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Financial Markets Update

1/9/2017

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When I opened my wallet to pay for parking today, I realized that I fell short by a few bucks.
I am either aging and my memory is taking a beating, or I spent more than I realized during this holiday season. According to personal finance company, MagnifyMoney, 2016 has seen more consumer spending and an increase in debt. The average consumer took on $1,003 worth of holiday debt up from $986 in 2015, a 1.7 percent increase. Holiday shoppers came out in droves this year; 154 million people shopped during Thanksgiving weekend, up from 151 million in 2015. The biggest holiday shopping day was Dec. 17, when 156 million people were out spending. Consumer spending shows confidence in the economy, however, taking on too much debt is certainly a problem, which presents an interesting conundrum the U.S. economy and the general public face in 2017.

The stock markets, though, didn’t look puzzled as they rose throughout the holiday during the shortened week and started 2017 on a positive note. Investors appeared to welcome some good economic data and as they looked forward to healthier upcoming quarterly earnings reports. The Dow Jones Industrial Average, which had outperformed strongly since the November elections, just missed crossing the celebrated 20,000 milestone as the benchmark reached 19,999.63 late last Friday before falling back some. Friday brought the closely watched monthly payrolls report, which showed moderate job gains in December and a welcome rise in wages after November’s decline. Stocks did not appear to react strongly to the initial release of the report but rather gathered momentum later in the day thanks to strength in Apple, which has a large weighting in many major indices, after a Canadian regulator announced that it was closing an investigation into anti-competitive practices by the tech giant.

In bond market news, last week dovish Fed minutes helped push yields lower. The minutes revealed that uncertainties about future fiscal policy weighed heavily in policymakers’ discussions of the economy and the path of monetary policy. While the Federal Reserve will watch for other signs of improvement, this report supports the committee's view that the economy can handle two to three short-term interest rate increases in 2017 as inflationary pressures rise heading into the new year. More importantly, as wages accelerate, consumption could rise, fueling economic growth.

Some other market-movers showed Global manufacturing added to the upbeat expectations. The U.S. manufacturing sector saw its strongest growth in two years in December, according to the Institute of Supply Management's purchasing managers index. The employment situation showed initial claims in the December 31 week are strikingly low, down 28,000 to 235,000. The drop pulls the 4-week average down 5,750 to 256,750 a level that is still slightly above, not below, last month’s trend. The nation's trade deficit widened sharply in November, to a higher-than-expected $45.2 billion and well up from a revised deficit of $42.4 billion in October. Exports fell 0.2 percent in November while imports rose 1.1 percent.

The big economic indicators coming up this week are:

Wednesday: EIA Petroleum Status

Thursday: Jobless Claims

Friday: Producer Price Index, Retail Sales

Looking forwards to a healthy and productive new year, and we thank you for your business.



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Market Commentary

1/4/2017

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Mortgage rates improved in the last week of 2016 as equity markets pulled back from recent highs when the Dow Jones Industrial Average failed to break 20,000 for the first time, despite coming very close the week prior.

The holiday shortened week ahead will have plenty of data for markets to digest, with Friday’s Employment Report the most important, as usual. Fed watchers continue to price in more rate hikes for 2017, with Fed Funds futures now trading at a 12.4% chance the next increase will be in February, with March at 34.8% and May at 47.8%. Most now believe that the Fed will increase rates twice this year as inflation projections continue to increase amidst continuing improvements in the labor market.

Economic Calendar for the week of 01/03/2017 to 01/06/2017:
Tuesday: ISM Manufacturing, Construction Spending

Wednesday: MBA Mortgage Applications, FOMC minutes from the December meeting
Thursday: ADP Employment Change, ISM Services, Initial Jobless Claims, Continuing Claims
Friday: Non-Farm Payrolls, Unemployment Rate, Trade Balance, Factory Orders, Durable Goods Orders

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Financial Markets Update

1/3/2017

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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!

