Outlook for June NFP: Labor Market May Slow Down; Unemployment Rate to Be Key Focus

Summary:

A strong employment report may not necessarily turn the Fed more hawkish, but a weak report could support their case for a rate cut in September.

On July 5, ET, the U.S. Bureau of Labor Statistics will release the June Non-Farm Payrolls (NFP) report. The current market expectation is for 190,000 new jobs, with the unemployment rate remaining unchanged at 4% and average hourly earnings slowing to 3.9%. Following the "anomalous" performance of May's Non-Farm Payrolls—where job numbers surged significantly while the unemployment rate also increased—the market is not only focused on the new job additions but also on whether the previous report will be revised (downward).

May's NFP was exceptionally strong, contradicting a series of other labor market indicators at the time, which surprised those expecting a rate cut. If the data accurately reflects the state of the labor market, it could mean no rate cuts from the Fed this year, which is undesirable for those hoping for cuts, hence the attention on potential revisions to the previous report.

Previously, March's NFP was revised down from 315,000 to 310,000, and April's from 175,000 to 165,000, suggesting the three-month average could further decline. However, due to May's unexpectedly strong performance, the three-month average rose to 249,000 (May), compared to 237,000 (April) and 267,000 (March).

What does this mean? Looking historically, the average monthly job addition in 2023 was 251,000, suggesting May's job increase returned to the levels seen in 2023.

But why did employment increase while the unemployment rate did not decrease but instead increased?

This is because there are two types of surveys in the NFP report: one surveys private non-farm employment by establishments, and the other surveys private non-farm employment by households (excluding private household workers). The data we usually see belongs to the former category, while the unemployment rate survey belongs to the latter.

Simply put, the household survey does not count individuals more than once, even if they work multiple part-time jobs, whereas the establishment survey counts each appearance of an individual on multiple payrolls multiple times. This explains why NFP data can sometimes be exaggerated. In other words, the household survey's results tend to be more conservative.

It is precisely due to the unusual performance of May's NFP that the market might focus more on the unemployment rate in this release. May's unemployment rate saw a slight increase to 4%, 0.5 percentage points higher than the 12-month low of 3.5% set in July 2023, potentially triggering the "Sahm Rule" (a recession indicator). This rule suggests that when the three-month average unemployment rate is half a percentage point higher than the 12-month low, the economy may enter a recession.

Although there is currently little data suggesting a recession is imminent — and it's not the most likely outcome — any increase in this possibility won't deter the market from reacting preemptively.

The rise in the May unemployment rate was mainly concentrated among young people (20-24 years old), possibly due to seasonal fluctuations in summer job seekers. In May 2023, the youth unemployment rate also surged by 0.9 percentage points but normalized in June, decreasing by 0.2 percentage points. If this month's data can repeat historical patterns, combined with the unemployment rate of the core age group (25-54 years old) remaining unchanged over the past three months, it could help prevent further increases in the unemployment rate.

However, if the unemployment rate remains unchanged or even rises in this NFP report, it could trigger recession fears and increase expectations for a rate cut.

Apart from the unemployment rate, the impact of changes in employment figures cannot be ignored. The ADP report released on Wednesday revealed the smallest increase in private sector employment in five months; on the same day, the number of continued claims for unemployment benefits rose to the highest level since November 2021; the employment index in the June ISM Services Index also remained negative for the fifth consecutive month. Coupled with recent dovish remarks from Powell, this has increased market expectations for a rate cut by the Fed in September.

All these signs point to the fact that the demand for labor in the U.S. is starting to show a slowdown and that it is taking longer for the unemployed to find a new job. In other words, these non-farm payrolls may be slowing down.

This data release is of great significance. This is the first non-farm payroll following the Fed's recognition that "employment data is more important than inflation data", inevitably triggering a strong market response. The previous release of non-farm payrolls revealed a peculiar phenomenon where employment numbers increased while the unemployment rate rose. This data will help analysts determine the latest qualitative assessment of the job market - whether it is at a turning point. The "turning point" in the job market is crucial, just like the "bull and bear market" in the stock market. The deterioration of the job market is non-linear, not gradually reducing from 10 to 0, but possibly dropping from 10 to 6, then from 6 to 0. Once it exceeds the critical value, a rapid deterioration will occur.

