While everyone was preparing for New Year’s Eve, investors were patiently waiting to celebrate the Dow reaching 20,000. It seemed to be a probable goal by Christmas, but, the last week of the year kept investors waiting to release the balloons and pop the bubbly. The Dow cruised to a high of 19,974 on December 20 and then stalled. On Wednesday, the Dow dropped more than 100 points to close at 19,840. The downward trend continued throughout the week as the year closed out at 19,762.60.

Meanwhile, Consumer Confidence grew in December reaching 113.7 per the index, up from a revised 109.4 in November. This was the highest level since 2001. Experts attribute this rise to an improving U.S. economy and anticipation of a Trump presidency.

While Trump’s victory may have been positive for stocks and business, it has hurt Pending Home Sales. Before the election, mortgage rates were around 3.6 percent. Since the election, rates have surged to 4.4 percent. With rates moving almost a point, that is adding, roughly an extra $100 a month payment to a $200,000 mortgage. Combined with a shortage of inventory, the jump in interest rates have led to Pending Home Sales dropping 2.5 percent in November. However, with steady growth in the economy and positive job market prospects, many families have the renewed confidence to buy a house. In addition, home prices continue to rise. The S&P Case-Shiller Index rose .6 percent in October and is 5.1 percent higher for the year. Cities in the west, such as Seattle, led the increase while New York showed the biggest decline, down .2 percent from the previous month and only 1.7 percent higher for the year. Builders have increased production to meet the rising demand for housing which could in turn slow down rising prices.

The U.S. Trade Gap increased 5.5 percent in November, according to the Commerce Department. This was a higher increase than anticipated and the highest reading since 2008. Exports were up 1 percent while Imports were up 1.2 percent. In addition, Wholesale Inventories increased slightly, .9 percent, in November.

Jobless Claims fell 10,000 last week as many Americans move in and out of the workforce throughout the holiday season. The four-week average of initial claims was down slightly, 750 less applicants. However, Continuing Jobless Claims rose by 63,000 to 2.1 million for the week ending December 17.

To wrap up the light news week, Chicago PMI fell 3 points in December to 54.6. The Chicago PMI is a measure of Midwest economic activity. New orders, one of the components of the index, fell 6.7 percent to 56.5. A majority of business owners expect the Trump administration to be favorable for their business.

Looking forward to the New Year and the following reports being released:

Tuesday: ISM and Construction Spending

Wednesday: Motor Vehicle Sales

Thursday: Weekly Jobless Claims and ISM Non-manufacturing

Friday: NonFarm Payrolls, Unemployment Rate, Average Hourly Earnings, Foreign Trade Balance, and Factory Orders

Thank you for your business and many wishes for a happy and very prosperous new year!

 

Dec 12, 2016Mortgages experienced a rough week as speculation of an expanding economy pushed mortgage rates higher as equities rallied. Both the Dow Jones Industrial Average and the S&P 500 closed out last week at all-time highs, while the yield on the U.S. 10yr Treasury was pushed towards 2.50%.

The FOMC rate decision, and Janet Yellen’s press conference on Wednesday, certainly highlight the week ahead, but there’s a fair amount of other U.S. data as well this week. Given the ECB meeting last week and the recent run up in oil, CPI data on Thursday will be closely watched. The impact in the markets of the formation of a new government in Italy remains to be seen. Other potentially interesting international events include, a meeting of EU leaders on Thursday to discuss migration issues, the Brexit process, and a meeting between Japan PM Abe and Russia President Putin the same day. It may sound a bit old, but the expectation this week, is continued volatility in the mortgage markets.

Economic Calendar for the week of 12/12/2016 to 12/16/2016:
Monday: Monthly Budget Statement
Tuesday: NFIB Small Business Optimism and Import Price Index,
Wednesday: MBA Mortgage Applications, Retail Sales, PPI Final Demand, Industrial Production, Manufacturing Production, Capacity Utilization, Business Inventories and FOMC Rate Decision
Thursday: Initial Jobless Claims, Continuing Claims, Consumer Price Index, Current Account Balance, Empire Manufacturing, Real Average Weekly Earnings, Philadelphia Fed Business Outlook, Bloomberg Consumer Comfort Index, and Markit US Manufacturing PMI
Friday: Housing Starts and Building Permits

Mortgage rates continued to grind higher last week as the post-election sell off in the bond market gained steam. Fed Funds futures are now trading at a 100% chance of an increase at the December meeting, as the current policy proposals of the President-elect are expected to increase inflation, paving the way for multiple rate increases next year.

The Holiday shortened week ahead will have limited economic releases for the market to digest, including Existing/New Home Sales and Durable Goods Orders. Markets will continue to focus on the prospects of the new administration as the President-elect continues to fill out his cabinet, with politics continuing to play an even larger role in market movements than economic data, which has been the case since the election.

