Non-farm data surprises, gold once approached 2480!

At 20:30 Beijing time on Friday, the US released non-farm payroll and unemployment rate data, showing a significant cooling in the job market.

In July, seasonally adjusted non-farm employment increased by 114,000, the smallest increase since April 2024, below the expected 175,000, with the previous value revised from 206,000 to 179,000. The non-farm employment added in May was revised from 218,000 to 216,000, with a total decrease of 29,000 in the combined employment numbers for May and June compared to the previous revision.

The US unemployment rate in July was 4.3%, higher than the expected and previous value of 4.10%. During the employment survey period, Hurricane Beryl destroyed power in Texas and devastated parts of Louisiana, which may be one of the reasons for the lower-than-expected increase in employment.

The US average hourly wage growth rate in July was 3.6%, lower than the expected 3.70%, the lowest level since May 2021, with the previous value revised from 3.90% to 3.8%. The US average hourly wage monthly growth rate in July was 0.2%, lower than the expected and previous value of 0.30%.

After the non-farm data was released, the US dollar index dropped 40 points, spot gold surged $15 in the short term; the US 2-year Treasury yield fell by 29 basis points to a new low in a year. US short-term interest rate futures rose significantly, traders increased their bets on a significant rate cut by the Federal Reserve, expecting a 50 basis point rate cut in September.

Market reporter Ye Xie said, "According to my calculations, the Sahm rule has been triggered. The three-month average unemployment rate is 4.1%, 50 basis points higher than the 12-month low."

Former Fed economist Claudia Sahm

Mohamed El-Erian of Queen's College said, "The market now fully understands that the Fed may start its rate cut cycle later."

CIBC Capital Markets economist Katherine Judge said that now it makes sense to expect three rate cuts before the end of the year. "This report clearly aligns with a Fed rate cut in September and increases the possibility of three rate cuts needed for the economy this year, rather than the two we currently expect. However, more important indicators, including inflation data, need to be released before the Fed has to make a rate cut."

Bloomberg's Chief US Interest Rate Strategist Ira Jersey said, "The employment situation report is almost entirely weaker than expected, which is clearly favorable for US Treasuries, and the steepening of the bull market is also reasonable. Our year-end forecast for the 10-year Treasury is 3.82%, and we suspect long-term bonds will find a bottom, but the front end may continue to reprice. While we don't expect the Fed to start with a 50 basis point rate cut, we will see market pricing in lower ultimate rates on a regular basis "

However, Dana Peterson, chief economist at the World Large Enterprise Federation, believes that the market reaction is excessive. During the epidemic, the market has become accustomed to these "huge" numbers. She added that these numbers are normal.

Jeff Rosenberg of BlackRock described the report as disappointingly weak, stating, " We can discuss whether this is an overreaction" as the market has clearly reacted. He added that the current issue is the 50 basis point rate cut in September, which the market has already digested. He also emphasized that the most interesting thing now is the decline in the Russell 2000 Index.

Jersey from BI stated, " Pricing in a 50 basis point cut seems a bit aggressive. Although the Fed may cut rates further in the next six months, we believe the Fed will not aggressively cut rates at the outset. We believe the Fed may indicate that if inflation accelerates again, they would prefer to reverse course."

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