Provided to you
by
Lee McLain
Contents
Lee McLain
First Federal Bank
Office #816-245-4220
Cell #816-728-7700
lee@kcmetrohomeloans.com
NMLS:680316
• Weekly Review: week of October 20, 2014
• Mortgage Rate Forecast with Chart
• Economic Calendar - week of October 27, 2014
• Federal Reserve FOMC Meeting Schedule
• Road Signs - Magnesium Supplement May Prevent Migraines
Weekly Review
Here is the week’s review of the news that affected the financial markets during this past
week.
Monday… there were no economic reports released to influence trading and investors
instead focused on corporate earnings for market direction. Lower than forecast earnings
from technology giant and market bellwether IBM weighed on the stock market in the early
going, but the stock market recovered as the session wore on and ended the day “mixed.”
The bond market traded modestly higher while trading within a narrow intraday range.
Corporate earnings season was in full swing with quarterly reports from 20% of the S&P
500 companies and 11 out of 30 Dow Jones Industrials companies scheduled to report
this week. Technology leader Apple (AAPL) reported fourth quarter and full-year
performances after market close. The release with its accompanying update on new
products turned out to be a market moving event and impacted the start of trading
Tuesday morning.
For the session, the yield on the 10-year Treasury dropped one basis point to 2.19% while
the FNMA 30-year 3.5% coupon bond gained 6.25 basis points to close at $103.78. For
stocks, the Nasdaq Composite Index gained 57.63 points to end at 4,316.07. The Dow
Jones Industrial Average added 19.26 points to close at 16,399.67. The S&P 500 Index
increased 17.25 points to finish at 1,904.01.
Tuesday… stocks got off to a good start following technology giant Apple’s stronger-thanexpected earnings release after the close yesterday. Apple delivered record results that
exceeded investors’ expectations on both the top and bottom lines. Another plus for
equities was economic news from China showing its 3rd quarter GDP increased 7.3% from
a year earlier. Although this pace was the slowest growth in more than five years, it was
slightly better than forecast and indicated China’s growth is still relatively swift.
Bonds opened a little lower with Treasuries coming under selling pressure in response
to rumors suggesting the European Central Bank (ECB) could begin purchases of
corporate bonds in the secondary market as early as December. The ECB’s apparent
shift to a more aggressive posture regarding monetary policy is regarded as a bullish sign
for equities, but not so much for bonds. These rumors were later disputed but it didn’t
seem to matter to the bond market. Mortgage bonds opened about 11 basis points lower
but erased morning losses by noon before fading back lower during the afternoon.
The day’s stock market rally propelled the S&P 500 Index back above its 200-day moving
average, located at 1,906, and above the 150-day moving average at 1,932. This was
viewed as a positive development by technical analysts and traders and improved overall
market sentiment.
Investors did receive one significant economic report. Existing Home Sales were reported
at 5,170,000 units annualized during the month of September. This reading was slightly
better than August’s figure of just over five million and also exceeded expectations of
5,110,000.
For the session, the yield on the 10-year Treasury traded 3.4 basis points higher to yield
2.23% while the FNMA 30-year 3.5% coupon bond lost 6.25 basis points to close at
$103.72. For stocks, the Nasdaq Composite Index gained 103.41 points to end at
4,419.48. The Dow Jones Industrial Average jumped 215.14 points higher to close at
16,614.81. The S&P 500 Index added 37.27 points to finish at 1,941.28.
Wednesday… stocks and bonds got off to a sluggish start with stocks and mortgage bonds
opening slightly higher with 10-year Treasuries opening marginally in the red. Then, as the
trading session unfolded, the major stock indexes and mortgage bonds joined the 10-year
in negative territory. Investors were unnerved over news that a probable terrorist gunman
shot and killed a soldier at a war memorial outside the Canadian parliament buildings in
Ottawa, before running into the parliament building where he exchanged gunfire with
police. Also weighing on stocks were disappointing earnings reports from Boeing and
Biogen.