 
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Financial Markets Update

12/27/2016

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The market was in a holiday spirit last week as all major indices posted gains. The Dow, once again, failed to touch the magical milestone of 20,000 points. Last Tuesday, the index hit an all-time high of 19,988. For the week, the Dow ended up 0.5 percent, the S&P returned 0.3 percent, and the Nasdaq rose 0.3 percent, logging their seventh straight week of gains -- the longest winning streak in two years. The equity market has been in rally mode since the U.S. election. The S&P 500 has gained more than 5 percent since the election, while the Dow has risen more than 8 percent. In the Bonds sector, for the week, the Ten-year treasury yield settled 5 bps down at 2.54 percent.

In major economic indicators released last week, the
economy expanded at a seasonally adjusted 3.5 percent annualized rate in the third quarter. This is above the government’s prior estimate of 3.2 percent due to upward revisions in consumer spending and business investment. Consumer spending, which added 2 percentage points to GDP, rose at a 3 percent annual rate, up from the prior estimate of 2.8 percent. Durable Goods Orders fell 4.6 percent in November, mainly due to a drop in civilian aircraft orders. Excluding aircraft and vehicles, new orders rose 0.5 percent. In the housing sector, for the month of November, New Home Sales jumped 5.2 percent to a 592,000 annualized rate while Existing Home Sales rose a surprising 0.7 percent to a 5.61 annualized rate. Co-op and condominium sales jumped 10 percent, outpacing a 0.4 percent drop in single-family units.

In international markets, Italy’s government has authorized a €20 billion bailout for the country’s third-largest lender and world’s oldest bank, Monte dei Paschi di Siena, which has been in operation since 1742. In other financial news, two European banks, Deutsche Bank and Credit Suisse, agreed to settle outstanding cases with the U.S. Department of Justice for $7.2 Billion and $5.3 billion, respectively.

The week between Christmas and New Year’s tends to be a quiet one. Investors will be watching for the Dow to touch 20,000. There is not much significance for the Dow hitting 20,000 other than an impressive way for stocks to cap off 2016. Let’s hope we can release those imaginary balloons this week. Investors will also be looking for Consumer Confidence, which comes out today, and Pending Home Sales, which will come out on Wednesday.

Thank you for your business and a Happy New Year!

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Market Commentary

12/13/2016

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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
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Market Commentary

11/22/2016

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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
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Market Report

11/14/2016

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The dollar is continuing to strengthen, supporting the heavy selling in the bond market. Trump’s surprising victory is continuing to roil markets. A week ago markets thought he was a dead man walking, many that now are ringing bells were trying to distance themselves now blowing trumpets. It is a Mad, Mad, Mad World. A week ago Trump was considered by many as unfit to be President; now he is, and those views seem to have moderated somewhat; if you can’t lick ‘um, join ‘um ? Less than a week and markets are going postal. 

 As you know we have been negative in rates well before the election, but prior to last Wednesday not much increase had occurred since mid-October when the 10 yr ran to 1.79% frm 1.55% at the end of September. Three weeks of consolidation then the election and an explosion pushing the 10 to 2.26% today. Mortgage rates up 25 bps in rate since last Tuesday. Technically the bond and mortgage markets are over-sold in the near term but the momentum continues so far. To remind, although we look for some rebound at best and consolidation at least, the trend  for higher rates is on solid footing. 

Here comes increasing Federal Debt with large increases in fiscal spending; not only in the US but in Europe as well as central banks have run out of stimulus that has had much benefits. One reason rates are driving higher, Treasury will have to borrow more to fund infrastructure and other social spending. It was a key in both Trump’s and Clinton’ campaign. Increasing wages, increasing economic growth with the knowledge inflation will likely increases. That said, the financial markets are over-reacting to possibilities that are still uncertain and possibly unlikely. The dollar’s strength also overdoing it . Nonetheless don’t fight it now; we tried to pick a minor turn last Friday and eating crow today. 

Tomorrow Oct retail sales are expected up 0.6%, ex auto sales +0.5%. Oct import and export prices expected +0.1% on exports and +0.4% on imports. Nov Empire State manufacturing index expected at -2.3 frm -6.8. Sept business inventories expected +0.2%. The data in a sense is dated news with the election but retail sales are expected to increase now through the holidays, an increase in Oct will had more to that conviction. Most consumers presently, whether disappointed about the results or pleased, happy to have the national and local elections over. 

