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

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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.

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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 www.keycreditrepair.com.

Financial Market Affects October 5, 2015

Economic news was rather light this past week with few reports available to assist traders in determining market direction.  Generally, the week’s economic data favored the notion the Federal Reserve will elect to leave interests rates unchanged for the remainder of the year.

Specifically, the Commerce Department reported the nation’s Balance of Trade showed a wider trade gap for the month of August of -$48.3 billion when the consensus forecast had been for a narrower deficit of -$44.5 billion.  This was an increase of 15.6% over July’s narrower than usual deficit of -$41.8 billion.

The imbalance stemmed from a three-year low in exports, largely due to a strong U.S. dollar, while imports increased with a hefty influx of consumer electronics including $2.1 billion worth of the latest Apple iPhones and Samsung Galaxy cellphones.  This report exemplifies the U.S. economy’s weaknesses to a strong dollar and weak demand in foreign markets and could influence Federal Reserve officials to delay the timing of an interest rate hike.

Further, the Labor Department reported overall Import Prices fell -0.1%, which was better than estimates of -0.5%.  Year-over-year, Import Prices are down -10.7%.  Export Prices fell -0.7%, which was lower than the 0.2% expected.  Year-over-year, Export Prices have fallen -7.4%.  These figures suggest inflation is not yet threatening the nation’s economic recovery.  A number of traders believe the absence of inflation will make it more difficult for the Federal Reserve to rationalize an interest rate hike, especially given ongoing global economic weakness.

In housing, CoreLogic released its latest Home Price Index (HPI) showing home prices increased 1.2% in August 2015 compared with July 2015.  On a year-over-year basis, home prices nationwide, including distressed sales, increased by +6.9% in August 2015 compared with August 2014.  CoreLogic is forecasting home prices to increase by 4.3% on a year-over-year basis from August 2015 to August 2016 and remain unchanged month-over-month from August 2015 to September 2015.

In mortgage news, the Mortgage Bankers Association released their Mortgage Application Data for the week ending October 2.  Overall the Index increased 25.5%.  The Refinance Index increased 24.0% from the prior week, while the seasonally adjusted Purchase Index soared by 27.0% from a week earlier.  Overall, the refinance portion of mortgage activity decreased to 57.4% from 58.0% of total applications the previous week.  The adjustable-rate mortgage segment of activity increased to 7.6% of total applications from 6.9% the prior week.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balance fell to 3.99% from 4.08% the prior week.

For the week, the FNMA 3.5% coupon bond lost 28.1 basis points to end at $104.31 while the 10-year Treasury yield gained 9.9 basis points to end at 2.09%.  Stocks ended the week with the NASDAQ Composite gaining 122.69 points to close at 4,830.47.  The Dow Jones Industrial Average increased 612.12 points to end at 17,084.49, and the S&P 500 added 63.53 points to close at 2,014.89.

Year to date, and exclusive of any dividends, the NASDAQ Composite has gained 1.95%, the Dow Jones Industrial Average has declined 4.32%, and the S&P 500 has fallen 2.18%.  The national average 30-year mortgage rate increased to 3.89% from 3.77% while the 15-year mortgage rate increased to 3.16% from 3.06%.  The 5/1 ARM mortgage rate increased to 2.95% from 2.91%.  FHA 30-year rates increased to 3.50% from 3.40% while Jumbo 30-year rates increased to 3.68% from 3.55%.

 Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.5% coupon bond ($104.31, -28.1 bp) traded within a narrower 42 basis point range between a weekly intraday high of 104.59 and a weekly intraday low of $104.17 before closing at $104.31 on Friday.

The week’s trading demonstrated market indecision among traders.  The bond is slowly trending lower to test support at the 200-day moving average at $104.14.  The slide lower this week is also reflected in a gradually lower trending slow stochastic oscillator that remains “overbought.”

Technical signals continue to show weakness suggesting a test of key support.  Should a breach of this support level take place, we would see slightly higher mortgage rates.  However, a bounce higher off of this support level would likely lead to marginally improved mortgage rates.

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Economic Calendar – for the Week of October 12

The economic calendar strengthens this coming week with a greater number of reports having a potential market impact.  Economic reports having the greatest potential impact on the financial markets this coming week are highlighted in bold.

