The major stock market indexes continued to grind their way higher to establish new all-time highs for the third consecutive week. Meanwhile, bond prices received a boost (yields fell) in response to a rally in bond prices in Europe and Japan along with a month-over-month decline in the University of Michigan’s Consumer Sentiment Index. The remainder of the week’s economic data was largely focused on the housing sector and was generally regarded as promising. Also, the labor market appears to be slowly strengthening. Although weekly Initial Jobless Claims increased 4,000 more than expected to 244,000, the more significant four-week average of jobless claims fell to its lowest level since 1973, falling to 241,000. Continuing jobless claims declined by 17,000. In housing, the National Association of Realtors reported Existing Home Sales in January soared to their highest level in a decade, rising 3.3% to a seasonally adjusted annual rate of 5.69 million. Economists had predicted a sales pace of 5.57 million. Further, December’s initial reading of 5.49 million in sales was revised higher to 5.51 million. Home inventory continued to decline for the 20
th consecutive month to a 3.6 months’ worth of supply. Median home prices increased 7.1% from a year earlier to $228,900.
New Home Sales were also in the news this past week as the Commerce Department reported sales at a seasonally adjusted annual rate of 555,000 in January which was slightly below the consensus forecast of 566,000. Still, this was 3.7% higher than December’s rate of 535,000 and 5.5% higher compared to the year ago sales pace. January’s median new home sales price fell 1% from December to $312,900, but is still 7% higher than a year ago. New home inventory in January held steady at 5.7 months at the current sales pace matching December’s inventory level.
Mortgage application volume declined during the week ending February 17. The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) declined by 2.0%. The seasonally adjusted Purchase Index fell 3.0% from the prior week, while the Refinance Index dropped 1.0%. Overall, the refinance portion of mortgage activity decreased to 46.2% of total applications from 46.9% from the prior week, the lowest activity since June 2009. The adjustable-rate mortgage share of activity accounted for 7.3% of total applications, down from 7.5% the prior week. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 4.32% to 4.35% with points increasing to 0.35 from 0.34. Elsewhere, the Federal Reserve released the minutes from its latest policy meeting on Wednesday, indicating the economy was improving to extent the Fed will soon look to begin hiking interest rates. The latest probabilities for a 25 basis point rate hike at future Fed policy meetings are as follows: March 15 – 26.6%; May 3 – 51.7%; June 14 – 69.6%. For the week, the FNMA 3.5% coupon bond gained 51.5 basis points to close at $102.78 while the 10-year Treasury yield decreased 10.48 basis points to end at 2.3152%. Stocks ended the week higher with the major indexes continuing to set new record all-time highs during the week. The Dow Jones Industrial Average gained 197.71 points to end at 20,821.76. The NASDAQ Composite Index rose 6.73 points to close at 5,845.3, and the S&P 500 Index advanced 16.18 points to close at 2,367.34. Year to date, the Dow Jones Industrial Average has gained 5.36%, the NASDAQ Composite Index has advanced 8.59%, and the S&P 500 Index has gained 5.74%. This past week, the national average 30-year mortgage rate fell to 4.12% from 4.18%; the 15-year mortgage rate declined to 3.33% from 3.38%; the 5/1 ARM mortgage rate rose to 3.01% from 3.00%; and the FHA 30-year rate was unchanged at 3.75%. Jumbo 30-year rates fell from 4.30% to 4.25%.
Economic Calendar - for the Week of February 27, 2017 Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
Date | TimeET | Event /Report /Statistic | For | Market Expects | Prior |
Feb 27 | 08:30 | Durable Goods Orders | Jan | 1.8% | -0.4% |
Feb 27 | 08:30 | Durable Goods Orders – excluding transportation | Jan | 0.5% | 0.5% |
Feb 27 | 10:00 | Pending Home Sales | Jan | 0.9% | 1.6% |
Feb 28 | 08:30 | 2nd Estimate GDP | Qtr. 4 | 2.1% | 1.9% |
Feb 28 | 08:30 | 2nd Estimate GDP Deflator | Qtr. 4 | 2.1% | 2.1% |
Feb 28 | 08:30 | Advance International Trade in Goods | Jan | NA | -$65.0B |
Feb 28 | 08:30 | Advance Wholesale Inventories | Jan | NA | 1.0% |
Feb 28 | 09:45 | Chicago Purchasing Managers Index (PMI) | Feb | 53.0% | 50.3% |
Feb 28 | 10:00 | Consumer Confidence Index | Feb | 111.5 | 111.8 |
Mar 01 | 07:00 | MBA Mortgage Applications Index | 02/25 | NA | -2.0% |
Mar 01 | 08:30 | Personal Income | Jan | 0.4% | 0.3% |
Mar 01 | 08:30 | Personal Spending | Jan | 0.3% | 0.5% |
Mar 01 | 08:30 | Core PCE Prices | Jan | 0.2% | 0.1% |
Mar 01 | 10:00 | Construction Spending | Jan | 0.6% | -0.2% |
Mar 01 | 10:00 | ISM Index | Feb | 56.1 | 56.0 |
Mar 01 | 10:30 | Crude Oil Inventories | 02/25 | NA | +0.6M |
Mar 01 | 14:00 | Fed's Beige Book | Mar | NA | NA |
Mar 02 | 07:30 | Challenger Job Cuts | Feb | NA | -38.8% |
Mar 02 | 08:30 | Initial Jobless Claims | 02/25 | 244K | 244K |
Mar 02 | 08:30 | Continuing Jobless Claims | 02/18 | NA | 2060K |
Mar 03 | 10:00 | ISM Services | Feb | 56.5% | 56.5% |
Mortgage Rate Forecast with Chart - FNMA 30-Year 3.5% Coupon Bond The FNMA 30-year 3.5% coupon bond ($102.78, +51.5 bp) traded within a wider 86 basis point range between a weekly intraday high of $102.83 on Friday and a weekly intraday low of $101.97 on Tuesday before closing the week at $102.78. The chart shows a nice continuation higher from last week’s buy signal carrying prices up to overhead technical resistance found at the 61.8% Fibonacci retracement level at $102.79. Support is found at the 25-day moving average at $102.17. The slow stochastic oscillator is not yet “overbought” suggesting bond prices have further room to run higher. Another factor making the case for higher bond prices in the short-term are stock valuations becoming ever more “pricey” while the major stock market indexes become extremely “overbought.” There currently are several key momentum indicators “rolling over” flashing sell signals suggesting a market consolidation or correction could soon be on the way. However, the stock market could remain irrational and “overbought” for a longer period of time than we can imagine. If this technical analysis prediction for a pull-back in stock prices does come to fruition this coming week, we should see a continuing move higher in mortgage bond prices with a slight improvement in mortgage rates.