 Lenders are likely now to begin pricing to the 3.5 FNMA coupon; the 3 is at par now and mortgage rates edging above 4.0%. Presently the difference between the two 25 bps better for the 3.0 coupon. Wait for it though; both will still move in the same direction, the 3.5 less than the 3. 


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Financial Market Update

11/7/2016

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The U.S. Presidential election is Tuesday and Americans are really nervous someone will win. All the markets are waiting to see who emerges victorious and what that will mean to the economy. The big news last week was obviously the Fed decision. Ahead of the U.S. Presidential Election, the Fed did not change the Fed Funds Rate. The expectation was that they would wait to raise rates until December. They did point to somewhat higher inflation and said that the case to raise U.S. interest rates “has continued to strengthen.” As with the last meeting, they again stated that they want more evidence to show that the economy is on solid footing; but, not much more.

The Fed may have received the evidence they wanted on Friday. The U.S. added 161,000 Jobs in October, adding to the jobs gained in August and September. Health care companies, white-collar professional outfits, and financial firms were the top industries creating jobs. Unemployment fell to 4.9 percent from 5 percent. Hourly wages rose .4 percent in October to $25.92. The U6 rate, which included part-time employees that can’t find full-time work and discouraged job seekers, fell to 9.5 per cent from 9.7 percent. However, Weekly Jobless Claims rose slightly to 265,000, though, expectations were that it would remain at 258,000.

In addition to the positive news in the U.S., other countries were also reporting encouraging data. China reported strong manufacturing data; which, leads to greater confidence in global growth. Chinese PMI rose to a two-year high of 51.2 up from 50.4 in September. The Bank of England held its interest rates unchanged and signaled there will be no further easing in 2016 as England has been surprised with stronger than expected economic data. They noted that business sentiment and indicators of activity recovered from their lows after the referendum to exit the European Union and estimated GDP growth in the third quarter was better than expected. They even raised the inflation forecast from 2.0 to 2.7 percent. Unemployment in the Eurozone is at its lowest rate since 2011.

The Institute for Supply Management, ISM, reported that its Manufacturing Index rose slightly to 51.9 percent in October, up from 51.5 percent in September. U.S. manufacturers’ employment grew for the first time in 4 months, an index that measures manufacturing employment rose from 49.3 in September to 52.9 percent in October. ISM’s Production Index also increased in October to 54.6 percent, up from 52.8 in September. This is an encouraging sign for the U.S. economy. A similar survey, Markit PMI, also showed an increase. Markit’s index reached a new 52-week high. Despite the encouraging numbers, the index for new orders slipped to 52.1 percent from 55.1 percent in September. This could mean that companies are in a holding pattern until after the Presidential election. Only 10 of the 18 industries tracked by ISM reported growth. If the economy was going well, you would have more industries showing growth.

Meanwhile, Outlays for Construction Spending fell in September by .4 percent, according to the Commerce Department. Economists were expecting a .4 percent increase.

Factory Orders were up by a seasonally adjusted 0.3 percent in September. Durable goods declined 0.3 percent while nondurable goods increased by .9 percent in September. U.S. Productivity increased 3.1 percent from July through September. The improvement stems from more goods and services being produced; however, the amount of time workers work, was only up .3 percent. Productivity has been slow to improve during the economic recovery. Productivity is less than half historical average and there are no signs it is picking-up. Unit-labor costs are only up 2.3 percent this year and have narrowed since early 2015. Hourly compensation (wages and benefits) rose 3.4 percent annually in the third quarter. When accounting for inflation, the increase was just 1.7 percent.

Despite this week’s positives, stocks continued to trade lower. Again, as the election is nearing, people are reluctant to invest. On Friday, the S&P 500 finished lower for the 9th consecutive day. This is the longest losing streak for the S&P since 1980. The S&P closed at 2,085.18. The Dow Jones Industrial Average, lost 42 points, closing at 17,888.28 and the Nasdaq Composite Index closed slightly lower, at 5,046.37.

Up ahead for this week:

Monday - Consumer Credit
Tuesday - NFIB Small-Business Index; Job Openings
Wednesday - Wholesale Inventories
Thursday - Weekly Jobless Claims, Federal Budget
Friday - Consumer Sentiment

Thank you for your business and have a successful week!

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Market Update

10/12/2016

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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. 


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Market Update

10/11/2016

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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
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