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Road Signs – Chip-enabled cards may curb fraud, but consumers will be picking up the tab

By Benjamin Dean, Fellow for Internet Governance and Cyber-security, School of International and Public Affairs, Columbia University

Most of us have by now received new credit cards in the mail embedded with “EMV” (Europay-MasterCard-Visa) chips.  Merchants across the country have been hastily investing large amounts of money in new EMV-compliant terminals.

This is because October 1 marks the moment that retailers become liable for fraud that occurs in their stores if they haven’t upgraded their old credit card readers to the new payments standard – an inducement intended to hurry along the transition.

This shift is commonly thought to be speeding us toward a more secure and less fraudulent future.  But who really benefits – and who bears the costs – of this step in the transition to a cashless society is not as clear cut as it seems.

 EMV comes to America, almost

EMV is a standard for payment cards and terminals in which the data are stored on integrated circuits (the chip) rather than on a magnetic stripe.  In most countries that have adopted EMV, a personal identification number (PIN) is used to verify payment rather than a signature.  For the time being, a less-secure signature will be used in the US.  With compatible terminals, they also allow contactless payments (through so-called near-field communication), which require no authentication up to a certain monetary limit.

The technology is not new.  France was one of the earliest adopters of the standard way back in 1992 and since then, over 200 countries have joined in.  The United States has been very late to the party, but it’s finally making the switch.

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EMV adoption has swept across much of the globe, except in the US.

A key milestone in this transition is occurring today: the liability shift.

From today onward, the liability for fraud committed at the point of sale (POS) on a non-EMV compliant terminal will no longer be borne by the card issuer but, instead, by the merchant.  One estimate puts the total cost for the EMV rollout at US$8.65 billion.  The very strong financial incentive of shifted liability is why merchants are willing to adopt the terminals at such great expense.

 An imperfect security upgrade

EMV-enabled payments are supposed to reduce fraud due to certain security features.  In some countries, they do away with the signature-based method of authentication in favor of a PIN code.  The merchants do not retain the PIN entered at the point of sale by the consumer.  They use cryptographic algorithms to authenticate the cardholder and transaction.

As with any security system, EMV is a long way from perfect.  A number of different ways to hack EMV have been known for some time.

Researchers at the University of Cambridge, for example, have shown that the card-reader terminals can be hacked to accept any PIN the criminal inputs.  In a practice called ATM-skimming, thieves can install a fake PIN pad on an ATM to trick consumers into providing card information, including their PIN, which can then be used to commit fraud.

The near-field communications (NFC) feature allows card users to pay by tapping their card against a reader.  The unencrypted card number and expiration date, which emit from the chip, can be intercepted with a remote RFID device and subsequently used to commit fraud.  It’s a bit like pickpocketing in the digital age.

Given the enormous cost of this transition, and the imperfect security of EMV, we need to ask: how large are the benefits from EMV in terms of curbing fraud?

 A race to the bottom

Evidence from other countries suggests that card-present fraud (face-to-face transactions) goes down following EMV adoption, as the charts below on the UK and the Single Euro Payments Area (SEPA) show.

However, the graphs also show a “race to the bottom” as fraudsters migrate to cross-border and “card-not-present” fraud (via the internet, phone or mail), considered much easier because EMV’s security measures, like entering a PIN, don’t work online.  For an idea of the scale, in the SEPA, 66% of all fraud resulted from card-not-present payments in 2013, compared with just 46% in 2008.

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This broad pattern has been repeated in almost all developed EMV markets, including Australia and Canada.

So if EMV has proven to be an imperfect standard and merely migrates fraud from one category to another, why then push to adopt it at such an enormous cost?

 Who gains from EMV

Card issuers and banks will benefit from a likely drop in card-present fraud of 15% to 35% over the next three years if the pattern of declines in other countries following the switch holds.  Considering that such fraud was $2.2 billion in 2012, savings could be $342 million to $797 million a year.