Traders received limited economic news today with the Consumer Price Index (CPI)
increasing 0.1% during the month of September, which was a little hotter than estimates of
unchanged. The Core CPI was also up 0.1%, which was 0.1% lower than the consensus
estimate. Both the CPI and Core CPI stand at 1.7%.on a year-over-year basis. These are
tame numbers suggesting inflation is not a major concern. Treasuries moved to their worst
levels of the day immediately following the release before recovering.
The Mortgage Bankers Association’s (MBA) reported the results from their Weekly
Mortgage Applications Survey for the week ending October 17. The Market Composite
Index increased 11.6% on a seasonally adjusted basis, and increased 12% on an
unadjusted basis over the prior week. The Refinance Index increased 23% from the prior
week to the highest level since November 2013. The seasonally adjusted Purchase Index
fell 5% from a week earlier. The unadjusted Purchase Index dropped 5% compared with
the prior week and was 9% lower than the same week one year ago. The refinance share
of mortgage activity increased to 65% of total applications, the highest level since
December 2013. The adjustable-rate mortgage (ARM) share of activity increased to 9.4%
of total applications, the highest level since June 2008.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan
balances dropped to 4.10%, the lowest level since May 2013, from 4.20%, with points
increasing to 0.21 from 0.17. The average contract interest rate for 30-year fixed-rate
mortgages with jumbo loan balances fell to 4.03%, the lowest level since May 2013, from
4.14%, with points increasing to 0.20 from 0.10. The average contract interest rate for 15year fixed-rate mortgages declined to 3.28%, the lowest level since May 2013, from 3.41%,
with points falling to 0.22 from 0.28. The average contract interest rate for 5/1 ARMs
declined to 2.94%, the lowest level since June 2013, from 3.05%, with points decreasing to
0.37 from 0.38.
At the close, the yield on the 10-year Treasury traded 0.71 basis points lower to yield
2.22% while the FNMA 30-year 3.5% coupon bond gained 3.1 basis points to close at
$103.75. For stocks, the Nasdaq Composite Index lost 36.63 points to end at 4,382.85.
The Dow Jones Industrial Average fell 153.49 points to close at 16,461.32. The S&P 500
Index dropped 14.17 points to finish at 1,927.11.
Thursday… equities soared from the opening bell as investors became less risk averse
following economic reports showing the purchasing managers' index, or PMI was better
than forecast in China, Japan, and Europe including Germany. Favorable corporate
earnings results from industrial giants Caterpillar (CAT), General Motors (GM), and 3M
Company (MMM) also stimulated equity buying at the expense of bonds.
Domestic economic news was also positive with Initial Jobless Claims reported at 283,000
for the week ended October 18th, which was slightly better than the consensus forecast of
285,000 claims. Continuing Claims also showed some improvement at 2,351,000 vs.
2,380,000 claims forecast. Moreover, the Conference Board’s Index of Leading Economic
Indicators improved to 0.8% in September from 0.0% in August and exceeded the
consensus estimate of 0.5%. Additionally, the FHFA House Price Index for the month of
August was reported at 0.5% vs. expectations of 0.3%. July’s number was revised higher
from 0.1% to 0.2% while the year-over-year number improved from 4.6% to 4.7%. The
Chicago Fed National Activity Index, which is a gauge of overall economic activity and
inflationary pressure, was reported at 0.47 for the month of September. August’s number
was revised from -0.21 to -0.25. Treasuries and mortgage bonds fell to their session lows
in reaction to the day’s better than expected economic data.
For the session, the yield on the 10-year Treasury moved 5.67 basis points higher to yield
2.28% while the FNMA 30-year 3.5% coupon bond lost 25 basis points to close at $103.50.
For stocks, the Nasdaq Composite Index gained 69.94 points to end at 4,452.79. The Dow
Jones Industrial Average added 216.58 points to close at 16,667.90. The S&P 500 Index
traded 23.71 points higher to end at 1,950.82.
Friday… both the stock and bond markets got off to a sluggish, flat opening and then
experienced somewhat choppy trading for the remainder of the session. Investors sifted
through news of a new Ebola case that surfaced in New York City in addition to limited
economic and earnings reports. In China, residential real estate prices slid 1.3% year-overyear with monthly declines reported in all 70 cities surveyed. Reports of a massive real
estate bubble in China have been circulating for quite some time but any signs of Chinese
real estate weakness tend to catch the attention of financial analysts. Speaking of finance,
Bloomberg TV reported 25 banks in Europe are rumored to have failed the European
Central Bank’s “stress test.” The official report is scheduled for release this Sunday and
could have an impact on financial markets on Monday.