Compared to the past, the timing of the data release this time is also "slightly different" - the U.S. financial markets were closed for the holiday on Wednesday. Therefore, the market's direction tonight may not necessarily reflect its most accurate sentiment.

Fed Chairman Powell's speech on Tuesday seems to be "warming up" (leaking information) to the market, as he stated that the latest economic data indicates the inflation rate is returning to a downward trajectory - surprisingly leaning towards dovishness. Powell has always liked to "leak" information before important economic data releases to allow the market to digest it in advance, so it is necessary to carefully and closely analyze his speech.

Currently, Powell and other Fed officials still overall believe that the U.S. labor market is cooling at a pace acceptable to the Fed. Powell stated on Tuesday at the ECB Forum in Sintra that the labor market is not cooling too quickly, suddenly, or sharply. Instead, Powell believes that the labor market data has been developing in the way that the Fed hopes to see, and also in the way that the members have been observing.

These remarks may be seen as a form of "precaution" for the market. Furthermore, even if the current data falls short of market expectations, its impact would be limited. A strong employment report at present may not necessarily push the Fed to a more hawkish stance, but a weak report could support their rationale for a rate cut in September.

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Samantha Luan

Economic

Cryptocurrency

Cryptocurrencies plunged on Friday as investors focused on the payout of nearly $9 billion to users of collapsed bitcoin exchange Mt. Gox.

As of 10:50 a.m. London time, bitcoin’s price slumped nearly 6% in 24 hours to hit $54,500.53, marking the first time it’s traded below the $55,000 level since Feb. 27, according to data from CoinGecko.

Rival token ether sank around 9% to $2,872.10.

Altogether, the entire cryptocurrency market has shed more than $170 billion in combined market capitalization in the last 24 hours, according to CoinGecko data.

On Friday, the trustee for the Mt. Gox bankruptcy estate, Nobuaki Kobayashi, said in a statement that it had begun making repayments in bitcoin and bitcoin cash to some of the creditors through a number of designated crypto exchanges.

Mt. Gox’s trustee didn’t specify how much money had been transferred to these exchanges.

He noted that the remaining funds would be returned to creditors once a series of conditions is met, including confirming the validity of registered accounts and completing discussions between the trustee and the designated crypto exchanges.

The trustee is still working to ensure repayments “can be made safely and securely,” Kobayashi wrote, urging “eligible rehabilitation creditors to wait for a while.”

It comes after a small amount of bitcoin was moved out of wallets associated with Mt. Gox, according to blockchain analytics firm Arkham Intelligence, with the largest movement being a $24 transfer to the Japanese crypto exchange Bitbank.

Bitbank is among the recipients listed to support repayments.

Recently, the world’s largest cryptocurrency has been pressured by news of collapsed bitcoin exchange Mt. Gox preparing the distribution of around $9 billion worth of coins to users. This dumping of coins onto the market is expected to lead to some significant selling action.

Also pressuring crypto markets, the German government on Thursday sold roughly 3,000 bitcoins — worth approximately $175 million as of today’s prices — from a 50,000-bitcoin pile seized in connection with the movie piracy operation Movie2k, according to Arkham Intelligence.

Arkham, which is tracking Germany’s bitcoin wallet, noted the government still holds more than 40,000 bitcoins worth over $2 billion.

Source：CNBC

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Warren Takunda

Economic

Federal Reserve Chair Jerome Powell's testimony and U.S. inflation data top the agenda in the week to come, with U.S. banks reporting earnings and rate decisions due in New Zealand and South Korea.

Meanwhile, the tectonic plates of politics continue shifting, with France's Sunday election following hot on the heels of the UK vote.

Here is your look at what matters for markets in the coming week from Makhaila Gause and Lewis Krauskopf in New York, Kevin Buckland in Tokyo, Yoruk Bahceli in Amsterdam and Marc Jones in London.

1/INFLATION UPDATE

Thursday's monthly U.S. consumer price index reading will shape views on whether the Fed could cut interest rates in the coming months.

