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Market Commentary

Updated on June 2, 2023 10:07:41 AM EDT

Today's key economic data was May's Employment report that was posted at 8:30 AM ET. It revealed the U.S. unemployment rate jumped from 3.4% in April to 3.7% last month when it was expected to stand at 3.5%. The average earnings reading rose 0.3%, matching forecasts. However, April's reading was revised lower by 0.2% (up 0.5% to up 0.3%). We can consider both of those figures to be good news for bonds and mortgage rates.

The problem came in the blowout payroll number that also included an upward revision to April and March. This morning's release showed a surprisingly high 339,000 new jobs were added to the economy while the previous two months were revised higher by a total of 93,000. This was actually the 14th consecutive month that the payroll number came in above what analysts were expecting. In general, employment strength is bad news for long-term securities such as mortgage bonds. But in this cycle of Fed rate hikes, strong employment allows them to remain aggressive with their increases to ease inflation. These payroll numbers are drawing the most attention and are fueling this morning's bond selling.

Next week doesn't have much scheduled in terms of relevant economic releases or other events for the markets to digest. Last night's Senate passage of the debt-ceiling bill removes the possibility of a potential default affecting rates next week. In fact, the week's only monthly economic reports will be posted Monday, leaving very little to drive bond trading and mortgage pricing. Monday has April's Factory Orders report and the Institute for Supply Management's (ISM) services index, both set to be announced late morning. Look for details on what we can expect next week in Sunday evening's weekly preview.

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