The day’s domestic economic news consisted of the New Home Sales report for
September. New Home Sales improved 0.2% in September to 467,000, the highest rate
since July 2008. The blockbuster August number originally reported at 504,000 was
downwardly revised to 466,000. The large downward revision to the August sales number
tarnished what was first reported to have been the best performing sales month since May
2008. Home inventory levels increased 1.5% to 207,000, but the months' supply at the
current sales rate was unchanged at 5.3 months. New home prices fell 4.0% year-overyear to $259,000. This was the first year-over-year price decline since April and the largest
since dropping 7.7% in January 2012. On the bright side, the price decline will likely
reduce new home price premiums and this should work toward increasing future home
affordability for buyers.
For Friday’s session, the yield on the 10-year Treasury traded 1.1 basis points lower to
yield 2.27% while the FNMA 30-year 3.5% coupon bond traded 1.6 basis points lower to
close at $103.48. For stocks, the Nasdaq Composite Index gained 30.93 points to end at
4,483.72. The Dow Jones Industrial Average added 127.51 points to close at 16,805.41.
The S&P 500 Index increased 13.76 points to finish at 1,964.58.
For the week, the FNMA 3.5% coupon bond lost 23.4 basis points to end at $103.48 while
the 10-year Treasury yield gained 6.7 basis points to reach 2.27%. Stocks ended with the
NASDAQ Composite adding 225.28 points, the Dow Jones Industrial Average gaining
425.00 points, and the S&P 500 increasing 77.82 points.
Year to date for 2014, the NASDAQ Composite has gained 6.85%, Dow Jones Industrial
Average has added 1.36%, and the S&P 500 has gained 5.92%. The national average
30-year mortgage rate rose from 3.97% to 3.99% while 15-year mortgage rates increased
from 3.15% to 3.16%. FHA 30-year rates held steady at 3.5% and Jumbo 30-year rates
rose from 3.90% to 3.91%.
Mortgage Rate Forecast with Chart
The FNMA 3.5% coupon bond ($103.48) trended slightly lower during the week ending 23
basis points lower from the previous week. Daily trading ranges were far narrower than the
prior week demonstrating less volatility. The bond was range-bound between longer-term
resistance found at the 76.4% Fibonacci retracement level located at $104.64 and support
defined by the 61.8% Fibonacci retracement level at $103.35. The stochastic oscillators
continue with their extremely “overbought” condition and both the “fast” and “slow”
stochastic oscillators are continuing to trend lower on negative crossover sell signals
generated from last Thursday’s trading. The chart is showing a little more weakness than
strength at the moment, and if the stock market remains strong this coming week it could
pressure bond prices lower for a test of support resulting in slightly worse interest rates.
However, we may very well see the financial markets trade “sideways” until the FOMC rate
decision and commentary is released Wednesday afternoon. This event could trigger a
major move in both stocks and bonds resulting in interest rate movement.
Chart: FNMA 30-Year 3.5% Coupon Bond
Economic Calendar - for the Week of October 27
The economic calendar expands next week. Monday will be limited to the release of the
Pending Home Sales report for September. Tuesday features September Durable Goods
Orders and the October Consumer Confidence Index. Wednesday afternoon brings the
latest policy directive from the FOMC which is expected to announce a final $15 billion
taper effectively ending the asset purchasing program. Thursday features weekly Initial
and Continuing Jobless Claims and the Advance GDP for the 3rd quarter. Friday is busy
with the release of Personal Income and Spending, PCE Core Prices, the Employment
Cost Index, and the Chicago PMI.
Economic reports having the greatest potential impact on the financial markets this coming
week are highlighted in bold.