The June reading is expected to have climbed 0.1%, according to a Reuters poll, after being unexpectedly unchanged in May.

Data late last month showed another inflation measure, the personal consumption expenditures price index, rose 2.6% on an annual basis - suggesting inflation is cooling, but the measure was above the Fed's target of 2%.

That comes of course after Powell's testimony before Congress on Tuesday. He told a conference in Portugal this week that the U.S. is back on a "disinflationary path," but policymakers need more data before cutting interest rates.

2/BANK EARNINGS

Higher interest rates and an uncertain economic environment are casting a cloud over U.S. bank earnings, with the second-quarter reporting season kicking off.

JPMorgan Chase, Citigroup and Wells Fargo will report second-quarter earnings on July 12. Bank of America will release its results on July 16.

The largest U.S. lender, JPMorgan, is expected to report earnings per share (EPS) of $4.69, according to LSEG estimates - below $4.75 a year earlier. Bank of America's EPS is forecast to slide to 79 cents from 88 cents a year earlier, though EPS at Citi and Wells Fargo are projected to climb.

Executives' commentary on the path of interest rates will remain a key focus, especially after industry leaders cited improving conditions for investment banking, analysts said. Take Five: Banks and Rates_2

3/TAKE TWO

France is back to the polls on Sunday for the second round of its shock snap election. Investors are pinning their hopes on a hung parliament.

Prospects for higher spending under Marine Le Pen's far-right National Rally (RN), or even a left government, rocked markets in June.

But investors are more optimistic this week, with the RN posting a smaller win than some polls expected at last Sunday's first round. A cross-party bid to keep it away from power this week has further reduced the odds of an RN absolute majority.

The risk premium on France's debt over Germany's has dropped to around 70 basis points, after hitting its highest since 2012 last week at 85 bps.

But a hung parliament is no comfort for investors, as it risks a policy paralysis that could make it even harder to improve France's stretched finances that have left it facing European Union's disciplinary measures.

4/PONDERING POLICY PIVOTS

Investors are hungry for clues on whether rate cuts are coming this year at the Reserve Bank of New Zealand and the Bank of Korea. Both central banks have taken a cautious stance amid stubbornly high inflation, and are widely expected to keep rates steady at 15-year highs at their meetings on Wednesday and Thursday, respectively

In New Zealand in particular, policymakers even flagged the risk of another hike this year, with a cut not projected until late 2025. Markets are more optimistic, pricing for a single cut this year to come as early as October, as inflation cools, business sentiment deteriorates and domestic demand weakens.

South Korea has had even more pronounced indications of prices coming under control, but the market consensus is still for no cut until the fourth quarter. Political pressure is mounting though, with President Yoon Suk Yeol calling cuts to keep in step with the U.S. Federal Reserve "unavoidable."

5/BAPTISM OF SEWAGE

New governments face a baptism of fire, but for the UK's just-crowned Labour Party, it will be more of a baptism of sewage on Thursday.

That's when water regulator, OFWAT, announces just how much water firms - most of whom have been relentlessly pumping untreated human effluent into UK rivers for years - can jack up customers' bills. It has the potential to turn nasty.

Britain's biggest water company, Thames Water, which serves more than 16 million customers in and around London and has 15 billion pounds ($19.14 billion) of debt, faces nationalisation unless it can attract vast amounts of new capital to fix its woes.

It has requested bill hikes of 59%, which OFWAT is unlikely to grant given the public mood. But it will need to be enough to convince reluctant investors, who have already started to bail out of Thames, to turn the taps on again.

Thames Water's parent company Kemble defaulted in April when it failed to pay interest on £400 mln of debt. Take Five: Banks and Rates_5

Source: Reuters

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Warren Takunda

Economic

Stocks

London stocks rose in early trade on Friday, with housebuilders pacing the gains as Brits woke up to the first Labour government in 14 years.

At 0820 BST, the FTSE 100 was up 0.3% at 8,268.04, while the FTSE 250 was ahead 0.2% at 20,659.20. Sterling was 0.1% firmer against the dollar at 1.2767 and flat against the euro at 1.1803.

