The stock market closed moderately lower in an Easter holiday-shortened week characterized by lower-than-usual trading volumes.  In fact, Monday's trading saw fewer shares changing hands than on any day so far this year.  Economic news seemed to take a back seat to geopolitical events during the week — events that weighed on equity investor sentiment while producing a boost for bond prices and lowing yields and interest rates.  

Stocks were pressured lower on Monday following unconfirmed reports China was positioning troops along its border with North Korea. Although this troop movement may have been an outcome from President Trump's recent meeting with Chinese President Xi Jinping to put pressure on North Korea to stop its nuclear weapons testing, concerns over intensifying tensions in the Korean peninsula continued to be negative for investor sentiment throughout the week.  

Furthermore, the ongoing civil war in Syria and how it is impacting relations between the U.S. and Russia also kept investors on edge. Thursday, news that the U.S. had dropped the "Mother of All Bombs," otherwise known as the GBU-43/B Massive Ordnance Air Burst bomb — the most powerful non-nuclear bomb in the US arsenal — on an ISIS target in Afghanistan also appeared to ignite a sharp decline in stocks prices to end the week.  This first-ever use of the 21,000-pound GBU-43/B bomb was also meant to send a clear signal to North Korea to cease its nuclear missile testing.

Wednesday afternoon, stocks moved lower and bond prices higher in response to President Trump's remarks to a Wall Street Journal reporter when he stated the U.S. dollar is "getting too strong" and he hoped the Federal Reserve would keep interest rates low.  Trump "talking down the dollar" helped push the yield on the 10-year Treasury note to new five-month lows the following Thursday.

In housing, mortgage application volume increased slightly during the week ending April 7.  The Mortgage Bankers Association (MBA) reported their overall seasonally adjusted Market Composite Index (application volume) rose 1.5%.  The seasonally adjusted Purchase Index increased 3% from the prior week, while the Refinance Index remained unchanged at 4%.  Overall, the refinance portion of mortgage activity decreased to 41.6% of total applications from 42.6% the prior week, falling to its lowest level since September 2008. The adjustable-rate mortgage share of activity remained unchanged at 8.5% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance decreased to 4.28% from 4.34% with points increasing to 0.38 from 0.31.

For the week, the FNMA 3.5% coupon bond gained 56.2 basis points to close at $103 while the 10-year Treasury yield decreased 15.02 basis points to end at 2.232%. Stocks ended the week lower. The Dow Jones Industrial Average fell 202.85 points to end at 20,453.25. The NASDAQ Composite Index dropped 72.66 points to close at 5,805.15 and the S&P 500 Index lost 26.59 points to close at 2,328.95. Year-to-date, the Dow Jones Industrial Average has gained 3.49%; the NASDAQ Composite Index has advanced 7.84%; and the S&P 500 Index has risen 4.03%.

This past week, the national average on the 30-year mortgage rate fell to 4.04% from 4.17%; the 15-year mortgage rate decreased to 3.27% from 3.38%; the 5/1 ARM mortgage rate decreased to 3.07% from 3.13%; and the FHA 30-year rate was unchanged at 3.75%.  Jumbo 30-year rates fell from 4.39% to 4.31%.

Economic Calendar – for the week of April 17, 2017

Economic reports having the greatest potential impact on the financial markets are highlighted in bold.Mortgage Rate Forecast with Chart – FNMA 30-Year 3.5% Coupon Bond

The FNMA 30-year 3.5% coupon bond ($103.00, +56.2 bp) traded within a 73 basis point range between a weekly intraday low of $102.297 on Monday and a weekly intraday high of $103.31 on Friday before closing the week at $103.00.  Geopolitical events during the week trumped technical signals and economic news to send stocks lower while triggering a flight to safety for investors into bonds. Mortgage bonds broke above resistance at the 38.2% Fibonacci retracement level ($102.806) and this level now becomes nearest support. Although substantially "overbought," the bond will set its sights on the next resistance level at $103.13. If stocks continue to slide lower this coming week, we could see bond prices improve with mortgage rates slipping slightly lower.