Friday Wrap: Analysis of News and Events for the Week

Markets Overcome Virus Fears with Trade Deal News and Jobs

Any fear of the coronavirus was wiped out this week on Wall Street as the Dow bounced back from last Friday’s 600 plus thrashing to rally to record highs rising 1,200 points through Thursday. The S&P and Nasdaq followed the Dow’s surge rising 3.85% and 4.60% respectively. So far, analysts don’t believe that the coronavirus will have a strong impact on the U.S. economy. However, more than a dozen airlines have either canceled or limited flights in and out of China and that could start a ripple effect globally. Also, with more people staying home and not traveling, gas prices are starting to drop and experts predict we could see another $5 per barrel slide off in the coming weeks. 

The surge in stocks on the U.S. side did help spur Treasury yields. Last Friday’s low of 1.503% was countered by a high of 1.640% Thursday. 

The trade deal between the United States and China made its way back into the headlines this week as China announced it will halve tariffs on $75 million worth of goods from the United States. The announcement from the Chinese Ministry of Finance said that on Feb. 14, tariffs will be reduced from 10% to 5% and from 5% to 2.5%. The move was made to “advance the healthy and stable development of China-U.S. trade.”

Neither country has initiated a phase 2 trade deal although Treasury Secretary Steve Mnuchin has hinted that one is in the works and would include more tariff cutbacks. China’s announcement Thursday also included hope about ending all tariffs between the two countries, but said any further adjustment will depend on how trade relations evolve past this point. 

The other big news came from Capitol Hill as President Trump was acquitted by the Senate. This did little to move the markets up or down.

Jobs Report Shows Strength Again

Wednesday’s private payroll numbers from ADP also buoyed the stock market as investors saw a solid number that boded well for Friday’s numbers from the government. ADP says private payrolls jumped by 291,000, its best reading since May 2015 and much higher than the predicted 157,000 jobs added.

Friday’s jobs report from the Bureau of Labor Statistics was another whopper as non-farm payrolls added 225,000 jobs against the 158,000 predicted. Good weather was one of the main factors for job growth as the weather-sensitive construction industry was the leader of the pack with job gains, adding 44,000 in January. 

The unemployment rate did go up to 3.6%, but that was because more people entered the workforce. The labor force participation rate went up by 0.2% to 63.4% which matches its highest level in nearly seven years. 

Wages also saw an increase with the hourly average going up by 3.1% year-over-year and is now at $28.44 per hour. 

Mortgage Applications Jump

Last week’s equities demise was a boon for mortgage rates taking them to 3 year lows to set up a 5% rise in applications, according to the Mortgage Bankers of America. Applications are now at a seven-year high. 

Joel Kan, the MBAs associate vice president of economic and industry forecasting, said ““This drove mortgage rates lower, with the 30-year fixed-rate decreasing for the fifth time in six weeks to 3.71%, its lowest level since October 2016. Refinance activity jumped as a result, with an increase in the number of applications and a spike in the average loan amount, as homeowners with jumbo loans reacted more resoundingly to lower rates.”

Refis were booming again, jumping by 15% month-over-month and an eye-popping 183% year-over-year. Freddie Mac’s 30-year fixed-rate mortgage average is sitting at 3.45% this week, a third straight week where it has dropped. Should the coronavirus continue to be a problem, it’s possible that rates could start to drop quickly and hit the low of 3.31% we last saw in Nov. 2012. 

The problem of inventory persists, however, as purchase applications declined but were still more than 7% above Feb. 2019 levels.

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized contract.