- The U.S. non-farm payrolls for July are expected to increase by 80,000, with the unemployment rate anticipated to remain at 4.2%. The market is eagerly awaiting labor market data to provide clear guidance on the Federal Reserve's interest rate path.
- Monetary market pricing indicates a 63% probability of a Federal Reserve rate hike in September, with at least one rate increase fully priced in for the year, totaling approximately 35 basis points.
- Institutions generally expect that employment data will not trigger a major shift in policy direction. Crédit Agricole forecasts a July non-farm increase of 75,000, aligning with the overall trend of stabilization following a labor market slowdown.
Labor Market Faces Key Test
The U.S. is set to release the July non-farm employment report during the major central banks' summer recess. The market widely expects the number of new jobs to rebound to 80,000 from last month's estimate of 57,000, with the unemployment rate remaining stable at 4.2%. The current labor market shows no signs of overheating or significant cooling, allowing Federal Reserve policymakers to continue focusing on inflation trends. If the released data aligns with expectations, it will further establish the resilience of the U.S. macroeconomy, providing short-term valuation support for risk assets.
Interest Rate Futures Pricing Intensifies
Derivative traders are currently betting on a roughly 63% chance of a Federal Reserve rate hike at the September meeting, with terminal rate expectations showing a tightening bias. The market has fully priced in at least one rate hike of about 35 basis points for the year, with a cumulative increase expected to reach 50 basis points by the first half of next year. With ample observation time before the September meeting, asset management institutions are adjusting cross-asset allocations, and the short-term movements of the U.S. Treasury yield curve and the dollar index are highly dependent on the marginal adjustments of this data round.
Institutional Expectations Remain Stable
Crédit Agricole's latest report indicates a low probability of significant unexpected fluctuations in the July non-farm employment data. The bank expects a modest increase in new jobs to 75,000, although lower than the average monthly increase earlier this year, it remains within a reasonable and stable range given the current significant decline in the breakeven employment growth rate. The unemployment rate is expected to remain at 4.2%, with average hourly earnings growing by 0.3% month-on-month and 3.5% year-on-year, which will significantly alleviate capital market concerns about a wage inflation spiral.
Reassessment of Cross-Asset Risk Appetite
This employment report will serve as the first key anchor for the market to reassess the Federal Reserve's policy roadmap. Unless the data shows extreme deviations, the existing monetary policy framework and rate hike path are unlikely to undergo a fundamental reversal. Against the backdrop of sideways consolidation in commodity and stock markets, capital flows will tend towards defensive allocations. If the employment data demonstrates robust resilience, the Federal Reserve's subsequent policy maneuvering space will be maintained, and macro liquidity expectations are likely to achieve a smooth transition.
