some profit taking triggered by lower oil prices, and renewed worries about global growth – this time from Japan, the world’s third largest economy. From a more global perspective, investors are now worried about Japan’s economy. Japan's index of coincident economic indicators, consisting of readings on industrial output, employment and retail sales data, declined at its swiftest rate during February since the March 2011 earthquake and subsequent nuclear crisis wreaked havoc on the island nation. In the realm of mortgages, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending April 1 showing the overall seasonally adjusted Market Composite Index increased 2.7%. The seasonally adjusted Purchase Index decreased 2.0% from the prior reporting period while the Refinance Index increased 7.0%. Overall, the refinance portion of mortgage activity increased to 54.5% of total applications from 52.4%. The adjustable-rate mortgage segment of activity was 4.7%, a decline of 0.2% from 4.9% the previous week. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance fell from 3.94% to 3.86%. For the week, the FNMA 3.0% coupon bond gained 23.4 basis points to end at $102.91 while the 10-year Treasury yield fell 5.7 basis points to end at 1.7167%. Stocks ended the week with the Dow Jones Industrial Average declining 215.79 points to end at 17,576.96. The NASDAQ Composite Index lost 63.85 points to close at 4,850.69, and the S&P 500 Index fell 25.18 points to close at 2,047.60. Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 0.86%, the NASDAQ Composite Index has lost 3.23%, and the S&P 500 Index has gained 0.18%. This past week, the national average 30-year mortgage rate decreased to 3.64% from 3.65% while the 15-year mortgage rate was unchanged at 2.94%. The 5/1 ARM mortgage rate increased to 2.97% from 2.95%. FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.55% from 3.52%.
Mortgage Rate Forecast with Chart For the week, the FNMA 30-year 3.0% coupon bond ($102.91, +23.4 bp) traded within a narrower 41 basis point range between a weekly intraday low of $102.56 and a weekly intraday high of 102.97 before closing at $102.91 on Friday. The bond saw some up and down action from Monday through Wednesday, but then moved higher on Thursday and Friday to challenge overhead resistance at $102.92 before pulling back slightly. The bond still remains extremely overbought with the $102.92 level proving to be a tough ceiling of technical resistance. If the stock market moves lower this week, the bond could make an advance above the $102.92 level toward the next resistance level found at $103.28, and such a scenario would lead to a slight improvement in mortgage rates. However, if the stock market manages to work its way higher on better than anticipated corporate earnings news, the bond market will likely move lower and this would trigger a new sell signal from an overbought position leading to a slight deterioration in rates.
Chart: FNMA 30-Year 3.0% Coupon Bond
Economic Calendar - for the Week of April 11, 2016 The economic calendar expands this week with several high profile reports highlighted by the March Producer Price Index, Retail Sales, and the Consumer Price. Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
| Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability ** |
| April 2016 | 26-27, (Tuesday-Wednesday) | 3% Chance |
| June 2016 | 14-15, (Tuesday-Wednesday)* | 22% Chance |
| July 2016 | 26-27, (Tuesday-Wednesday) | 35% Chance |
| September 2016 | 20-21, (Tuesday-Wednesday)* | 42% Chance |
| November 2016 | 1-2, (Tuesday-Wednesday) | 46% Chance |
| December 2016 | 20-21 (Tuesday-Wednesday)* | 59% Chance |
| February 2017 | 01/31-02/01 (Tuesday-Wednesday)* | 61% 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 