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This week in review!!!

This week in Review

 

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Weekly Review

Bond prices fell and yields rose, predominately on Friday, as a greater number of investors came to the realization that the Federal Reserve’s Federal Open Market Committee (FOMC) could raise interest rates as soon as their next meeting on September 20-21.  The financial markets essentially “tread water” during the week in anticipation of what Fed Chair Janet Yellen would say about future monetary policy during the Fed’s annual Jackson Hole symposium late Friday morning.

While Yellen didn’t specify when the FOMC might raise interest rates, she stated the FOMC "continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives.  Indeed, In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”  She also commented that the Fed still believes future rate increases should be “gradual” and data dependent.

Speaking of data dependency, Fed Vice Chair Stanley Fischer previously said the August Employment Situation Summary (Jobs Report) would be a major factor in determining the FOMC's decision on whether or not to raise rates at their September meeting on September 21.  As a result, the next jobs report scheduled to be released on Friday, September 2 will take on added significance for investors.

In housing news, New Home Sales reached their highest level in almost nine years during July by climbing an extremely robust 12.4% to a seasonally adjusted annual rate of 654,000 units.  The consensus forecast had been for a reading of 580,000 homes.  June's sales rate was revised lower to 582,000 units from the previously reported 592,000 units.  On an annual basis, New Home Sales were 31.3% higher than a year ago.  New home inventory fell 2.9% to 233,000 units, the lowest level since November 2015 and at July's sales pace it would only take 4.3 months to clear the current supply of new houses on the market.  The median sale price for a new home was reported at $294,600, a 0.5% decline from a year ago.

Additionally, the US Federal Housing Finance Agency (FHFA) released their Housing Price Index for June showing a 0.2% increase following a 0.2% gain in May.  Economists had expected a slightly stronger gain of 0.3%.  According to the FHFA, housing prices have gained 5.6% from the second quarter of 2015.

Furthermore, the National Association of Realtors reported Existing Home Sales fell 3.2% in July to a seasonally adjusted annual rate of 5.39 million units.  Existing Sales were 1.6% lower than the year ago period and were below the consensus forecast of 5.54 million but still remain strong.  The median home price increased to $244,100, a 5.3% gain from the year ago period.  The dip in sales in July may be temporary however as there may have been a bottleneck in the sales process due to delays with appraisals.  Many real-estate agents have complained about delays with appraisals so if this problem gets resolved, sales going forward could pick up.

As for mortgage lending, the Mortgage Bankers Association (MBA) released their latest Mortgage Application Data for the week ending August 19th showing the overall seasonally adjusted Market Composite Index decreased 2.1%.  The seasonally adjusted Purchase Index fell 0.3% from the prior week, while the Refinance Index decreased 3.0%.  Overall, the refinance portion of mortgage activity increased to 62.4% of total applications from 62.6%.  The adjustable-rate mortgage share of activity was unchanged from 4.6% of total applications.  According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance increased from 3.64% to 3.67% with points increasing to 0.34 from 0.31.

For the week, the FNMA 3.0% coupon bond lost 1.5 basis points to end at $103.52 while the 10-year Treasury yield increased 4.81 basis points to end at 1.6279%.  Stocks ended the week lower with the Dow Jones Industrial Average losing 157.17 points to end at 18,395.40.  The NASDAQ Composite Index dropped 19.46 points to close at 5,218.92, and the S&P 500 Index fell 14.83 points to close at 2,169.04.  Year to date, and exclusive of any dividends, the Dow Jones Industrial Average has gained 5.28%, the NASDAQ Composite Index has added 4.05%, and the S&P 500 Index has advanced 5.77%.

This past week, the national average 30-year mortgage rate decreased to 3.41% from 3.42% while the 15-year mortgage rate decreased to 2.75% from 2.76%.  The 5/1 ARM mortgage rate rose to 2.86% from 2.85%.  FHA 30-year rates held steady at 3.25% while Jumbo 30-year rates decreased to 3.51% from 3.53%.

