COURTESY OF: Darryl Steffey
 OCTOBER 15, 2018
 
 
Weekly Review
 

Indications of global economic weakness, rising Treasury bond yields, and seemingly no progress in trade negotiations between the U.S. and China combined to heavily weigh on investor sentiment during the week resulting in the sharpest stock market correction since last February. The stock market swoon prompted President Trump to criticize the Federal Reserve, saying the Fed is "out of control” and has "gone crazy" with its rate hikes. The Fed has raised rates three times this year and appears ready to raise rates once again at its December meeting. The probability for a December rate hike currently stands at 79.7%.
 
Last Tuesday, the International Monetary Fund cut its 2018 and 2019 global economic growth forecast to 3.7% from 3.9%, stating tariffs between the U.S. and China, an imminent Brexit deal between Great Britain and the European Union, and the new trilateral trade agreement between the U.S., Canada, and Mexico could lead to slower growth.
 
Furthermore, investors received a mixed picture of inflation as producer (wholesale) prices for September rebounded to 0.2% from August’s reading of -0.1%. However, consumer inflation as measured by the total Consumer Price Index (CPI) and core CPI, which excludes food and energy, only increased by 0.1% when both had been forecast to rise by 0.2%. These monthly increases resulted in total CPI rising 2.3% year-over-year, versus 2.7% in August with the core CPI up 2.2%, unchanged from August.
 
Elsewhere, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey showed the number of mortgage applications decreased from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 1.7% for the week ended October 5, 2018. The seasonally adjusted Purchase Index decreased 1.0% from the week prior while the Refinance Index decreased 3.0%.
 
Overall, the refinance portion of mortgage activity fell to 39.0% from 39.4% of total applications from the prior week. The adjustable-rate mortgage share of activity increased to 7.3% from 7.1% 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 5.05% from 4.96% with points increasing to 0.51 from 0.49 for 80 percent loan-to-value ratio (LTV) loans.
 
For the week, the FNMA 4.0% coupon bond gained 15.6 basis points to close at $100.125 while the 10-year Treasury yield decreased 6.6 basis points to end at 3.167%. The Dow Jones Industrial Average plunged 1,107.06 points to close at 25,339.99. The NASDAQ Composite Index fell 291.56 points to close at 7,496.89. The S&P 500 Index lost 118.44 points to close at 2,767.13. Year to date on a total return basis, the Dow Jones Industrial Average has gained 2.51%, the NASDAQ Composite Index has advanced 8.60%, and the S&P 500 Index has added 3.50%.
 
This past week, the national average 30-year mortgage rate fell to 4.94% from 5.02%; the 15-year mortgage rate decreased to 4.42% from 4.50%; the 5/1 ARM mortgage rate climbed to 4.43% from 4.35% while the FHA 30-year rate decreased to 4.50% from 4.62%. Jumbo 30-year rates fell to 4.40% from 4.50%.
 

 

 

 

 
The FNMA 30-year 4.0% coupon bond ($100.125, +15.6 bp) traded within a narrower 62.5 basis point range between a weekly intraday high of 100.344 on Thursday and a weekly intraday low of $99.719 on Monday before closing the week at $100.125 on Friday. Monday, the bond traded lower to touch exactly upon the 100% Fibonacci retracement support level before pulling slightly higher above this key level. The bond then traded higher Tuesday through Thursday as the stock market was undergoing a correction. Friday, the bond market softened as the stock market rallied with the major indexes moving back toward their 200-day moving averages after falling below them on Wednesday and Thursday.
 
Mortgage bond prices are now about mid-way between support and resistance levels while still “oversold” and operating on a buy signal from last Wednesday. If the major stock indexes fail to rebound from their 200-day moving averages, it could lead to further stock market weakness while serving as a boost to bond prices resulting in slightly lower mortgage rates.
 
 
Chart: FNMA 30-Year 4.00% Coupon Bond
 
 
 
 
 
Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
 
 
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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
Darryl.Steffey@RMSmortgage.com
www.RMSmortgage.com/DarrylSteffey 
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