The financial markets experienced an increase in volatility during the past week with traders focusing on sharp fluctuations in the crude oil market and the Federal Reserve’s first interest rate hike since 2006.
This past week, West Texas Intermediate crude oil fell to a multi-year low by trading down to $34.37 per barrel over concerns of a global oil glut before fluctuating around $35 per barrel. The volatility in the oil market not only takes a toll on the stock market, it also affects the bond market as Treasuries tend to selling off when oil rallies. Also, the persistent weakness in oil prices has been raising anxieties about high-yield debt in the Junk Bond market and this in turn has made equity traders a bit edgy.
As expected on Wednesday, the Fed’s Open Market Committee bumped up the Fed Funds rate by 25 basis points to maintain a funds target range of 25-50 basis points from the existing target range of 0-25 basis points. The vote was unanimous. In the accompanying policy statement, the FOMC said “economic activity has been expanding at a moderate pace.” While the unemployment rate of about 5% met one of the Fed’s stated criteria for a rate hike, inflation is well below its 2% to 2.5% target due to low energy and commodity costs plus a strong dollar.
The Fed stated their future decisions regarding rate increases will depend on how the economy evolves. Both the stock and bond markets initially reacted to the Fed announcement by moving higher as a veil of market uncertainty was lifted. By most accounts, it appears the Fed intends to raise rates four times by 25 basis point increments during the next year with a prediction the ending 2016 Fed funds rate will hit 1.375%. However, a number of other analysts are predicting a stagnant or declining economy for 2016 that will thwart the Fed’s efforts to raise rates.
In housing, the National Association of Home Builders (NAHB)/Wells Fargo housing market index for December fell by one point from a reading of 62 in November to 61. This reading was a little lower than the consensus forecast of 63. The current sales conditions sub-index also fell a point in December to 66 while the sub-index estimating prospective buyer traffic fell from 48 to 46. The sales expectations sub-index dropped two points from 69 to 67.
Of note, Housing Starts were reported at 1.173 million units, annualized, while Building Permits came in at 1.289 million for the month of November. Both housing numbers exceeded consensus forecasts of 1.135 and 1.150 million respectively and suggest the housing market remains in decent shape.
The Mortgage Bankers Association released their latest Mortgage Application Data for the week ending December 11 showing the overall Market Composite Index decreased 1.1%. The seasonally adjusted Purchase Index decreased 3.0% from a week earlier while the Refinance Index increased 1.0% from the prior week. Overall, the refinance portion of mortgage activity increased to 60.7% of total applications from 58.7%. The adjustable-rate mortgage segment of activity decreased to 6.0% of total applications from 6.2% the prior week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance remained unchanged at 4.14%.
For the week, the FNMA 3.5% coupon bond lost 25.0 basis points to end at $103.25 while the 10-year Treasury yield increased 7.2 basis points to end at 2.20%. Stocks ended the week with the Dow Jones Industrial Average falling 136.66 points to end at 17,128.55. The NASDAQ Composite Index dropped 10.39 points to close at 4,923.08, and the S&P 500 Index lost 6.82 points to close at 2,005.55.
Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has lost 4.05%, the NASDAQ Composite Index has gained 3.80%, and the S&P 500 Index has declined 2.66%. This past week, the national average 30-year mortgage rate increased to 4.02% from 3.98% while the 15-year mortgage rate rose to 3.25% from 3.23%. The 5/1 ARM mortgage rate decreased to 2.97% from 3.02%. FHA 30-year rates increased to 3.75% from 3.65% while Jumbo 30-year rates increased to 3.84% from 3.82%.
Mortgage Rate Forecast with Chart
For the week, the FNMA 30-year 3.5% coupon bond ($103.25, -25.0 bp) traded within a 69 basis point range between a weekly intraday high of 103.41 and a weekly intraday low of $102.72 before closing at $103.25 on Friday.
During the week, the bond traded in a deep “V-shaped” pattern while bouncing higher off of a support level at $102.78. This action completed a three-day Morning Star candlestick pattern from Tuesday through Thursday, which is a moderately strong buy signal. On Friday, the bond gapped open higher to power above nearest resistance at the 38.2% Fibonacci retracement level at $103.16. This level now becomes closest technical support. The next level of resistance is found at the 25-day moving average at $103.30. The bond is well positioned to challenge this level this week as the slow stochastic oscillator turned higher and is showing a new buy signal from a positive stochastic crossover.
Economic Calendar – for the Week of December 21
The economic calendar features the third estimate for third quarter GDP as well as reports on housing, inflation, and jobless claims. Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
Road Signs – Will you gain weight this Christmas?