This may be offset by the shift in fraud to card-not-present payments, which increased 40% to 100% in the three years following EMV implementation in Australia, Canada and the UK.  Such fraud in the US was $1.6 billion in 2012, so we could see anything from $624 million to $1.6 billion more in the next few years.  Given that the fraud is simply reallocated from card-present transactions though, a lower-bound estimate of $624 million is the more likely outcome.

Who will pay the price for this increased card-not-present fraud?  The onus is on the card issuer or bank to prove that the merchant did not take the necessary measures to secure the transaction.

But to meet this standard, merchants will have to implement an additional layer of security, at an indirect cost to sales, provided by the payment service providers, called a 3D Secure protocol program.  If a fraudulent card-not-present transaction gets through that, the issuer or bank carries the liability.

For all the billions of dollars in additional security investment, overall fraud levels will likely remain pretty stable.  So why are we doing it?

 The fraud sideshow

A deeper look reveals an interesting aspect to the card payments industry.  For all the attention paid to rising fraud losses borne by banks, it turns out we already cover the cost, as consumers, with or without EMV.

An “interchange fee” is imposed on every transaction that takes place with a card, typically 1% to 2%, and is used to cover fraud losses, reward programs and other processing costs.  Merchants pay the fee, but typically pass it on to consumers in the form of higher prices.

A rough estimate places total interchange fee revenue at $45 billion to $90 billion in the US in 2012 (based on the $4.5 trillion in debit, credit and prepaid card transactions that year).  For comparison, total fraud, across all categories, in the US was $6.4 billion – about a tenth of the fee revenue.

So why are merchants (in effect, consumers) paying billions of dollars to shift to a new card standard when they are already forking over tens of billions to issuers and banks to cover the costs of fraud?  Add to that, the total amount of fraud following EMV basically stays the same.

It’s particularly odd, given the operating margins of MasterCard and Visa hover around 54% and 65%, respectively, suggesting they have plenty of breathing room to make this hefty investment in fraud-prevention themselves.

In other countries, interchange fees were cut to encourage merchants to adopt EMV terminals.  But thus far, this doesn’t appear to be happening in the US.  And since two companies, Visa and MasterCard, control 75% of the market, there’s little incentive for them to cut this lucrative revenue stream.

 Questions for our brave new digital world

While the convenience of technological advances like electronic payments, and security from standards like EMV, cannot be denied, it’s important that we give thought to – and are properly informed of – the price that we pay.

The upgrade to EMV and its touted benefits, including reduced fraud, are not as compelling as we’re led to believe.  In the end, the cost for this upgrade is being footed by merchants and, ultimately, consumers, through opaque fees and higher prices, while the limited benefits accrue to the card issuers and banks.

The EMV transition costs – and the interchange fee – hint at the problem of information asymmetry – banks and card issuers know more than we do – which allows one party to take advantage of the other.  This information asymmetry is typical of the complex and bewildering technical changes that, ironically, characterize the “information age.”  So when you’re at the cash register, about to slip your chip-enabled card into the new reader, think about the costs and benefits of this new technology and ask yourself: is it worth it?

Financial Market Affects February 2, 2015

After getting off to a disappointing start to the New Year in January, equities surged higher during the first week of February while bond prices tumbled and yields rose.  The largest market moves took place last Tuesday and Friday.

Tuesday, equity markets were supported by news that progress was being made between Greece and its lenders in restructuring Greece’s debt.  The stock market was also boosted by a decline in the U.S. dollar and surging crude oil prices that rose 6% higher to over $52 a barrel.  With oil back above the psychologically important $50 per barrel mark, energy sector stocks led the broader stock market higher triggering significant selling in the bond market.

On Friday, a strong January Employment Situation Summary (Jobs Report) sent bond prices cascading lower and yields higher.  The Labor Department reported the addition of 257,000 jobs in January, marking the 12th consecutive month that Non-farm Payrolls had exceeded the 200,000 mark, a level normally associated with a sustainable decline in the unemployment rate.  The consensus forecast had been for an increase of 235,000 new positions.

Furthermore, November and December’s jobs numbers were revised significantly higher with November Nonfarm Payrolls revised to 423,000 from an initially reported 353,000 while December Nonfarm Payrolls were revised to 329,000 from 252,000 while Nonfarm Private Payrolls were revised to 320,000 from 240,000.  The Unemployment Rate edged up from 5.6% to 5.7%, in part because the labor force participation rate increased by 0.2% to 62.9%.  This is viewed as a positive development as it suggests more people are now actively looking for work.

