The stock market ended the week in “mixed” fashion with the Dow Jones Industrial Average achieving a modest advance while the NASDAQ Composite and S&P 500 Indices traded lower. Technology stocks in particular were hit with some profit-taking, especially on Friday, possibly due to surprising election results in Great Britain showing the Conservative Party losing its parliamentary majority. The technology laden NASDAQ-100 Index saw a loss of 3.8% on Friday prompting investors to buy safe-haven assets such as Treasuries.

On the political scene, market tensions appeared to be relieved after highly anticipated testimony from former FBI Director James Comey before the Senate Intelligence Committee indicated there was no collusion between President Trump and Russia to influence the presidential election. There was also no testimony from Comey suggesting Trump obstructed any investigations into Russian campaign interference. Investors were also relieved when the European Central Bank decided to leave interest rates unchanged.

The week’s economic calendar was rather light, although the Labor Department released a couple of favorable reports showing continued strength in the labor market. First, the JOLTS Job Openings report showed job openings reached a record high in April and were almost one million ahead of hirings. Secondly, weekly Initial Jobless Claims continued to decline and remained close to historic lows, while the four-week moving average of claims fell to 1.915 million, a level not seen since the early 1970s.

This coming Wednesday the Federal Reserve (FOMC) is scheduled to release its latest monetary policy decision. It is widely anticipated there will be a quarter of a point increase in the fed funds rate. In fact, the fed funds futures market continues to show a 95.8% implied probability of a 25 basis point rate hike.

There were no housing reports released during the week other than weekly mortgage data.

Mortgage application volume increased during the week ending June 2. The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 7.1%. The seasonally adjusted Purchase Index advanced 10.0% from the prior week to its highest level since May 2010, while the Refinance Index decreased 3.0%.

Overall, the refinance portion of mortgage activity decreased to 42.1% total applications from 43.2% from the prior week. The adjustable-rate mortgage share of activity decreased to 7.4% of total applications. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance fell to 4.14% (its lowest level since November 2016) from 4.17% with points increasing to 0.34 from 0.32.

For the week, the FNMA 3.5% coupon bond lost 15.6 basis points to close at $103.219 before undergoing a monthly bond rollover that ended with the bond being repriced at $103.05. The 10-year Treasury yield increased 4.32 basis points to end at 2.2023%.  Stocks ended the week “mixed.”

The Dow Jones Industrial Average added 65.68 points to end at 21,271.97. The NASDAQ Composite Index fell 97.88 points to close at 6,207.92 and the S&P 500 Index dropped 7.30 points to close at 2,431.77. Year to date on a total return basis, the Dow Jones Industrial Average has gained 7.64%, the NASDAQ Composite Index has advanced 15.32%, and the S&P 500 Index has risen 8.62%.

This past week, the national average 30-year mortgage rate rose to 4.01% from 3.98%; the 15-year mortgage rate increased to 3.26% from 3.24%; the 5/1 ARM mortgage rate rose to 3.05% from 3.04%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates increased to 4.29% from 4.27%.

Economic Calendar – for the Week of June 12, 2017

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

The FNMA 30-year 3.5% coupon bond ($103.05, -19 bp) traded within a narrow 39 basis point range between a weekly intraday high of $103.53 on Tuesday and a weekly intraday low of $103.14 on Friday before closing the week lower at $103.05 following a monthly bond rollover re-pricing.

The bond traded up to its nearest resistance level on Tuesday before being turned away from this level.  The bond subsequently traded down to its 200-day moving average support level during the remainder of the week before undergoing a monthly coupon repricing on Friday that reset the price below this level.  The bond remains “overbought” as shown by the slow stochastic oscillator, so we may continue to see the bond move toward the 25-day moving average.  The economic calendar picks up steam with a number of significant reports that could drive prices in either direction.  It is possible we could see the bond trade between the 200-day moving average and the 25 and 50-day moving averages.  Should this occur, mortgage rates should remain close to where they currently are in the coming week.

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About the Author:

Barry Habib

Barry Habib is an entrepreneur and founder of the MBS Highway, a clearinghouse of mortgage industry content helping professionals interpret and forecast mortgage rate and bond market activity. All Mortgage Insider blogs are brought to you as part of a partnership with MBS Highway and Movement Mortgage.