By Rebecca Charlotte Reynolds, Nutrition lecturer, The University of New South Wales, Australia
For most of us, Christmas and its festivities revolve around consuming tasty food and drinks with colleagues, friends and family. Between work Christmas parties, Christmas lunch or dinner, edible presents and New Year’s Eve, it can be an effort not to gain weight.
Seasonal variations in body weight
The human body can be quite remarkable in its ability to maintain a stable weight over the long term. One small American study reported average fluctuations of just 0.5 kg throughout a year. Weight peaked in winter, which may be due to poorer weather and lower physical activity, but returned to normal. Others, however, gradually gain weight over the years. A study of 120,000 Americans found weight gain averaged 3.35 lb. (1.52 kg) over four-year periods. The good news is that reducing your energy intake by around 100 calories (418 kilojoules) per day can prevent such weight gain. This could equate to not having that extra biscuit, or walking more each day.
Are we likely to gain weight over Christmas?
We often don’t follow our normal routines during the holidays. Therefore our lifestyle behaviors and body weight can change.
Yet another study reported a weight change of around 0.4 kg in non-obese Swedish adults over a two- to three-week Christmas break. Obese participants, however, reported highly variable changes in weight, from a gain of 6.1 kg to a loss of 8.8 kg.
This difference between people of contrasting starting weights was also found in another American study of 94 college students. Over a two-week Thanksgiving period, the overweight/obese students gained an average of 1.0 kg, while those with a normal body mass index (BMI) gained just 0.2 kg.
Some studies reported no weight gain, but an increase in body fat over the holidays.
However, other studies found no change in either body weight or body fat over festive periods, even if there were changes to eating and physical activity patterns.
What’s to blame?
In the large study of 120,000 American adults, the foods associated with weight increase over four-year periods include potato chips, potatoes, sugar-sweetened beverages and unprocessed and processed red meats.
Foods that were associated with lower weight included vegetables, whole grains, fruits, nuts and yogurt. Other lifestyle behaviors were also associated with weight gain: physical inactivity (including television watching), alcohol intake and sleeping less than six or more than eight hours each day. It’s not hard to imagine these factors at play in someone’s Christmas holidays. Potato chips, soft drinks and alcohol might fill the table at the work Christmas party.
Hangovers and too little or too much sleep might mean that you indulge excessively in fast food burgers while binge-watching Netflix. There aren’t many high-quality studies that look at body weight and fat changes over the Christmas period, but the studies that have been done report conflicting results.
A 2009 American study of 195 adults over the six- to eight-week winter holiday reported an average weight increase of 0.37 kg. Another study of 26 English adults over a two-week Christmas holiday found they gained an average of 1 kg, even though five were sick (and three lost weight). The maximum weight gain was 4.4 kg.
Five tips to avoid a belly like Santa’s
1) Choose foods that have been associated with healthier body weights in the longer term and increased satiety in the shorter term, such as fruits and vegetables, and leaner foods that are higher in fiber and protein.
- salads (including fruit, green, potato and quinoa ones) over white bread
- oat slices or biscuits over shortbread biscuits
- roasted nuts over potato chips
- turkey breast over salami
- shrimp and other seafood over sausages.
2) Eat intuitively: try to listen to your hunger and fullness. This will help with the feeling of sickness that can come at the end of Christmas day due to overconsumption.
Choose smaller plates, as these are associated with reduced food intake compared to larger plates – even if you have a level of intuitive eating.
Put a smaller variety of foods on your (smaller) plate – and don’t go back for seconds. If you have a large variety of foods, you are more likely to eat more – something called sensory-specific satiety.
3) Self-monitor! One study reported that systematically recording what you eat, drink and how much you move during holiday periods were associated with improved weight. Use goal-setting and self-monitoring sheets or apps to help regulate the amount of alcohol or potato chips you consume each day.
4) Go for walks or swims if the weather allows, and avoid spending the whole break binge-watching television.
5) Avoid soft drinks and excessive alcohol every day. When you do drink alcohol, choose a soda mixer with a piece of fresh lime to have with your spirits and drink water in between each alcoholic drink.
Keep it in perspective
At the end of the silly season, you may still have gained some weight. But keep it in perspective: it might have been due to quite pleasurable activities and it’s unlikely to be a problem in the long term, if you get back to your usual balanced exercise and eating routine.
It’s fine to indulge every now and then, even if it means going back for seconds of Christmas pudding on Christmas day. Just don’t indulge every other day of the holidays, too.