Mortgage Rate Forecast with Chart

For the week, the FNMA 30-year 3.0% coupon bond ($103.52, -1.50 basis points) traded within a wider 44 basis point range between a weekly intraday high of $103.88 on Friday and a weekly intraday low of $103.44, also on Friday, before closing the week at $103.52.

The bond initially moved higher ahead of Janet Yellen’s speech Friday morning and continued to trade a little higher immediately afterward.  However, when traders heard subsequent comments made by Vice Chair Stanley Fischer during an interview on CNBC two hours later, they felt there was increased “hawkish” sentiment among Fed officials.  Fischer said the comments in Yellen’s speech “were consistent with the idea there could be a rate hike in September and again later in the year,” and this helped to trigger a sell-off in bonds Friday afternoon.

The day’s action resulted in move below the 25 and 50-day moving averages (MA) located at $103.696 and $103.61 respectively.  The 50-day MA reverts to closest resistance while the 38.2% Fibonacci retracement level at $103.15 becomes the next support level.  The slow stochastic oscillator now shows a solid negative crossover sell signal with the %K line falling below the %D line suggesting a continuing move lower in bond prices that may result in slightly higher rates.

Chart:  FNMA 30-Year 3.0% Coupon Bond

Economic Calendar - for the Week of August 29, 2016

The economic calendar features several reports on the labor sector highlighted by the August Employment Situation Summary (Jobs Report) on Friday.  Economic reports having the greatest potential impact on the financial markets are highlighted in bold.

Date	Time ET	Event /Report /Statistic	For	Market Expects	Prior
Aug 29	08:30	Personal Income	July	0.4%	0.2%
Aug 29	08:30	Personal Spending	July	0.3%	0.4%
Aug 29	08:30	Core PCE Prices	July	0.1%	0.1%
Aug 30	09:00	Case-Shiller 20-city Index	June	5.1%	5.2%
Aug 30	10:00	Consumer Confidence	Aug	97.0	97.3
Aug 31	07:00	MBA Mortgage Index	08/27	NA	NA
Aug 31	08:15	ADP Employment Change	Aug	170K	179K
Aug 31	09:45	Chicago Purchasing Managers Index	Aug	54.5	55.8
Aug 31	10:00	Pending Home Sales	July	0.7%	0.2%
Aug 31	10:30	Crude Oil Inventories	08/27	NA	NA
Sep 01	07:30	Challenger Job Cuts	Aug	NA	-57.1%
Sep 01	08:30	Initial Jobless Claims	08/27	265K	261K
Sep 01	08:30	Continuing Jobless Claims	08/20	NA	2145K
Sep 01	08:30	Revised Productivity	2nd Qtr.	-0.6%	-0.5%
Sep 01	08:30	Unit Labor Costs - Revised	2nd Qtr.	2.1%	2.0%
Sep 01	10:00	Construction Spending	July	0.6%	-0.6%
Sep 01	10:00	ISM Index	Aug	52.2	52.6
Sep 02	08:30	Nonfarm Payrolls	Aug	180K	255K
Sep 02	08:30	Nonfarm Private Payrolls	Aug	175K	217K
Sep 02	08:30	Unemployment Rate	Aug	4.8%	4.9%
Sep 02	08:30	Hourly Earnings	Aug	0.2%	0.3%
Sep 02	08:30	Average Workweek	Aug	34.5	34.5
Sep 02	08:30	Trade Balance	July	-$43.0B	-$44.5B
Sep 02	10:00	Factory Orders	July	2.0%	-1.5%

Upcoming Federal Reserve FOMC Meeting Schedule & Rate Hike Probability **

September 2016	20-21, (Tuesday-Wednesday) *	36.0% Chance
November 2016	1-2, (Tuesday-Wednesday)	38.3% Chance
December 2016	20-21 (Tuesday-Wednesday)*	46.1% Chance
February 2017	01/31-02/01 (Tuesday-Wednesday)	45.5% Chance
March 2017	14-15 (Tuesday-Wednesday) *	44.0% Chance
May 2017	02-03 (Tuesday-Wednesday)	43.4% Chance
June 2017	13-14 (Tuesday-Wednesday) *	40.6% Chance
July 2017	25-26, (Tuesday-Wednesday)	40.2% Chance

* Meeting associated with a Summary of Economic Projections and a press conference by the Fed Chairman.

