Late-night breaking news! US nonfarm payrolls only increased by 57k, is the rate hike narrative being slapped in the face? This set of data tells you what to do next.

Let's talk about the U.S. June nonfarm payrolls data released last night. First, the conclusion: This report poured cold water on the hot job market this year and caused the market to reassess the Fed's rate hike path. As I mentioned in my mid-year report, the "K-shaped divergence" in the U.S. economy is deepening, and it is unlikely that employment and inflation data will continue to hit new highs. June nonfarm payrolls added only 57k, well below expectations; the previous month's figures were revised down, and wage growth lagged behind inflation—all confirming my earlier judgment. At least for now, the U.S. job market recovery still faces challenges and is far from overheating. Capital markets are also "correcting" the previously aggressive rate hike expectations. Of course, a single month's data cannot completely reverse rate hike expectations, but it at least takes the first step in challenging the rate hike narrative.

After the data release, the market quickly pulled back from previous aggressive rate hike pricing, ruled out a September rate hike, and the window for a rate hike this year shifted to after October. In terms of asset performance: precious metals like gold and silver rose broadly, but tech stocks underperformed due to concerns about computing power shortages; U.S. Treasury yields fell simultaneously, and the Dollar Index broke below 101, hitting a low since last Monday.

In my view, the decline in June employment data carries several key signals. First, the reversal in revision direction is more important than the 57k figure itself. The cumulative upward revision of 93k for March and April broke the pattern of downward revisions for several consecutive months, prompting the market to reassess the scale of job expansion. But just one month later, the downward revision inertia "returned": nonfarm payrolls for April-May were revised down by a cumulative 74k. The existing evidence that supported "job resilience is not built on thin air" last month now faces new scrutiny after this month's data.

Second, the breadth of job recovery is questionable, especially the sharp decline in leisure and hospitality, confirming the one-off nature of the May "peak season + World Cup" boost. June saw a sharp drop of 61k in leisure and hospitality employment, a symmetrical reversal from the jump of 70k in the previous month. The World Cup effect and the travel season boost may have been only a pull-forward of hiring rather than the start of demand expansion. Excluding this noise, the real growth engine converges back to the familiar list: professional and business services (+36k), social assistance (+25k), and health care (+22k)—the breadth of job expansion remains narrow. The gain in health care is already significantly below the average of 38k per month over the past 12 months, and the energy of the "nonfarm evergreen" is still slowly draining.

Third, the "false heat" in unemployment rate and wage performance greatly reduces the quality of this employment data. The unemployment rate fell to 4.2%, seemingly offsetting the weak nonfarm data, but the labor force participation rate also slipped 0.3 percentage points to 61.5%, so the improvement in unemployment was almost entirely due to a shrinking denominator. Meanwhile, the share of long-term unemployed rose to 27.3%, an increase of 286k from a year ago; while initial jobless claims remain at a low point in four years, continuing claims have been creeping up. The time needed to find a job is lengthening, and the "low hiring, low firing" freeze pattern has not thawed but is deepening. On the wage side, a similar pattern emerges: hourly earnings rose 0.1 percentage points year-over-year to 3.5%, but far below the pace of inflation, so real wages remain negative.

Looking ahead, although the market's rate hike expectations have been pushed back, for the Fed, this report did not open any "door" but instead welded both "doors" tighter. And the June inflation data will be a further test of the short-term economic situation after the Strait of Hormuz reopens. If June CPI slows gradually, it will help further correct rate hike expectations, and the real constraints on Fed policy will narrow significantly; but if inflation remains high, the "high prices, low employment" stagflation combination could intensify market concerns about rate hikes and recession. Therefore, the Fed needs more time to observe—especially for Warsh, before his reform group achieves interim results (by autumn), the Fed will likely not make substantive rate decisions, and maintaining the status quo may still be the best choice for now.

What does this mean for the cryptocurrency market? $BTC and $ETH may benefit in the short term from easing rate expectations, but if inflation is stubborn, stagflation concerns will weigh on risk assets. Remember, macro narratives are never one-way.

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