Financial Market Affects November 9, 2015

There was continuing turmoil in the financial markets this past week generated from the better than forecast employment numbers in the October Employment Situation Summary released on November 6.  There is growing sentiment that the Federal Reserve will act to raise interest rates on December 16 for the first time in a decade due to the better employment data.

There is little doubt now that the Fed will pull the trigger on a 0.25% rate hike unless the next jobs report, due out on December 4, is a complete downside disaster.  The 30-day Fed Funds Futures are currently showing a 70% probability for a December rate hike, a 74% probability for a January rate hike, and a 33.1% probability for a second rate hike in March.

This past Friday, U.S. Treasuries and mortgage bonds rallied on weak U.S. economic data, lower crude oil prices, and a selloff in the stock market.  Retail Sales, Core Retail Sales, the Producer Price Index, and the Core Producer Price Index all missed consensus forecasts.

The Commerce Department reported Retail Sales rising just 0.1% during October after being unchanged in September.  The consensus forecast had called for Retail Sales increasing 0.3% after a previously reported 0.1% increase in September.  A surprising 0.5% decline in automobile sales led to the lower retail sales figure, suggesting there could be a slowdown in consumer spending that could reduce expectations for a stronger advance in fourth quarter economic growth.  However, the Retail Sales data is unlikely to alter expectations that the Federal Reserve will raise interest rates in December following October’s strong employment report.

Additionally, the Labor Department reported the Producer Price Index (PPI), a measure of wholesale costs, fell -0.4% in October when the consensus forecast had been for a +0.1% increase.  The PPI has now been either flat or lower for four consecutive months leading to a record 1.6% decline over the past year.

When excluding the volatile categories of food, energy and trade, the Core PPI declined by a smaller -0.3% but well below the consensus forecast of +0.1%.  It seems inflationary pressure at the wholesale level within the U.S. economy is difficult to find, but the Fed sounds ready to raise interest rates anyway as early as December 16 because they expect inflation to accelerate when the effects of cheaper gas prices and a strong dollar decline.

In housing, the Mortgage Bankers Association released their latest Mortgage Application Data for the week ending November 6 showing the overall Index fell 1.3%.  The Refinance Index dropped 2.0% from the prior week, while the seasonally adjusted Purchase Index increased by 0.1% from a week earlier.  Overall, the refinance portion of mortgage activity increased to 59.8% of total applications from 59.7%.  The adjustable-rate mortgage segment of activity decreased to 6.6% of total applications from 6.7% the prior week.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance rose from 4.01% to 4.12%, its highest level since August 2015.

For the week, the FNMA 3.5% coupon bond lost 10.9 basis points to end at $103.19 while the 10-year Treasury yield decreased 5.1 basis points to end at 2.27%.  Stocks ended the week with the NASDAQ Composite losing 219.24 points to close at 4,927.88.  The Dow Jones Industrial Average fell 665.09 points to end at 17,245.24, and the S&P 500 dropped 76.16 points to close at 2,023.04.

Year to date, and exclusive of any dividends, the NASDAQ Composite has declined 3.89%, the Dow Jones Industrial Average has lost 3.35%, and the S&P 500 has fallen 1.77%.  This past week, the national average 30-year mortgage rate decreased to 4.03% from 4.04% while the 15-year mortgage rate decreased to 3.24% from 3.27%.  The 5/1 ARM mortgage rate increased to 3.00% from 2.95%.  FHA 30-year rates remained unchanged at 3.75% while Jumbo 30-year rates decreased to 3.84% from 3.85%.

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.5% coupon bond ($103.19, -10.9 bp) traded within a narrower 49 basis point range between a weekly intraday high of 103.30 and a weekly intraday low of $102.81 before closing at $103.19 on Friday.

The bond made a solid move higher on Friday, confirming a couple of trend reversal signals appearing last Tuesday and Thursday.  Friday’s trading action carried the bond higher for a challenge of technical resistance located at the 38.2% Fibonacci retracement level at $103.16.

The slow stochastic oscillator is continuing to gain upward momentum while still being “oversold” so there is considerable upside potential for a continuing move higher, especially if the stock market continues to falter between now and the Thanksgiving holiday as a number of market analysts are predicting.  As a result, we should see a slight improvement in mortgage rates this coming week.

Chart:  FNMA 30-Year 3.5% Coupon Bond


Economic Calendar – for the Week of November 16

The economic calendar features a couple of manufacturing reports, the weekly Initial Jobless Claims report, and the Consumer Price Index in addition to the Fed’s FOMC Minutes from their October 28 meeting.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.



Road Signs – What Does A Perfect Credit Score Look Like? – Habits of High Credit Score Consumers Analyzed

By Nikitas Tsoukalis

The average credit score in the US is around 692 points.  There are many people with bad credit, whose scores can go as low as 350 points.  And then, on the other end, are those few with perfect and near perfect credit, who have scores from the high 700s to 800 or more.  One half of one percent of consumers have a perfect 850.  What distinguishes these few from the pack?

They Don’t Miss Payments. Ever.

Missing payments is the one thing that will do more damage to your credit than any other action.  People who attain and keep high scores do so, in part, by making sure that their payment history is flawless.

To keep your credit score climbing, make sure that every bill is paid on time every month.  Know how much you earn and where it goes so that a bill never surprises you.  Keep an emergency fund so that, if a bill is larger than expected, you have the funds to keep payments up to date.

They Exercise Restraint

Have you ever looked at the latest shiny electronic, a new dress, or any other thing you wanted and thought that you could just put it on a charge card and pay it off later?  This is the sort of thinking that, if done too often, can kill your credit score.  People with high credit scores never charge anything they can’t pay off in full.  They view credit as a tool they use, rather than a crutch.  On average, they only use 7% of their revolving credit.

They Have a Mix of Credit Types

Creditors want to see that you can be responsible with both revolving credit and installment loans. By having a mix that includes car loans, credit cards and a mortgage, they maximize their scores.

If you are trying to increase your score and need a new vehicle, consider getting an auto loan.  These are relatively easy to get, and they can be refinanced as your credit improves.  Pay the loan on time every month, otherwise it counts against you instead of in your favor.

They Started Early

The older the oldest entries on your credit report, the higher your record.  People with high credit scores, on average, have accounts that are 25 years old or more.

While you can’t go back and change your personal history, you can make positive changes going forward.  Many people mistakenly believe that they can raise their credit scores by closing unused accounts.  However, what this really does is shorten your available credit history.  Make sure that you keep old accounts active by using those cards on a regular basis.

We recommend charging a regular payment, such as your cell phone bill or a health club membership, to your oldest card.  Set up automatic payments so that you never forget to pay the bill. This way, you keep the card active without increasing your expenses, and, you make sure that it never goes overdue.

By emulating the people with the top credit scores, you can increase your score and get access to better opportunities.  For more information on how to help increase your scores go to