I-Phone maker, Apple, was a downer this week as the company announced a surprise weak sales and earnings forecast for the first quarter of 2019.
Stocks and interest rates fell on the bad news, concerned that Apple, the first big tech firm to report weak growth in 2019, is the "canary in the coalmine" and that more companies will report weaker sales and earnings.
Regardless of Apple's current woes, the U.S. economy is still humming along as was evident in Friday's Jobs Report which showed an "eye-popping" 312,000 jobs created in December.
Adding to the good news in the Jobs Report was a 3.2% hike in wage gains year over year – the highest level in a decade.
Remember, jobs buy houses, not rates, so the positive jobs numbers and wage growth are great for housing.
But while we are on the subject of rates, the "bad Apple" news helped rates improve again this week to the lowest levels in nearly a year.
Rates have been steadily improving since early November. What happened in early November? Congress became divided. Bonds and home loan rates love uncertainty, chaos, stalemates and bad news – Congress can provide plenty of it from time to time.
It will be back-to-business this week for the first full workweek of 2019 after the two-previous holiday shortened weeks.
The closely watched Consumer Price Index for December will be released with the Fed keeping close eyes on the inflation reading ahead of the January 30th Fed Meeting. Speaking of the Fed – as of right now, financial markets are pricing in a 91% probability the Fed Funds Rate will be unchanged in 2019 – meaning no more rate hikes this year.
The U.S. government may be enduring a partial shutdown, but that doesn't stop them from borrowing money to run our country and this coming week the U.S. Treasury will sell $78B worth of Bonds in that effort. With rates and bond yields at the lowest levels in a year, it will be interesting to see the investor appetite at these Treasury auctions. If investors demand more yield at the auctions, expect rates, including home loan rates, to tick higher.
Reports to watch...
The ISM Service Index will be released on Monday.
- Weekly Initial Jobless Claims will be announced on Thursday.
- On Friday, the Consumer Price Index will be released.