At 0754 BST, with eight seats left to declare, Labour had a confirmed 410 seats, up 211, while the Tories were on 119, down 246. The Liberal Democrats were on 71, a gain of 63 and the SNP held on to eight seats, a loss of 37, in a shocking night where it surrendered seats to a resurgent Labour north of the English border in a voter backlash over scandals within the SNP.

At the 2019 general election the Conservatives had a majority of 80, with 365 seats to Labour’s 203, illustrating the startling decline of the Tories and how Starmer turned around his party's fortunes around.

Chris Beauchamp, chief market analyst at IG, said: "Labour will form the next government in the UK, but compared to 2019 it has been accompanied by little fanfare on financial markets.

"This moment has been on the cards since Liz Truss’ short-lived premiership, and the lack of movement overnight in sterling is a testament to how much of a foregone conclusion this has been.

"There has been some buying of the pound among IG clients over the past 24 hours, but the lack of movement overnight in FX markets meant interest was limited as the news came in. The new PM has his work cut out for him, but for the moment financial markets are prepared to give him the benefit of the doubt."

On the macroeconomic front, the US non-farm payrolls report for June is due at 1330 BST, along with the unemployment rate and average earnings.

On home shores, data from Halifax showed that house prices remained largely unchanged in June, reflecting a subdued market.

Average house prices edged down just 0.2% on a monthly basis in June. On an annual basis, growth was unchanged on May, at 1.6%. As a result, a typical UK house now costs £288,931.

Amanda Bryden, head of mortgages at Halifax, said: "This continued stability in house prices - rising by just 0.4% so far this year - reflects a market that remains subdued, though overall activity has been recovering.

"For now, it’s the shortage of available properties, rather than demand from buyers, that continues to underpin higher prices.

"Mortgage affordability is still the biggest challenge facing both homebuyers and those coming to the end of fixed-term deals."

In equity markets, housebuilders gained following Labour’s landslide victory, with Vistry, Persimmon, Taylor Wimpey, Barratt and Crest Nicholson all up.

RBC Capital Markets said in a research note that the Labour Party has "big plans" for the sector.

"If election pledges turn into policy, today is more than just a new day in housebuilding, it is the dawning of a new age," it said.

"In the next 100 days we are likely to see the reinstatement of housing targets, the refining of greenbelt and the reform of planning, and by the end of the year the newest version of Labour may have announced a new generation of new towns.

"Over the last few years housebuilders' potential has been hamstrung, but over the next few this potential is likely to be unleashed. If the new Government's walk matches its talk we expect the sector to re-rate, and in the very short term we suspect that the talk alone will be enough to lift share prices. In our view, whilst all housebuilders benefit from the anticipated changes the biggest winners will be Taylor Wimpey, Persimmon and Vistry."

Elsewhere, Shell nudged higher as it said in a second-quarter update note that it would take a hit of up to $2bn after it paused construction work on a biofuels plant in Rotterdam and sold a refinery in Singapore.

It also said that integrated gas production would be within expectations of 940,000 to 980,000 barrels of oil equivalent per day.

In broker note action, Lloyds was boosted by a rating upgrade at BNPP Exane, while Close Brothers was higher after an initiation at ‘buy’ at Deutsche Bank.

Softcat was hit by a downgrade to ‘underperform’ at Jefferies.

Source: Sharecast

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Alex

Economic

Stocks

Global stocks traded at all-time highs before crucial US jobs data that’s expected to show some moderation in hiring. The pound notched its longest winning streak in four years as Labour swept to power in the UK’s general election.

A series of soft US economic readings has revived hopes that the Federal Reserve will start cutting interest rates as soon as September, pushing MSCI Inc.’s world index to a record. European stocks rose for a third day, while US futures pointed to a steady open when Wall Street returns from Thursday’s holiday. Tesla Inc. rose in US premarket, on track to turn positive for 2024 after a seven-day winning streak that’s added about $200 billion in market value.

“Given other evidence of a cooling economic backdrop — weaker ISM Manufacturing PMI and ISM Service Sector PMI reports — the payroll report could be increasingly decisive for the Fed as it seeks a rationale to signal an easing of rates,” said Quincy Krosby, chief global strategist for LPL Financial.

