Your Weekly Update for Monday, April 15, 2019
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Sam Khater, Freddie Mac’s chief economist, says, “Rates moved up slightly this week while mortgage applications decreased following last week’s jump in rates – indicating borrower sensitivity to changing mortgage rates. Despite the recent rise, we expect mortgage rates to remain low, in line with the low 10-year treasury yields, boosting homebuyer demand in the next few months.”
The 30-year fixed-rate mortgage (FRM) averaged 4.12% with an average 0.5 point for the week ending April 11, 2019, up from last week when it averaged 4.08%. A year ago at this time, the 30-year FRM averaged 4.42%.
The 15-year FRM this week averaged 3.60% with an average 0.4 point, up from last week when it averaged 3.56%. A year ago at this time, the 15-year FRM averaged 3.87%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.80% with an average 0.4 point, up from last week when it averaged 3.66%. A year ago at this time, the 5-year ARM averaged 3.61%.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.
Markets were mixed last week. The Down Jones Industrial Average ended down 0.05% to 26,412.30. The S&P500 ended up 0.51% to 2,907.41, and the Nasdaq Composite finished up 0.57% to 7,984.16. The annual yield on the 30-year Treasury ended up 6 basis points to 2.97%.
In a light week for economic data, producer and consumer prices rose a bit more than expected on the headline side, due to higher recent energy prices. Positive news included jobless claims again reaching multi-decade lows, while, on the negative side, the government JOLTS report indicated fewer job openings.
Global equity markets experienced gains for the week, with foreign stocks helped by a weaker dollar. However, bonds fell back as interest rates ticked higher and the treasury yield curve again turned positive for the most part. Commodity indexes gained due to higher prices for crude oil and agriculture.
(0) The producer price index for March rose by 0.6%, compared to a median forecast of 0.3%. Core PPI, removing the impact of energy and food, rose a less dramatic 0.3%, which was only a tenth above expectations. Energy was obviously a driver of prices, rising nearly 6% for the single month, with smaller increases in food and retail margins. Year-over-year, the headline and core PPI final demand figures were up 2.2% and 2.0%, respectively, largely in keeping with other inflation measures.
(0) The consumer price index for March rose by 0.4% on a headline level, matching expectations, while rising only 0.1% on a core level, underwhelming consensus estimates. Energy prices rising over 3% dominated the headline figure, with a 0.3% contribution from food. In the core measurement, shelter and medical care services each rose 0.3%, in addition to strong gains of 0.5% or more from smaller contributors such as education, new cars, tobacco and lodging, in addition to prescription drug prices, which rolled off of prior year price freezes. On a year-over-year basis, this brought the change in headline CPI to 1.9% and core down to 2.0%, which continues to point to a neutral inflation picture.
(-) Import prices in March rose 0.6% on a headline level, which was two-tenths higher than forecast. This, however, was due to a 5% price in petroleum, which drove inflation in other measures for the month as well. When removing petroleum, import price gains fell to 0.2%, which included a 3% increase in prices for industrial supplies, while consumer goods prices fell on net, including passenger fares.
(-) The preliminary April Univ. of Michigan consumer sentiment index fell by -1.5 points to 96.9, below the expected 98.2 level. Assessments of current conditions showed an improvement by a point, while expectations for the future fell by -3 points. Inflation expectations for the coming year fell by a tenth to 2.4%, and two-tenths for the coming 5-10 years to a level of 2.3%, both in keeping with weaker inflation currently experienced.
(-) The government JOLTS job openings report showed a decline of -538k in February to 7.087 mil., far below the 7.550 mil. openings expected; however, the January results were revised higher slightly. The openings rate fell by -0.3% to a 4.5% level, the hiring rate fell -0.1% to 3.8%, the quits rate was steady at 2.3%, while the rate for layoffs ticked up a tenth to 1.2%. While still residing in strong territory, this was obviously a weaker report compared to recent months. Future months will indicate whether or not this was a weather anomaly or deeper trend.
(+) Initial jobless claims for the Apr. 6 ending week fell by -8k to 196k, below the 210k claims expected and the lowest reading since 1969. Continuing claims for the Mar. 30 week fell by -13k to 1.713 mil., despite expectations for a rise. No anomalies were reported by the DOL, as levels continue to obviously run at very low levels, indicative of a strong jobs market.
(0) Minutes from the FOMC March meeting, in keeping with the released statement at the time, emphasized a theme of ‘patience.’ This was in response to fundamental growth levels slowing since the prior meeting, although they continue to move in a positive direction. Inflation pressures looked contained as well, although now falling to below-target levels. Two areas of committee discussion appeared to be the magnitude of balance sheet runoff, as well as the fact that the future fed funds ‘dots’ had been misinterpreted by the public as a pre-set course. Based on fed funds futures probabilities and general strategist consensus, it appears even a single hike for 2019 is off the table, leaving one potential hike for 2020 as the best probability outcome at this time.
|Period ending 4/12/2019||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||-0.12||2.52|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
U.S. stocks gained a bit on the week with earnings season slowly beginning and core inflation levels coming in contained. By sector, financials led by gaining 2%, as the yield curve again moved in a positive-sloping direction, as well as positive earnings results from JPMorgan to begin the Q1 earnings season; just behind were gains in communications, led by sharp gains in Disney, which rolled out a new streaming service; and technology. Bringing up the rear was health care, which lost over -2% due to Congressional debate over the future of Obamacare (or some other plan). The uncertainty component over payment structures and possible caps for areas such as prescription drugs have not been kind to health care stocks in the past.
Foreign stocks were largely flat on the week, which, after adjusting for a weaker dollar, translated to gains in line with U.S. equities. The European Central Bank left interest rates unchanged, largely as expected, due to downside risks of economic growth in the region persisting. The deadline for a Brexit agreement was extended by the EU until October, although markets seemed largely unfazed. Overall, sentiment continues to be driven by global economic growth news, including downgrades in 2019 growth numbers by the IMF by a few tenths of a percent overall and in most key regions, weakness in Chinese auto data last week, as well as tariff bickering between the U.S. and Europe, despite stronger hopes for a deal between the U.S. and China. Emerging markets were mixed, with profit taking in China and weakness in Turkey following presidential scrutiny of recent local election results.
U.S. bonds lost ground overall as interest rates ticked higher on stronger recent economic news. While the 3 month to 5 year treasury spread continues to be inverted, 10-year and longer treasury levels are positively sloped versus short-term bonds. Credit fared better, as spreads tightened, led by high yield and floating rate debt, which outperformed all others for the week. Foreign bonds were helped by a weaker dollar in developed markets, while emerging market bonds were again mixed.
Commodities gained ground on net, with a weaker dollar and higher prices for energy and agriculture, while industrial and precious metals were little changed. The price of crude oil rose by over a percent to just under $64/barrel. Little new geopolitical activity appeared to move the dial, other than a lower U.S. rig count, stronger demand from China, and continued geopolitical uncertainty in several key production regions.
Sources: Ryan M. Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, FRED Economic Research, Freddie Mac, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poor’s, StockCharts.com, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. Residential and reverse mortgages are offered through Prestige Home Mortgage in Vancouver, WA.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.