Tonight, the first non-farm payrolls of the Wosh era are released, and the World Cup may stoke a “false demand for employment.”

The first nonfarm payrolls report since new Federal Reserve Chairman Kevin Warsh took office will be released tonight Beijing time (July 2). The market expects a significant slowdown in employment growth, but the World Cup effect may artificially inflate the data, masking the true cooling signals in the labor market.

According to the Dow Jones consensus forecast, June nonfarm payrolls are expected to increase by 113k, a sharp drop from 172k in May; the unemployment rate is expected to hold steady at 4.3%. However, Goldman Sachs economists Ronnie Walker and Jessica Rindels point out that the FIFA World Cup could contribute about 40k temporary jobs to June nonfarm payrolls, mainly in leisure and hospitality, professional and business services, and trade and transportation, prompting Goldman Sachs to raise its overall forecast to 140k. This means that after stripping out the World Cup effect, the actual trend in the labor market may be weaker than the headline number suggests.

The policy implications of this report are equally significant. At his first press conference on June 17, Warsh emphasized that the 2% inflation target is the core of his policy agenda and described the current labor market as "solid, even somewhat improved." BofA Securities and Barclays both believe that a report that meets or beats expectations would support the Fed's decision to hold steady in July and pave the way for a subsequent rate hike; money markets currently price in about an 80% probability of a rate hike in September, and a 25-basis-point hike is fully priced in by October.

World Cup Effect: The Water Behind the Numbers

Goldman Sachs, citing private data from small business payroll service provider Homebase, reports that employment in the 11 World Cup host cities fell by only 1.2% year-over-year, compared to a 3.5% decline in other cities; hotel industry hiring was up 9.5% year-over-year, showing a clear tournament-driven pattern.

Based on this, Goldman Sachs estimates that the World Cup will contribute about 40k jobs to June nonfarm payrolls, setting its overall forecast at 140k, above the market consensus of 113k. In addition, Goldman Sachs notes that historical data shows an upward revision bias in the initial June nonfarm payrolls release, but each of the past four years has seen downward revisions in subsequent updates, providing an important reference for interpreting this data.

On the other hand, May employment data was boosted by a significant increase in local government hiring, and analysts expect this factor will not repeat in June, posing a downside risk. Barclays forecasts June nonfarm payrolls at only 100k, well below the market consensus, and notes that without considering revisions, the three-month average for Q2 would still be around 150k, far above Q1's 73k.

Labor Market Cooling Signals Converge

Multiple leading indicators point to a slowdown in employment growth in June. The ADP National Employment Report for June came in at 98k, below the expected 118k and the prior month's 122k; ADP's chief economist said the labor market shows a "dual narrative of supply and demand" — longer job search cycles, labor constraints in some industries, with the net effect being slower job creation.

In terms of initial jobless claims, the week overlapping with the Bureau of Labor Statistics (BLS) survey window recorded 227k, higher than the 210k during the May nonfarm survey period; continuing claims also rose from 113k to 172k. Pantheon Macroeconomics points out that initial and continuing claims have been on an upward trend since early May, consistent with the view that nonfarm growth is slowing below the breakeven level. Notably, analysts note that the Juneteenth holiday may have disrupted data for that week, and seasonal adjustments have not fully accounted for the holiday effect.

The S&P Global June manufacturing PMI employment sub-index fell for the second consecutive month, with the pace of manufacturing job cuts the fastest since the COVID-19 pandemic in 2020, and excluding pandemic effects, the steepest since 2009; service sector employment fell only slightly. Consumer confidence data also confirms the cooling: the CBRE June consumer confidence survey shows the share of respondents who believe "jobs are hard to get" rose to 22.5%, the highest since January 2021; the labor market differential ("jobs plentiful" minus "jobs hard to get") fell 2.6 percentage points to +2.4.

Warsh Era Policy Coordinates: Inflation Priority, Rate Hike Expectations Rise

On June 17, at his first press conference as new Fed Chair, Warsh made clear that officials view the labor market as "solid, even somewhat improved" and characterized curbing inflation as the core task under his leadership. The latest economic projections lowered the year-end unemployment rate forecast from 4.4% to 4.3%.

BofA Securities wrote in its report, Since mid-last year, the real policy rate has eased by over 100 basis points, while the net change in the unemployment rate has been nearly zero, providing a basis for the Fed to reverse last year's 75 basis points of rate cuts. BofA Securities expects the Fed to start raising rates in September, forecasting a total of three rate hikes in 2026; if June nonfarm payrolls meet or exceed expectations, the July meeting could become a "live meeting," with the market currently pricing in about a 33% probability of a rate hike in July.

Barclays, meanwhile, notes that against the backdrop of nonfarm growth consistently exceeding the St. Louis Fed's estimated breakeven range of 15k to 18k and unemployment nearly unchanged, the divergence between household and establishment surveys continues, a combination consistent with the Fed holding steady again in July while the policy committee continues to weigh tightening arguments.

Market Reaction: Asymmetric Risk Dominates Trading Dynamics

BofA Securities emphasizes that current market responses show clear asymmetry.

In terms of positioning and expectations, a Bloomberg survey shows the median market forecast for June nonfarm payrolls has risen to its highest level this year. If the data comes in below expectations, shorts face forced covering pressure, and systematic strategy teams (CTA) are particularly vulnerable in front-end rate shorts after this week's yield rebound. BofA Securities' scenario analysis shows that if the unemployment rate rises to 4.4%, the 2-year Treasury yield could fall 5 to 20 basis points; if it drops to 4.2%, it could rise 5 to 12 basis points, with asymmetrical magnitudes.

The currency market also faces two-way risk.

BofA Securities points out, The US Dollar Index (DXY) is near a 12-month high, with Warsh's hawkish stance and signals that half of FOMC members support a rate hike driving the latest rally. If the data significantly misses expectations, speculative long positions face unwinding pressure, and DXY could give back recent gains; but if the data meets or beats expectations, the dollar could move closer to BofA Securities' Q3 target (EUR/USD at 1.12).

Goldman Sachs, aggregating views from multiple traders, also notes that the market is racing to clarify the reaction function of the "Warsh Fed" — whether it will tolerate AI-driven transitory inflation or proactively raise rates to cool the economy. This nonfarm payrolls data, along with Warsh's speech at the Sintra central bank forum, will be key clues to answering this question.

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