Treasury yields ticked lower and the dollar fell for fourth day to its lowest level in three weeks.

In contrast with the positive tone for equities, Bitcoin sank to the lowest since February, dropping for a fourth session as part of a wider crypto selloff. Crypto speculators currently face a range of challenges, including waning demand for US Bitcoin exchange-traded funds and signs that governments are disposing of seized tokens. Crypto-related shares fell.

In the UK, stocks and government bonds rose and the pound strengthened for a seventh day after the landslide victory for Labour, which handed Keir Starmer’s party 412 of the 650 seats in the House of Commons and a clear mandate to deliver on a pledge of greater economic stability.

“A clear majority could bring some much-needed stability to the UK political landscape at a time of heightened global uncertainty,” said Samuel Zief, head of global FX strategy at J.P. Morgan Private Bank. That “could provide a bit of a kicker for the pound,” he said.

France’s CAC40 also rose for a third day, following indications that Marine Le Pen’s National Rally party will likely fall short of an absolute majority in second-round elections this weekend.

Still, no matter which party comes out on top in the French parliamentary vote, some investors are betting it marks the beginning of a more turbulent period for the country’s stock and bond markets. The CAC 40 has been the worst performer among major European stock indexes since the snap election was called last month, while at the height of the selloff a metric of bond-market risk soared to its highest since the sovereign debt crisis.

Global Stocks at a Record High Before US Jobs Data_1

An index of dollar strength slipped for a fourth day, while Treasury yields ticked lower as traders looked ahead to the jobs report.

Payrolls probably rose by 190,000 in June, a step-down in hiring from the previous month, according to the median estimate in a Bloomberg survey. Average hourly earnings likely increased 3.9% from a year earlier, the least in three years. The unemployment rate is seen holding at 4%, the highest level in more than two years.

“The US data will be very interesting for a couple of reasons — you see signs of a bit of a slowdown in the labor market, and the market appears for now to have taken that in stride because it does raise the possibility of an easier monetary policy going down the track,” said Richard Flax, chief investment officer at European digital wealth manager Moneyfarm.

In Asia, Japan’s Topix index briefly touched another record early Friday, having surpassed the previous high set in 1989 in Thursday’s session. Chinese stocks have fallen for seven straight weeks — the longest losing streak since early 2012 — as investor sentiment continues to weaken ahead of a key policy meeting this month.

The yen strengthened for a second day against the greenback to rebound further from the lowest level since 1986 reached on Wednesday. China’s central bank took the next step toward selling government bonds to cool a record-breaking rally, saying it now has “hundreds of billions” of yuan of the securities at its disposal through agreements with lenders.

Oil traded near a two-month high as Hurricane Beryl portended a potentially worse storm season, while shrinking US crude stockpiles hinted at improved demand. Gold headed for a back-to-back weekly gain.

Source：Bloomberg

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Economic

Stocks

Forex

Stakes are high as markets brace for soft NFP

After a bit of a wobble last week, stock markets around the world are back in bullish mode following the weak ISM surveys for both manufacturing and services that bolstered expectations that the Federal Reserve will start cutting rates in September.

A strong US economy has been a major factor in preventing the Fed from making pre-emptive rate cuts despite some progress lately with inflation resuming its decline. But a weaker economic backdrop would make policymakers more confident that inflationary pressures would not flare up again if they lower interest rates.

More specifically, it is the still-tight labour market that's kept the Fed nervous about cutting rates too soon as it's encouraged consumers to continue spending. But some signs are emerging of a cooldown in the jobs market as the unemployment rate ticked up to 4.0% in May despite the beat in the headline payrolls print. Nonfarm payrolls are expected to have risen by 190k in June versus 272k in the prior month.

As long as the actual figure does not exceed 200k and there's no upside surprises in the jobless rate or average earnings either, markets would likely cheer the data.

Dollar nosedives

Nevertheless, with the US dollar trading at three-week lows against a basket of currencies, there is a risk that investors have positioned themselves not to be disappointed by today's jobs numbers. A shock hot report could easily roil markets just as traders started to feel more hopeful of two Fed rate cuts this year, assigning an 80% probability of the first arriving in September.

