Market Commentary

 

For the week of October 16, 2017

Last Week in Review

"Oh what a price I had to pay." Fats Domino. Consumers weren't afraid to spend in September after holding back in August

Folks were spending in September, according to the most recent Retail Sales report issued by the Commerce Department. This was welcome news, as consumer spending makes up about two-thirds of the U.S. economy. Sales were up 1.6 percent from August, just below expectations, and up 4.4 percent from September 2016. Increases in gas, auto and building material sales led the way due to hurricane-related boosts. When stripping out autos, sales rose a solid 1 percent in September from August.

The Bureau of Labor Statistics reported that consumer inflation via the Consumer Price Index (CPI) jumped 0.5 percent in September from August, though this was softer than expected. However, the more closely watched Core CPI, which excludes volatile food and energy, was up just a meager 0.1 percent in September. This left year-over-year Core CPI at 1.7 percent for the fifth month in a row, meaning it still remains below the Fed's inflation target of 2.0 percent.

Wholesale inflation also ticked up in September as energy prices rose following Hurricane Harvey. The Producer Price Index (PPI) rose 0.4 percent from August, in line with estimates, while annual PPI jumped 2.6 percent, the biggest gain since February 2012. Core PPI, which strips out volatile food and energy, rose 0.2 percent as expected from August to September, while the annual Core PPI was up 2.1 percent. 

The Federal Open Market Committee meeting minutes from August revealed the Fed said the economy is strong enough to withstand an increase to the Fed Funds Rate later this year. This is the rate banks lend to one another overnight. However, the Fed will be closely watching inflation readings and other key economic reports in the coming weeks and months, and it remains to be seen if any data will impact this decision.

At this time, home loan rates remain historically attractive. 

Forecast for the Week

Manufacturing and housing data dominate the week.

  • Regional manufacturing data from the Empire State Index will be released on Monday, followed by the Philadelphia Fed Index on Thursday.
  • Look for housing numbers on Wednesday with the release of Building Permits and Housing Starts.
  • The Fed's Beige Book will also be delivered on Wednesday.
  • As usual, weekly Initial Jobless Claims will be released on Thursday.
  • Existing Home Sales close out the week on Friday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.   

To go one step further, a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Mortgage Bond prices got a boost in the second half of the week. Home loan rates remain near historic lows.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Oct 13, 2017)


 

For the week of October 9, 2017

Last Week in Review

"If your paycheck depends on the weather and the clock." Garth Brooks. Job growth plunged in September due to Hurricanes Harvey and Irma. 

The Labor Department reported that payroll growth declined by 33,000 jobs versus the 75,000 increase in new jobs expected. July job growth was revised lower by 51,000 to 138,000, while August was revised higher by 13,000 to 169,000 new jobs. This was the first negative reading in seven years, but the numbers will most likely reverse higher in the coming months as Americans rebuild after the devastation in the hurricane-impacted areas. 

All was not lost within the report, though. Hourly earnings surged by 0.5 percent from August to September versus the 0.2 percent expected. Earnings are up 2.9 percent year over year. In addition, the Unemployment Rate fell to 4.2 percent, the lowest level in 16 years.

Home prices continued to heat up right through summer. Data analytics firm CoreLogic reported that home prices, including distressed sales, rose 6.9 percent from August 2016 to August 2017, up from a gain of 6.7 percent annually in July. On a monthly basis, prices rose 0.9 percent from July to August. Looking ahead, prices are expected to rise 4.7 percent from August 2017 to August 2018.

At this time, home loan rates remain historically attractive.

Forecast for the Week

Wholesale and consumer inflation and Retail Sales will capture attention at week's end. Bond markets are closed Monday in observance of Columbus Day.
  • The light economic calendar begins on Thursday with the Producer Price Index and weekly Initial Jobless Claims.
  • On Friday, Retail Sales, the Consumer Price Index and the Consumer Sentiment Index will be released.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based. 

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse. 

To go one step further, a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Mortgage Bond prices stumbled recently as Stocks rallied. Home loan rates remain attractive and near historic lows.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Oct 06, 2017)