Over the past week, two highly anticipated economic events caused significant, but offsetting, reactions for mortgage rates. The negative impact of Friday's strong Employment report was greater than the positive effect of Thursday's Bank of England announcement, and mortgage rates ended the week a little higher.
Mortgage rates increased following the release of Friday's upside surprise in the important monthly Employment report. Against a consensus forecast of 180K, the economy added 255K jobs in July. In addition, upward revisions added 18K jobs to the results for prior months. The unemployment rate remained at 4.9%, above the consensus of 4.8%, as more people entered the workforce.
Average hourly earnings, an indicator of wage growth, exceeded expectations, and they were 2.6% higher than a year ago. Stronger job and wage gains are negative for mortgage rates, since they increase the outlook for future inflation.
On Thursday, the Bank of England (BOE) announced a 25 basis point rate cut and a new bond purchase program to stimulate economic activity. Investors had expected the rate cut, but the additional bond purchases were a surprise to some. In the statement, the BOE said that the outlook for economic growth had "weakened materially" following the Brexit vote on June 23. The added demand for bonds from the BOE helped push global bond prices higher and yields lower, including U.S. mortgage rates.
Looking ahead, second quarter Productivity will be released on Tuesday. The JOLTS report, which measures job openings and labor turnover rates, will come out on Wednesday. The most significant report of the week, Retail Sales, will be released on Friday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
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