Also, there was a significant 0.5% jump in Average Hourly Earnings, and this exerted a negative influence on the bond market even though 0.2% of this gain in earnings can be attributed to an increase in the minimum wage in 20 states that went into effect on January 1 of this year.  The consensus forecast called for a 0.3% gain in Earnings following December’s deflationary number of -0.2% that had sparked a sharp drop in bond yields.  The prior worries about wage disinflation were unwound in the bond market on Friday, plus the robust labor report provided the Federal Reserve with a stronger case for raising interest rates “sooner rather than later” and this weighed heavily on the bond market.

For the week, the FNMA 3.0% coupon bond lost 132.8 basis points to end at $102.14 while the 10-year Treasury yield increased 27.8 basis points to reach 1.96%.  Stocks ended with the NASDAQ Composite gaining 109.16 points, the Dow Jones Industrial Average adding 659.34 points, and the S&P 500 increasing 60.48 points.

To date for 2015, and exclusive of any dividends, the NASDAQ Composite has gained 0.18%, Dow Jones Industrial Average has added 0.01%, and the S&P 500 has lost 0.17%.  The national average 30-year mortgage rate rose from 3.55% to 3.72% while the 15-year mortgage rate increased to 3.02% from 2.95%.  The 5/1 ARM mortgage fell to 3.12% from 3.13%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates increased to 3.75% from 3.58%.

Mortgage Rate Forecast with Chart

The FNMA 3.0% coupon bond ($102.14) lost 132.8 basis points during the past week while the stock market recorded significant gains.  The technical picture for bonds looked favorable a week ago, but the bond’s sharp decline last Tuesday generated a new sell signal from a negative stochastic crossover and it was all “downhill” from there with stronger economic news.  The bond tried to stabilize on Wednesday and Thursday, but was hit with a major negative catalyst in the form of a blockbuster employment report on Friday.  The favorable jobs news sent the bond’s price in a free-fall below support provided by the 25-day moving average.  This level now becomes nearest overhead resistance.  The next primary support level is now the 50-day moving average at $101.74.  The slow stochastic oscillator is no longer “overbought,” but there is considerable room to the downside before it becomes “oversold” so it is possible we could see further bond price erosion this coming week with slightly higher interest rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

Economic Calendar – for the Week of February 9

This week the economic calendar highlights weekly Crude Oil Inventories on Wednesday; Initial Jobless Claims and Retail Sales on Thursday; and the University of Michigan’s Consumer Sentiment Index on Friday.  Economic reports having the greatest potential impact on the financial markets this coming week are highlighted in bold.

Road Signs – Color, Color On The Wall, Which Is Fairest Of Them All This 2015?

By Desare A Kohn-Lask

Every year, there is or there are certain colors which stand out from the rest of the paint palette. Before 2014 comes to a close, professionals whose works are associated with the exterior and interior beauty of the house gave their predictions as to which paint color would be the fairest this 2015.  Here are some colors worth-mentioning in this short list.

Marsala

The Pantone Color Institute has elected the color Marsala as the color of 2015.  It is known as Pantone 18-1438 by the codes.  According to Leatrice Eiseman, the institute’s executive director, the color enriches our mind, body, and soul.  It is a subtly seductive shade, one that draws us into its embracing warmth.

The color, due to its versatility fits into many applications including that of beautifying a house.  The drama it brings because of its richness and warmth.  When used in interior spaces of the house, it can very well be paired off with other colors especially those that are neutral.  It can go pretty good with amber and umber and even golden yellows and teals.  Imagine the very rich designs in terms of wall colorizing that this color of the year can bring into your house.

Taking its cue from the wines, Marsala is also very fit for use on particular home spaces like the kitchen and dining room.  It is seen ideal in tabletops as well as great choice when it comes to the color of home appliances which shall fill the functionality of the gastro hubs of the house.

Proving its diversity, it is not only fit for splashing the walls.  The color is also an ideal choice when it comes to imparting elegance into home accessories like floor rugs, carpets, and other upholstered parts of the house.  It can even bring class to the living room and entertainment rooms.

