Steady Job Gains 

News about tariffs continued to cause volatility in mortgage markets this week, with little net effect. The latest labor market data was a bit stronger than expected overall due to strong wage gains, and mortgage rates ended the week slightly higher.  

Two other significant economic reports released this week by the Institute of Supply Management were a bit disappointing. The ISM national services sector index dropped to 49.9, well below the consensus forecast and the lowest level since June 2024. The national manufacturing index declined to 48.5, also below expectations. Readings above 50 indicate an expansion in the sectors and below 50 a contraction.

The U.S. trade deficit surged to a record high of around $140 billion in March, as companies and consumers rushed to purchase ahead of potentially higher prices. With the easing of trade tensions, however, more typical levels returned in April. The deficit dropped by more than half to just $62 billion, which was below the consensus forecast. Imports fell by a massive 16% from March, while exports increased a little. 

On Thursday, the European Central Bank (ECB) reduced benchmark interest rates by 25 basis points to 2.0%, down from a high of 4.0% in the middle of 2023. This move was widely anticipated, and the reaction was relatively minor. In its meeting statement, the ECB said that the decision was based on its "updated assessment for the inflation outlook" and that rising trade issues pose a risk to economic growth.

Investors will continue to look for additional information about tariff policies. For economic reports, the focus will be on inflation data. The Consumer Price Index (CPI), a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services, will come out on Wednesday. The Producer Price Index (PPI), another monthly inflation indicator, will be released on Thursday. The next Fed meeting will take place on June 18.