Treasury yields have also pulled back, although the downside is limited given the concerns about even bigger budget deficits should Donald Trump win November's presidential election.

Pound holds firm as Labour win by a landslide

Talking of elections, there were no surprises in the UK's general election, with Labour winning a strong majority of more than 160 seats, and Rishi Sunak's Conservative party losing more than 250 seats in parliament.

There was little reaction in the pound, however, as the opinion polls proved accurate so the prospect of a Labour government has already been priced in by the markets. Cable is headed for weekly gains of more than 1% and the euro is enjoying a similarly positive week.

France also goes to the polls on Sunday for the second round of legislative elections. With centrist and left-wing parties agreeing to withdraw their candidates in constituencies where there is a three-way runoff with the National Rally, there's been relief at the diminished prospects of a far-right government.

Stocks set for strong weekly gains, Bitcoin can't join in the fun

The reduced political risks combined with expectations of an imminent dovish pivot by the Fed have lifted equity markets in Europe and America.

US futures point to slight gains when trading resumes today after the July 4th holiday and major European indices are up too.

Gold has also been edging higher this week on the back of the dollar selloff, but there's been no let-up in Bitcoin's slide. Liquidation fears are driving the panic selling, while worries that a Trump presidency would be less crypto-friendly than the Biden administration are also weighing on crypto markets.

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Warren Takunda

Cryptocurrency

Bitcoin faces a battle to preserve its bull market as Mt. Gox reimbursements spark the biggest liquidation cascade in years.

BTC price supertrend support nears first test since 2022

The Bitcoin price downside hit 5% on July 5 alone, according to data from Cointelegraph Markets Pro and TradingView — and now traders are eyeing lines in the sand that bulls must protect. Watch These Bitcoin Price Levels Next as $52K Supertrend Risks Failure_1

Watch These Bitcoin Price Levels Next as $52K Supertrend Risks Failure_1

BTC/USD 1-hour chart. Source: TradingView

For popular trader Matthew Hyland, first on the radar is support at the $52,000 mark.

This forms the floor of Bitcoin’s supertrend indicator on weekly timeframes — a foundation for price in place since mid-March’s $73,800 all-time high.

Supertrend employs average true range to create a “Supertend line,” which delineates buy and sell phases for BTC/USD. The pair has been above the supertrend line since the end of 2022, when Bitcoin’s last bear market ended. Watch These Bitcoin Price Levels Next as $52K Supertrend Risks Failure_2

Watch These Bitcoin Price Levels Next as $52K Supertrend Risks Failure_2

Bitcoin Supertrend. Source: Matthew Hyland

Observing prior Bitcoin bull markets, the current drawdown from all-time highs is still modest.Since 2016, BTC/USD has dipped 38% on multiple occasions, making the capitulation target $45,750.

Commenting on the phenomenon, Adam Back, founder and CEO of Blockstream, criticized fickle market sentiment. Instead, he argued that hodlers should increase exposure to both Bitcoin and the stock of MicroStrategy, the firm with the largest BTC treasury of any public company.

“Reminder, zoom out. prior bull runs had half a dozen -30% draw downs too. we're at about -26% (-27% earlier),” he wrote on X.

“In fact if anything, recent draw-downs seem to be less deep, but people forget the normal bull market pattern. Don’t panic, buy the dip. or buy a bit of $CMSTR with BTC.”

BTC/USD chart with drawdowns (screenshot). Source: Adam Back

Analyst: Bitcoin history "repeating as we speak”

Just as unfazed about the extent of the downside is popular trader and analyst Rekt Capital.

“This pullback is -21% deep & 45 days long. In this cycle, average retrace depth is -22% & average retrace duration 42 days,” he calculated.“In terms of retrace depth, this is almost an average retrace. In terms of retrace duration, this is an above-average pullback.”

BTC/USD comparative chart. Source: Rekt Capital

Long-term, he added in a further X post alongside a comparative chart, BTC price history is “repeating as we speak.” Watch These Bitcoin Price Levels Next as $52K Supertrend Risks Failure_5