As is common, thin trading conditions helped make the week containing the July Fourth holiday very volatile again. A decline in global bond yields was positive for U.S. mortgage rates early in the week, but stronger than expected job gains had the opposite effect on Friday, and mortgage rates ended with little change.
Following weak results of under 100,000 in May, the economy added a powerful 224,000 jobs in June, which was above the consensus forecast of 160,000. This made the three-month average pace of job growth a solid 171,000. The unemployment rate unexpectedly increased from 3.6% to 3.7%, but this was primarily due to additional people entering the labor force, which is a sign of strength.
Average hourly earnings, which is an indicator of wage growth, fell slightly short of expectations in June. They were 3.1% higher than a year ago, the same annual rate of increase as last month.
The strong labor market report was negative for mortgage rates in a couple of ways. First, faster economic growth raises the outlook for future inflation. In addition, the data reduced investor expectations for the pace of Fed rate cuts this year.
After a lengthy period with few new developments, the trade talks between the U.S. and China resumed at the G20 summit over the weekend. The result was that the two sides agreed to a truce during which they will hold off on imposing additional tariffs. The goal is to allow more time to negotiate a long-term deal.
Looking ahead, the JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. Fed officials value this data to help round out their view of the strength of the labor market. The minutes from the June 19 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials about future monetary policy and have the potential to move markets. The Consumer Price Index (CPI) will be released on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, Treasury auctions, speeches by Fed officials or news about the trade negotiations may influence mortgage rates.