#WeakNFPShakesRateHikeOdds

#WeakNFPShakesRateHikeOdds

The June employment report drastically altered market expectations, not just because the figure was lower than anticipated, but because of how far it fell short of expectations.

The US economy created only 57,000 new jobs in June, while market expectations ranged from 110,000 to 114,000 – a significant deviation. Furthermore, the April and May figures were revised downwards by a total of 74,000, with May falling dramatically from 172,000 to 129,000. The unemployment rate dropped to 4.2%, but this is attributed more to a decline in the labor force participation rate than to an improvement, falling from 61.8% to 61.5%. The most notable weakness was seen in the leisure and hospitality sector, which lost 61,000 jobs. Normally, a strong seasonal increase was expected during this period due to the World Cup, but the opposite happened.

The impact of this figure on the market was almost immediate. Expectations for a Fed rate hike have rapidly declined; according to CME FedWatch data, the probability of a July rate hike has fallen from 34 percent to below 19 percent. It's worth noting that this coincides with another development the day before: Fed Chairman Kevin Warsh had stated before the data release that inflation risks had diminished, and the weak employment data further reinforced this statement. The market is now shifting towards a scenario where the Fed will do nothing in the near term, continuing to wait to see if the impact of the energy shock stemming from the Iran conflict has truly subsided.

To put this into context, it's worth remembering that just a month ago, the opposite was true. May data came in at 172,000, compared to an expected 85,000, a surprise that shocked the market, causing the dollar to rise sharply and expectations of a rate cut to almost completely evaporate. Institutions like Bank of America wrote that strong June data could push the Fed towards a scenario of three rate hikes by 2026. So, in two months, the market went from talking about "three interest rate hikes" to "the Fed will do nothing," which shows how data-dependent and tense the environment is.

Looking at the three-month average, the picture seems a little more balanced, around 111,000, which is considered a less noisy indicator, meaning the labor market may not be slowing as sharply as the single-month figure suggests. But the market reaction wasn't interested in decoupling that anyway; bond yields fell, the dollar weakened, which opened up space for risk assets.

For crypto and gold, this was exactly the desired scenario. Weak employment data is historically a combination that supports risk appetite through dollar weakness and falling yields, and indeed, this was one of the main factors behind the strong recovery of bitcoin and ethereum in the first days of July. Now all eyes are on the Fed's July 29 meeting. With forward guidance removed under Warsh's leadership, no clear signals are expected before this meeting, meaning each new data point, especially the July inflation figures, will carry much more weight than usual. For those tracking risk assets through Gate, the key question is whether this weakness is a temporary monthly divergence or the beginning of a more permanent slowdown. The answer will become clear in the data sets of the next one or two months.