Learn from the Past
Mortgage backed securities (MBS) gained 18 basis point (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly lower compared to the prior week.
It was a holiday-shortened week with very little economic data to absorb and very few traders to absorb it. As usual, there was a very small improvement in rates due to a compressed trading calendar as many traders simply “parked” some cash into the safe-haven of long bonds while they checked out for the week.
Taking it to the House: Weekly Mortgage Applications fell by -5.3%. Both Purchase Applications and Refinance Applications dropped by 5.0%. November New Home Sales showed an annual gain of 17% from this time last year (719K vs. 615K). On a MOM basis it was up 1.3%.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims were lower than expected, 222K vs. estimates of 224K. The more closely watched 4 week moving average is now 228K.
What’s on the Agenda for this Week?
This is a holiday-shortened week. The bond market will close early on Tuesday at 2:00 and will remain closed on Wednesday. Don’t look for any major movement in pricing prior to Thursday. There could be some volatility on Friday in reaction to the Saturday Phase I China trade deal signing and the ISM data.
The three areas that have the greatest ability to impact backend pricing this week are: (1) Trade Wars, (2) Geopolitical and (3) Manufacturing.
(1) Trade Wars: In a rare confirmation directly out of China’s controlled news outlet, the South China Morning Post reported that Chinese Vice Premier Liu He will visit Washington this week to sign the “phase one” trade deal with the U.S.
(2) Geopolitical: The U.S. has launched strikes in Syria and Iraq over the weekend and the markets will be watching to see if this remains a surgical and isolated campaign or turns into something bigger.
(3) Manufacturing: Two key reports are this week with Monday’s Chicago PMI and Friday’s ISM Manufacturing report. Friday’s report will carry much more weight.
Manufacturing: The December Chicago PMI improved from November’s pace of 46.3 to 48.9 and just edged out estimates calling for a level of 48.0. But this marks the 4th month in a row with a reading below 50.0.
Trade Balance: The November data was much better than expected with a deficit of $-63.19B vs. estimates of $-68.75B.
Latest on the U.S. strikes in Syria and Iraq over the weekend: Iran vows to hit us back.
On Deck for Tomorrow
The bond market closed early at 2pm EST. Case Shiller Home Price Index, FHFA Home Price Index and Consumer Confidence.