Economic Calendar for the week of 11/21/2016 to 11/25/2016:
Monday: Chicago Fed National Activity Index
Tuesday: Richmond Fed Manufacturing Index, Existing Home Sales
Wednesday: Initial Jobless Claims, Durable Goods Orders, New Home Sales
Thursday: U.S. Holiday, Thanksgiving, Markets Closed
Friday: Wholesale Inventories

Interest rates continue to climb; yesterday the 10 yr increased 5 more basis points to 1.77%, this morning in early trading up another 3 bps to 1.80%. Mortgage rates increased 10 bps in rate since last Friday. Since the end of Sept the 10 has increased from its low at 1.52%, a big increase in rates as we noted was coming. Mortgage interest rates up 16 bps in that time.
 Stocks took a hit yesterday on increasing interest rates and increasing belief the Fed will increase the FF rate at its Dec meeting. Alcoa, the first to report Q3 earnings, disappointed and didn’t meet forecasts.  Trading in the FF funds futures market have a 63% probability on a Dec rate hike. Not a done deal by any means however; the betting on a rate hike is highly volatile and moves on any news or comments. 

This morning the weekly MBA mortgage applications declined as would be expected with the recent increase in rates. Apps declined 6.0%, purchases down 3.0% re-finances dropped 8.0%. The re-finance business is going to slow as rates increase. Comparable to a week a year ago, however, unadjusted purchase applications were 27% higher, a sharp reversal of the 14% year-on-year decline seen in the prior week. At 62.8 percent, the refinancing share of mortgage activity was 1.4 percentage points smaller than in the previous week. A bounce up in mortgage rates from historical lows most likely gave both buyers and refinancers reason to pause. The average interest rate on 30-year fixed-rate conforming mortgages ($417,000 or less) rose 6 basis points to 3.68%.
 
At 11:30 am Treasury will auction $24B of 3 yr notes. At 1:00 pm $20B of 10 yr notes (the 10 a re-opening of the note issued in August). The demand after the recent increase in rates for the 10 yr will be closely watched. If demand is weak in comparison to recent 10 yr auctions it will add more push to higher rates; a strong demand should support the market and may improve the very near term outlook.

 At 2:00 pm this afternoon the FOMC minutes from the Sept meeting will be released; at the meeting there were three dissenters that wanted an increase at the meeting, the most that voted against the majority since 2014. The minutes may provide more detail and always gets media attention, but since Yellen held a press conference after the meeting and took questions the minutes may not hold any surprises. 

 At 9:30 the key indexes opened unchanged (DJIA +1, NASDAQ +1, S&P +2). 10 yr note rate 1.70% +2 bp. FNMA 3.0 30 yr coupon -5 bps frm yesterday’s close. 

 OPEC and Russia talking about a cut in production the last week. We don’t expect it to happen as we have noted. This morning  OPEC reported an increase in its oil production in September to the highest in at least eight years and raised its forecast for 2017 non-OPEC supply growth, pointing to a larger surplus next year despite the group's deal to cut output. OPEC's report is the latest to show output is hitting new peaks. The September figure is the highest since at least 2008, according to a Reuters review of past OPEC reports. Crude trading lower this morning ahead of the 10:30 release of weekly inventories. 

 There is no way to sugar coat the rate markets now. Technicals bearish, the fundamentals bearish. Markets worry about a rate increase in Dec, the unprecedented coming election, and concerns about the exit of Briton coming soon. 

Stocks have been on a roll this year. Despite all of the global shocks and upcoming U.S. elections, stocks are still hovering near their all-time high levels.

The stock markets seem to be on an eerie pause before the November elections. The jobs reports have been falling short of estimates and casting shadows on the case for a rate hike later this year. During September, the economy added 156,000 job while economists had been looking for an increase of 168,000. The six month average, furthermore, slowed to 169,000, the weakest since November 2012. This was the 72nd month of positive job creation in the U.S., but the pace has slowed. From near 250,000 at the end of last year, the trend in job creation has subsided to around 200,000 in the early months of 2016 before falling below 170,000 as of late. Continued improvement in the labor market was at the forefront of the Fed’s latest talking points, suggesting the possibility of a year-end rate hike. Any further loss of momentum in hiring at this point, not to mention weaker-than-expected topline growth as we await the Q3 GDP, or a further decline in inflation, will make it more difficult for the Committee to adjust policy anytime soon.

The Brexit vote is now haunting the British Pound. As of now, the British currency has lost 17 percent versus the dollar this year and is now pegged at 1.23 dollars per pound. The pound is at the bottom of the 16 major peers this year. Many economists, however, believe that this is a good thing. Despite the shock of Brexit, there are few tangible signs of economic distress in Britain as the stocks and bond markets are strong. The employment situation and consumer spending are also steady. Economists believe that the decline of the British pound has acted as a giant shock absorber on the road to Brexit. Britain may be able to boost tourism and also exports, although at a higher tariff, to Europe.

After a damp employment report last Friday, this week is quieter in terms of data releases as the market is still digesting the jobs report. The market moving indicators this week include the FOMC minutes on Wednesday, Jobless Claims on Thursday and Retail Sales and Consumer Sentiments on Friday.

*Update provide by NYCB Bank