Date
Oct 27
Oct 28
Oct 28
Oct 28
Oct 28
Oct 29
Oct 29
Oct 30
Oct 30
Oct 30
Oct 30
Oct 31
Oct 31
Oct 31
Oct 31
Oct 31
Oct 31
Time
ET
10:00
08:30
08:30
09:00
10:00
07:00
14:00
08:30
08:30
08:30
08:30
08:30
08:30
08:30
08:30
09:45
09:55
Event /Report /Statistic
Pending Home Sales
Durable Goods Orders
Durable Goods –ex transportation
Case-Shiller 20-city Index
Consumer Confidence Index
MBA Mortgage Index
FOMC Rate Decision
Initial Jobless Claims
Continuing Jobless Claims
GDP- Advance
Chain Deflator- Advance
Personal Income
Personal Spending
PCE Prices - Core
Employment Cost Index
Chicago PMI
Michigan Consumer Sentiment - Final
For
Sept
Sept
Sept
Aug
Oct
10/25
Oct
10/25
10/18
Q3
Q3
Sept
Sept
Sept
Q3
Oct
Oct
Market
Expects
0.5%
0.7%
0.5%
5.5%
87.2
NA
0.25%
284,000
2,375,000
3.0%
1.5%
0.3%
0.1%
0.1%
0.5%
60.0
86.4
Prior
-1.0%
-18.4%
0.4%
6.7%
86.0
11.6%
0.25%
283,000
2,351,000
4.6%
2.1%
0.3%
0.5%
0.1%
0.7%
60.5
86.4
The Remaining 2014 Federal Reserve FOMC Meeting Schedule
October
28-29
December
16-17*
* Meeting associated with a Summary of Economic Projections and a press conference by the Chairman.
Road Signs – Magnesium Supplement May Prevent Migraines
By Amee LaTour
According to the USDA Agricultural Research Service, only 43% of Americans get their
recommended daily intake of magnesium. This mineral is responsible for hundreds of functions
in the human body, most notably keeping bones strong, maintaining a healthy immune system,
regulating blood sugar and pressure levels, energy metabolism and maintaining muscle and
nerve function.
Magnesium has come to light as a potential preventative measure for migraines. Migraine
treatment and prevention is particularly difficult because the exact cause of migraines is not
known. One popular theory suggests that vascular constriction blocks blood flow to the brain,
leading to headache; another theory says that a drop in serotonin levels affects the interaction
between the trigeminal nerve and the brainstem, resulting in pain. There may be some truth to
both these theories. While we await confirmation of migraine causes, the 11% of the American
population suffering migraines continues to search for effective treatment and prevention.
Magnesium
Magnesium supplementation has caught the eye of many researchers as a potential preventative
method for people with migraines. Inexpensive and relatively safe, this nutrient could help people
manage their headaches naturally.
There are a few studies available that suggest magnesium supplementation is an effective
method for migraine prevention. One found that those who took magnesium for 12 weeks
exhibited a 41.6% reduction in frequency of attacks compared to 15.8% in the placebo group.
The total number of days with migraine and the amount of medication patients needed to manage
attack symptoms decreased significantly in the magnesium group. More on this study can be
found at http://www.ncbi.nlm.nih.gov/pubmed/8792038.
Women are about 3 times more likely to experience migraines than men. Hormone fluctuations
may be involved in migraine onset, meaning women are particularly susceptible around the time
of their periods. Also, the level of magnesium in the body drops during menstruation.
Supplementation could be beneficial particularly for women who experience menstrual migraines.
Added bonus: Magnesium may help reduce menstrual cramps.
Safety
It is a common misconception that anything obtainable over-the-counter is 100% safe.
Magnesium comes with less risk than prescription anti-depressants and other types of migraine
medication, but it is not without risk. The most common side effects of magnesium
supplementation are diarrhea and upset stomach. Overdose is rare, but can cause severely
lowered blood pressure and heart rate, even leading to death.
On top of side effects and overdose, there are a number of drugs that magnesium may interact
with. You should consult with your doctor before taking magnesium. For detailed information on
risks and interactions, see http://www.umm.edu/altmed/articles/magnesium-000313.htm.
Magnesium supplementation may reduce the frequency and severity of migraine attacks.
Consider natural treatments for pain and other health conditions before opting for more
expensive and risky therapies.