** Probability generated from the CME Group FedWatch tool based on the 30-day Fed Funds futures prices.

Road Signs – How much screen time is good for kids?

By Vanessa LoBue, Assistant Professor of Psychology, Rutgers University Newark

The amount of time kids are spending on mobile devices is increasing.

In 2011, the American Academy of Pediatrics (AAP) released a bold recommendation: children under the age of two should not watch any television, and slightly older children should be limited to two hours of screen time per day.

A recent report shows that children’s screen time continues to increase: in 2013, 38 percent of kids under two were found to have used a mobile device for media, compared to 10 percent in 2011.  The number of children using mobile devices on a daily basis has more than doubled during this period – from 8 percent to 17 percent.

The AAP has announced that it will be revising its screen time policies this fall to reflect current trends in technology use among U.S. families.

This fast-growing media industry – and more specifically the growing market for children’s media – poses the inevitable questions for parents: whether screen time is bad for children and whether children can learn during screen time.

What children learn from screens

There is substantial evidence that preschool children can learn from educational media.  For example, a 2001 study showed that watching educational programs at ages two and three could improve academic skills, including reading, vocabulary and math.  These kids performed better on standardized tests and general school readiness assessments, when tested some years later.

Educational programs such as ‘Sesame Street’ can improve academic skills. 

A more recent study that examined the long-term effects of watching “Sesame Street” from the time the show first aired in 1969 found that kids who watched the program showed better academic skills.

The researchers reported that children who lived in areas that had access to the show were about 14 percent less likely to fall behind in school than children who did not have access.  This effect was especially pronounced for children living in socioeconomically disadvantaged areas.

Similar learning benefits have been reported for other educational programs as well.  For example, one study reported that kindergarteners who viewed “Between the Lions” (a PBS show designed to promote reading) scored higher on standardized tests of reading skill than those who did not watch the show.

Here’s a cautionary note about infants

However, this does not mean that all children can learn from educational media, that every show is educational and that there aren’t better ways to learn.

Children do not necessarily learn from every television show they watch.  The same 2001 study that reported that children who watch educational programs score better on standardized tests also reported that preschool children who watched non-educational, general audience programs showed poorer performance on standardized tests of vocabulary and math than those who did not.

Furthermore, there is little evidence that infants under the age of two can learn from educational media at all, including television and touchscreens.

In fact, it is unclear whether infants under two can even understand the content of what they see on television and whether they can transfer information that they see in a two-dimensional format to the real world.

There is little evidence that infants gain from educational media. 

Researchers who examined a popular educational DVD designed to teach 12- to 18-month-old infants new words found that not only did they show no gains in vocabulary, but also that the best improvement in vocabulary came when parents taught them new words.

Being wise about screen time

So, how should parents think about their kids' screen time?

First, age matters.  As mentioned above, preschoolers can learn from age-appropriate educational media.  But, there is no evidence that infants can learn from screens.  So parents should have very few expectations about what children under the age of two can gain from watching television.

Second, content matters.  With the abundance of educational programming available for children these days, there is no reason to expose them to content aimed at a general audience, especially since watching adult-centered TV has been shown to lower academic skills in preschool children.  Moreover, programs aimed at adults that have violence or aggressive behavior can encourage children to behave similarly.

Third, time matters.  Having the television on all the time in the background has been shown to distract children so much that it lowers the quality of their play.  Researchers have suggested that if screen time replaces time spent engaging in activities like talking to parents and peers or playing outside, it can be detrimental to various aspects of development.

Perhaps the most important finding to keep in mind about screen time is that children learn better from people than they do from screens until they are at least three years old.

So in the end, a little bit of screen time might be okay, but learning the traditional way – from parents or from peers – might always be the most effective medium for infants and young children. 

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