A big miss in Friday’s key jobs report caused a significant improvement in mortgage rates. Recent news from Europe also was positive. As a result, mortgage rates ended the week lower, near the best levels of the year.
While the consensus forecast was for an increase of 160,000, the economy added just 38,000 jobs in May, which was the lowest level since September 2010. In addition, downward revisions subtracted 59,000 jobs from the results for prior months. The unemployment rate declined from 5% to 4.7%. While this often would be viewed as a sign of strength, in this report it was quite the opposite. The decline was almost entirely due to people leaving the labor force in May. A weaker labor market is positive for mortgage rates.
The shortfall in the jobs data was supplemented by bond friendly news from Europe. First, a new poll reported stronger support in the UK to leave the European Union (EU) than in prior polls. In addition, the European Central Bank (ECB) indicated that the ECB expects to maintain loose monetary policy for a long time.
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As a result of the weakness in the labor market data and the increased uncertainty about the UK, investor expectations for federal funds rate hikes declined. Investors now assign very little chance of a Fed rate hike at the next meeting on June 15, and they are close to evenly split about whether there will be a rate hike at either the July or the September meeting.
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