Weekly Market Update
September 16, 2019

The major stock market indexes recorded a third consecutive week of solid returns as investor sentiment continued improve along with de-escalation in trade tensions between the U.S. and China.  China began last Wednesday when officials there publicized a small list of U.S. products that would be exempt from tariffs scheduled to take place on September 17.  President Trump promptly responded by announcing the U.S. would postpone a 5% increase on $250 billion worth of Chinese imports from October 1 to October 15.

 

China then took another step to defuse the trade war by announcing China’s customs bureau would exclude pork, soybeans, and other agricultural products from further tariffs while encouraging Chinese companies to buy U.S. agriculture products.  This gesture may be in response to sky-high pork prices in China as that country has battled a serious outbreak of African swine fever that has taken a serious toll on the country’s hog population.  Regardless, these first steps in defusing the trade war could lead toward improved trade relations between the world’s two largest economies.

 

The week’s economic news was generally favorable other than an uptick in inflation data.  Wednesday, the Core Producer (wholesale) Price Index (excluding food and energy) rose 0.3% vs. 0.2% expected, and Thursday’s Consumer Price Index (CPI) inflation number did the same with a 0.3% increase vs. 0.2% forecast.  Year-over-year, the CPI rose 2.4%, a bit more than expected and the most since mid-2018.  Friday, the Commerce Department reported Retail Sales increased by a greater than expected 0.4% in August while the University of Michigan’s preliminary Consumer Sentiment Index increased to 92.0 for September from 89.8 in August.  Overall, the week’s economic news favored investment in the stock market at the expense of the bond market.

 

In housing news, CoreLogic released their latest Loan Performance report for the month of June showing loans 30-days or more past due increased from 3.6% to 4.0%.

Seriously delinquent loans, defined as those loans which are 90-days or more in arrears, remained unchanged at 1.3%.  Seriously delinquent loans in foreclosure were unchanged at 0.4%.

 

Elsewhere, the latest mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications increased from the prior week.  The MBA reported their overall seasonally adjusted Market Composite Index (application volume) rose 2.0% for the week ended September 6, 2019.  The seasonally adjusted Purchase Index increased 5% from a week prior while the Refinance Index increased 0.4%.  Overall, the refinance portion of mortgage activity decreased to 60.0% from 60.4% of total applications from the prior week.  The adjustable-rate mortgage share of activity decreased to 5.6% from 5.7% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 3.82% from 3.87% with points increasing to 0.44 from 0.34 for 80 percent loan-to-value ratio (LTV) loans.

 

For the week, the UMBS 3.0% coupon bond finished 134.30 basis points lower to close at $100.563 while the 10-year Treasury yield increased 34.10 basis points to end at 1.901%.  The Dow Jones Industrial Average advanced 422.06 points to close at 27,219.52.  The NASDAQ Composite Index climbed 73.64 points to close at 8,176.71.  The S&P 500 Index gained 28.68 points to close at 3,007.39.  Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 16.68%, the NASDAQ Composite Index has gained 23.23%, and the S&P 500 Index has advanced 19.97%.

 

This past week, the national average 30-year mortgage increased to 3.85% from 3.55%; the 15-year mortgage rate increased to 3.52% from 3.25%; the 5/1 ARM mortgage rate increased to 3.54% from 3.38%; and the FHA 30-year rate increased to 3.50% from 3.25%.  Jumbo 30-year rates increased to 3.89% from 3.63%.

 

Economic Calendar - for the Week of September 16, 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

Sep 16

08:30

New York Empire State Manufacturing Index

Sep

5.50

4.8 

Sep 17

09:15

Industrial Production

Aug

0.1%

-0.2% 

Sep 17

09:15

Capacity Utilization

Aug

77.5%

77.5% 

Sep 17

10:00

NAHB Housing Market Index

Sep

66.0

66.0

Sep 17

16:00

Net Long-Term TIC Flows

Jul

NA

$99.1B

Sep 18

07:00

MBA Mortgage Applications Index

09/14

NA

2.0% 

Sep 18

08:30

Housing Starts

Aug

1,255K

1,191K 

Sep 18

08:30

Building Permits

Aug

1,300K

1,336K 

Sep 18

10:30

EIA Crude Oil Inventories

09/14

NA

-6.9M 

Sep 18

14:00

FOMC Rate Decision

Sep

1.875%

2.125% 

Sep 19

08:30

Initial Jobless Claims

09/14

213,000

204,000

Sep 19

08:30

Continuing Jobless Claims

09/07

NA

1,670K 

Sep 19

08:30

Current Account Balance

Qtr. 2

-$135.0B

-130.4B 

Sep 19

08:30

Philadelphia Fed Manufacturing Index

Sep

8.0

16.8 

Sep 19

10:00

Existing Home Sales

Aug

5.36M

5.42M 

Sep 19

10:00

Index of Leading Economic Indicators

Aug

0.1%

0.5% 

Sep 19

10:30

EIA Natural Gas Inventories

09/14

NA

NA 

Mortgage Rate Forecast with Chart - UMBS 30-Year 3.0% Coupon Bond

 

The UMBS 30-year 3.0% coupon bond ($100.563; -134.30 bp) traded within a far wider 129.7 basis point range between a weekly intraday high of $101.844 on Monday and a weekly intraday low of 100.547 on Friday before closing the week at $100.563 on Friday. 

 

Mortgage bonds moved decidedly lower throughout the week violating multiple support levels along the way.  There is a tight dual-band of support at the 100-day moving average (100.526) and the 38.2% Fibonacci retracement level (100.376).  Mortgage bonds are deeply “oversold” and primed for a bounce higher off of these support levels, but if they fail to hold, the next level of support is substantially lower at the 50% Fibonacci retracement level and 200-dday moving average at $99.141.  The chart shows technical weakness with the bond trading on a sell signal – although extremely oversold.  If mortgage bonds can manage a bounce higher, we should see stable rates this coming week.  However, a continued move below current support levels would likely result in mortgage rates making a move higher.