COURTESY OF: Darryl Steffey
 SEPTEMBER 10, 2018
Weekly Review
The stock and bond markets both traded lower during the Labor Day holiday shortened week. Continuing uncertainty regarding U.S. trade policy weighed on investor sentiment with trade negotiations between the U.S. and Canada making little progress. Furthermore, tariffs on $200 billion in Chinese goods after the public comment period on the proposed tariffs closed on Thursday were set to be implemented.

However, White House Economic Adviser Larry Kudlow told Bloomberg Television the administration would first evaluate the public comments before taking any action. President Trump then remarked to reporters that another $267 billion in Chinese tariffs might follow the $200 billion round of tariffs to essentially cover all U.S. imports from China. This remark would ostensibly apply pressure on China to negotiate in good faith for a fair trade deal.


While there is little evidence about whether the trade “war” with China is having a negative effect on the Chinese economy, signs are scarce that it has had a negative impact on U.S. economic growth. Friday, the Labor Department reported job growth picked up in August , while average hourly earnings increased by 2.9% on a year-over-year basis, the fastest growth rate during the present economic expansion beginning in 2009.
The data seemed to have the greatest impact on bond prices with investors worrying wage inflation might be enough to trigger a faster pace of short-term rate increases by the Federal Reserve. The Fed is widely expected to hike short-term rates by another 25 basis points when policymakers meet at the end of September. Plus, the probability of a December rate hike has risen to 79.8% from 72.8% on Thursday.

Friday, the positive jobs data contributed to a jump in longer-term interest rates with the yield on the benchmark 10-year Treasury note briefly touching 2.95%, its highest level in nearly a month.

Elsewhere, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed a slight decline in mortgage applications. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 0.1% during the week ended August 31, 2018. The seasonally adjusted Purchase Index increased 1.0% from the week prior while the Refinance Index fell 1.0% from a week earlier.


Overall, the refinance portion of mortgage activity increased to 38.9% from 38.7% of total applications from the prior week. The adjustable-rate mortgage share of activity decreased to 6.1% from 6.3% of total applications. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased to 4.80% from 4.78% with points decreasing to 0.43 from 0.46 for 80 percent loan-to-value ratio (LTV) loans.


For the week, the FNMA 4.0% coupon bond lost 36.0 basis points to close at $101.453 while the 10-year Treasury yield increased 7.90 basis points to end at 2.939%. The Dow Jones Industrial Average fell 48.28 points to close at 25,916.54. The NASDAQ Composite Index plunged 207.00 points to close at 7,902.54. The S&P 500 Index lost 29.84 points to close at 2,871.68. Year to date on a total return basis, the Dow Jones Industrial Average has gained 4.84%, the NASDAQ Composite Index has advanced 14.47%, and the S&P 500 Index has added 7.41%.


This past week, the national average 30-year mortgage rate rose to 4.71% from 4.65%; the 15-year mortgage rate increased to 4.19% from 4.15%; the 5/1 ARM mortgage rate increased to 4.02% from 3.98% while the FHA 30-year rate rose to 4.39% from 4.37%. Jumbo 30-year rates increased to 4.36% from 4.33%.



The FNMA 30-year 4.0% coupon bond ($101.453, -36.0 bp) traded within a wider 39.1 basis point range between a weekly intraday high of 101.797 on Thursday and a weekly intraday low of $101.406 on Friday before closing the week at $101.453 on Friday. Mortgage bond prices took a dip lower on Tuesday and Wednesday below support levels before bouncing back to support on Thursday. Bond prices then made a solid step lower on Friday following the release of the Employment Situation Summary (Jobs Report) for August showing a higher-than-expected increase of +0.4% in Average Hourly Earnings, triggering fears inflation might be ratcheting up. Economists had expected only a +0.2% increase. The bond is now approaching “oversold” status so we could see a continuation lower toward the next support level before we see a rebound. Therefore, mortgage rates may deteriorate slightly this week before improving.
Chart: FNMA 30-Year 4.00% Coupon Bond
Economic reports having the greatest potential impact on the financial markets are highlighted in bold.


Darryl Steffey
Senior Loan Officer, NMLS# 107940
Residential Mortgage Services
2208 Quarry Drive, Suite 205
West Lawn, PA 19609
Office: (484) 713-1868
Cell: (610) 587-7746 
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