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Greek
Troubles Overshadow Strong Data
Despite
stronger than expected economic data, the financial situation in Greece
held the greatest influence on mortgage rates this week. A flight to
quality and prospects of slower economic growth in Europe were favorable
for mortgage markets and negative for the stock market, and mortgage rates
ended the week lower.
Global
financial markets remained focused on the economic troubles of Greece.
Greek workers responded to proposed austerity measures with strikes and
riots, and investors grew increasingly concerned that other smaller
European countries will face similar problems cutting their budget
deficits. As a result, US mortgage markets were helped in two primary ways.
First, in response to the uncertainty in Europe, investors shifted funds to
safer investments, including US Treasuries and mortgage-backed securities
(MBS). Second, investors expect that continued economic turmoil in Europe
will reduce US exports to the region, slowing US economic growth and
reducing inflationary pressures. Increased demand for MBS and lower future
inflation are both positive for mortgage markets.
The
April Employment report exceeded expectations in nearly every area. Against
a consensus forecast of 190K, the economy added 290K jobs in April, the
most since March 2006, and the data from prior months was revised higher by
an additional 121K. The April figures include 66K temporary census
employees hired by the government, but this was fewer than expected. The
manufacturing sector added the most jobs since 1998. The Unemployment Rate
rose to 9.9% from 9.7%, but that was due to unexpectedly large growth in
the labor force as more people began to seek jobs.
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