As 2015 opens up, we can expect paint makers as well as makers of appliances and home accessories to capitalize on the elegant warmth that Marsala can bring as the color of the year.  As with the previous colors of the year, home owners can also expect that new trends in home design and renovation are to spring up from the color.

If you like to welcome 2015 with warmth, beauty, and elegance – you can opt to breathe new life into your house using the seductive color known as Marsala.  Give in to its temptation!

Click here to see the color.

Desare Kohn-Laski is a proud realtor and experienced Military Relocation Professional in Florida.  She is a real estate broker who is knowledgeable and familiar of the South Florida real estate market.  Her areas of services include Broward County, Palm Beach County & Miami-Dade County.  For more information, hop on to skyelouisrealty.

Financial Market Affects January 12, 2015

Several disruptions in global financial markets sent equity prices lower and Treasury bond prices higher resulting in lower yields.  Stocks suffered their third week of losses as investors were concerned about how corporate earnings would be affected by falling energy prices, the rising U.S. dollar, and other economic factors.

Longer-maturity U.S. Treasuries rallied strongly during a week punctuated by increasing fears over global deflation, sending the yield on the 30-year “long bond” to an all-time low. Meanwhile, the benchmark 10-year Treasury note’s yield touched its lowest level since May 2013 and finished the week at 1.83%.

Several reports during the week left substantial impacts on the financial markets.  On Wednesday, the December Retail Sales report surprisingly showed a decline of -0.9% when analysts were looking for a slight increase of 0.1%.  The sharp decline in Retail Sales was a direct result of the poor income growth indicated in the December employment report that showed a contraction in the average hourly wage.  Without any income growth, the only way for Retail Sales to show improvement is for consumers to tap into their personal savings, and this is something most consumers would prefer not to do.

On Thursday, a shocking foreign exchange policy change from the central bank of Switzerland stunned global currency markets and added to the demand for safe-haven assets, including U.S. Treasuries.  The Swiss National Bank abandoned a cap on the price of the Swiss franc in terms of euros that it had maintained by selling francs, triggering a sudden appreciation of almost 30% of the Swiss franc against the euro.  Several retail foreign exchange brokerages and their clients were totally blindsided by the unexpected decision by the Swiss National Bank and lost hundreds of millions of dollars.

On Friday, the Consumer Price Index (CPI), driven down by lower energy prices, posted its largest decline in six years in December.  The CPI fell 0.4%, the most since December 2008.  Analysts said it will increase chances the Federal Reserve will hold off raising interest rates until late this year.  The core CPI, which strips out food and energy costs, was unchanged, just the second time since 2010 that it didn’t increase.  Year-over-year, core CPI is up only 1.6% and down from a 1.7% increase in November.  Usually, the CPI runs about 0.5 percentage points below the PCE price index.  Therefore, current inflation trends are about 1.0% below the Fed’s implied CPI target of roughly 2.5% and are downward trending.  As long as this downward trend remains, the Fed will be hard pressed to raise interest rates.

For the week, the FNMA 3.5% coupon bond lost 14.1 basis points to end at $105.02 while the 10-year Treasury yield fell 11.9 basis points to reach 1.83%.  Stocks ended with the NASDAQ Composite losing 69.69 points, the Dow Jones Industrial Average dropping 225.80 points, and the S&P 500 falling 25.39 points.

To date for 2015, and exclusive of any dividends, the NASDAQ Composite has dropped 2.19%, Dow Jones Industrial Average has lost 1.78%, and the S&P 500 has given up 1.96%.  The national average 30-year mortgage rate fell from 3.71% to 3.63% while the 15-year mortgage rate dropped to 3.00% from 3.04%.  The 5/1 ARM mortgage fell to 3.22% from 3.24%.  FHA 30-year rates held steady at 3.25% and Jumbo 30-year rates fell to 3.60% from 3.64%.

Mortgage Rate Forecast with Chart

The FNMA 3.5% coupon bond ($105.02) lost 14.1 basis points during a week when the mortgage bond market showed an increase in volatility.  Wednesday through Friday there were considerably larger intraday trading ranges than usual where prices soared above overhead resistance levels located at $105.33 and $105.48 only to end up below them by week’s end.

