News from Italy was positive for mortgage rates this week. However, this was partially offset by stronger than expected U.S. labor market data. Mortgage rates ended the week a little lower.
Italy has one of the largest economies in the European Union (EU). In recent years, Italy’s economic growth has been below the average for the EU as a whole, and its unemployment rate has been higher than average. The newly formed coalition government is proposing some major changes to attempt to address these issues. In particular, it would like to reduce the government spending constraints imposed by EU rules. Investors are concerned that this will lead to an increase in Italy’s already large budget deficit and that the risk has increased that Italy could one day exit the EU. The resulting uncertainty caused investors to shift to safer assets, including U.S. mortgage-backed securities (MBS), which helped push mortgage rates lower this week.
By contrast, stronger than expected labor market data pressured mortgage rates a little higher on Friday. Against a consensus forecast of 190,000, the economy added 223,000 jobs in May. In addition, upward revisions added 15,000 jobs to the results for prior months. The economy has gained an average of a very healthy 207,000 jobs per month so far this year.
The unemployment rate declined from 3.9% to 3.8%, the lowest level since 2000. Average hourly earnings, an indicator of wage growth, were 2.7% higher than a year ago, up from an annual rate of increase of 2.6% last month.
Looking ahead, Factory Orders will be released on Monday. The ISM national services index will come out on Tuesday. The JOLTS report, which measures job openings and labor turnover rates, will be released on Wednesday. In addition, news about Italy could influence mortgage rates again next week.
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