On Friday for instance, the bond opened nine basis points lower at $105.45 and traded up to a high of $105.61 before plunging to a low of $104.89 to complete an expanded intraday trading range of 72 basis points.  The day’s negative candlestick pushed price well below what is now a dual layer of strong overhead resistance at $105.48 and $105.33.  Support is now defined by the 25-day moving average at $104.47.

Furthermore, a new sell signal was generated from a negative stochastic crossover as the %K line has crossed below the %D line in the slow stochastic oscillator.  Despite Friday’s price drop and negative crossover the bond remains significantly “overbought” and could be susceptible to further price weakness in the coming week.

Stocks rallied on Friday snapping a five session losing streak.  If stocks continue to rebound this week as fourth quarter corporate earnings season swings into high gear, it could trigger some profit taking in the bond market and send yields a little higher.

Chart:  FNMA 30-Year 3.5% Coupon Bond

Economic Calendar – for the Week of January 19

The economic calendar is heavily focused on the housing sector and features the NHAB Housing Market Index on Tuesday; the weekly MBA Mortgage Index, Housing Starts, and Building Permits on Wednesday; weekly Initial and Continuing Jobless Claims, the FHFA Housing Price Index, and crude oil inventories on Thursday; and Existing Home Sales and the Index of Leading Economic Indicators on Friday.  Economic reports having the greatest potential impact on the financial markets this coming week are highlighted in bold.

Road Signs – If You Are Trying To Lose Weight, Avoid These Three Foods

By Jon Allo

The secret of how to lose weight safely and effectively it is to know what you are eating is delivering all of the nutritional goodness that your body needs.  Though it may sound simple to just remove three kinds of foods from your diet, these changes alone could help you cut back on a lot of calorie consumption.   There is a fundamental blueprint for how to lose weight.  You have to eat the proper foods, not eat too much, and let your physical actions burn up the food it’s been fed. But it’s not always that simple when you’re trying to lose weight.

You can exercise as hard as you want, but if you are replacing those calories that you’ve burned with unhealthy foods, chemicals and extra fats, it is very unlikely that you will reach the weight loss goals that you want.  If you’re trying to lose weight by not eating, it is not the way to lose weight successfully. If you try starving yourself, you’ll only harm yourself in the long run.  You have to eat and make the right food choices.  Here are three foods types to avoid if you’re trying to lose weight.

Foods From a Box Can or Carton

When you’re trying to lose weight, stay away from processed foods that come in a box, can, bag or carton.  They are often modified to extend shelf life leading to little or nutritional value and often the level of fats, sodium and sugars in these foods are extremely high.  Just take a look at the back of the box.  How many of the ingredients can you actually read?  Aim to eat foods that are as natural as possible, as they allow your body to get more nutrients.

High Calorie Drinks

Drinking excessive amounts of carbonated drinks is one of the biggest reasons for gaining weight today.  The popular colas all contain large amounts of both sugar and calories.  Watch out too for high-calorie sports drinks or fruit juices, which are often packed with sugar.  Beware of drinks from the coffee shop.  Drinks like lattes, americanos, cappuccinos and frappuchinos are extremely high calorie drinks.  The best drink you can have when you’re trying to lose weight is water.  It has no preservatives, no sodium, and no calories and helps to fill you up so you won’t feel too much of an urge to eat tempting foods.

Processed Meats

Processed meats are generally made up of different body parts that couldn’t be sold separately and all mixed with significant amounts of fat, preservatives, chemicals and salt.  You can check online to see what goes into meats such as pastrami, salami, hot dogs and sausages.  Hamburgers and minced meats can also count as processed meat if they have been preserved with salt or chemical additives.  If you stick to lean, whole meats, you’ll eat fewer calories and you’ll be eating far healthier overall.

ABOUT THE AUTHOR

Do you want to learn more ways to lose weight and get fit?  Are you confused about healthy eating?  Do you want to know the best workout techniques to get the results you want?  Get more nutritional information, the best exercise programs, fitness motivation and a FREE eBook with over 100 tips for losing belly fat here.