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Nonfarm payroll data unexpectedly weakened, with U.S. employment on the edge of cooling/recession. Wage pressure is easing, inflation expectations are slowing, and initial employment risks are emerging—can this change Waller's hawkish view? Today's major nonfarm payroll data is the core macroeconomic data of the week and serves as the anchor for macro pricing. The data released is still relatively "explosive," and for us in the risk markets, it presents both short-term benefits and risks. Let's look at the data: The unemployment rate is 4.1%, lower than expected and the previous value, but this unemployment rate does not indicate a hot job market. Detailed data shows that the decline in the labor force participation rate (the base) caused the unemployment rate to weaken, signaling more people exiting the labor market. This situation has occurred multiple times this year and is one of the risk points. Nonfarm employment decreased by 23,000, significantly below expectations and the previous value. This data can easily mislead people into thinking U.S. employment has collapsed. However, it must be viewed together with the previous revisions, which have been sharply downward over the past three months, and employment data has been continuously weakening. This means U.S. employment is not just mildly weakening but is continuously decelerating. Average hourly earnings increased by only 2 cents, effectively no growth. The inflationary pressure from wage growth is easing. These three data points form a combination of emerging employment risk and easing wage inflation pressure, which supports rising expectations for rate cuts. However, it is important to note that cooling employment and recession are only one step apart. The former brings rate cut expectations, which is positive for risk markets, while the latter brings economic risks, which is short-term negative for risk markets, especially U.S. stocks. So, what stage is employment currently in? I believe it is in the first stage of recession risk—employment deceleration. 1. There are basically three possibilities for the current U.S. employment market: re-heating, mild cooling, or recession risk. Tonight's data, in my view, lies between mild cooling and recession risk. 2. Looking only at July employment numbers and the continuous employment decline over the past three months might mislead the market into fearing recession risk. However, the unemployment rate remains relatively low at 4.1% (unhealthily low), initial jobless claims continue to decline, and private employment still increased according to the small nonfarm payroll data. 3. June job vacancies and July ADP small nonfarm data indicate that private companies are still hiring, but hiring expansion is nearly halted. However, large-scale layoffs have not yet been triggered. So, overall, we are not yet in the employment recession phase. 4. Going forward, attention should be paid to whether the unemployment rate continues to rise in Q3, whether initial jobless claims keep increasing, and whether large-scale layoffs occur after hiring pauses. Once these signs appear, it means employment has entered recession risk. #联储鹰派信号升温，弱就业能否压过通胀？ Can this shake Waller's hawkish policy? What is Waller's policy? It is to reduce expectation management, reduce forward guidance, and anchor policy to the data itself. Tonight's employment data shows three consecutive months of employment decline, significant downward revisions to previous values, and a risk of employment growth deceleration in July. According to the policy framework Waller has established since taking office, this data can indeed shake Waller's policy view and change his stance on raising rates or maintaining high rates. However, this is theoretical. I believe Waller's idea is to anchor future Fed policy to a new data combination, that is, his data working group. Before that, he will not let the market believe that Fed policy is strongly correlated with current data. So I even worry that Waller will treat the July CPI data the same way, giving a negative answer and believing the current employment data does not truly represent the current employment situation. Of course, this view may be overly subjective, but if it happens, it will be a severe blow to the market. Regarding market pricing and future pricing logic expectations: 1. After the data release, bond yields for 1-year, 10-year, and 30-year dropped sharply. The 1-year yield is sensitive to rate expectations; the data weakened rate hike expectations and raised rate cut expectations gradually. The 10-year and 30-year medium- and long-term bonds priced in tonight's employment and wage pressure data, thus weakening. 2. The U.S. dollar accelerated its decline, and gold accelerated its rise. The two have a negative correlation, and gold has likely front-run the current macro employment risk and inflation easing combination. 3. U.S. stocks rose in pre-market. Tonight, the focus is not on the index but on sector performance. If tech and AI stocks continue to strengthen, the market is pricing in rate cuts. If tech stocks weaken and blue chips strengthen, it means pricing in recession. Currently, the SPHB/SPHQ indices are rising, indicating increased risk appetite. U.S. stocks in pre-market are trading rate cut expectations. 4. #Bitcoin is following the U.S. stock situation. Currently, BTC is rising in pre-market. Later, watch if BTC rises with the U.S. stock market open. If it does, it means liquidity is improving, risk appetite is increasing, and rate cut expectations are being priced in. If BTC falls with tech stocks at the open, it means recession risk aversion logic is starting. 5. Based on pre-market conditions, if U.S. stocks start pricing rate cuts, tonight will definitely be a rally. But can optimism sustain? Is there FOMO for new rate cut expectations? Not yet. 6. Going forward, Waller's attitude toward this data—whether he accepts or rejects it—will affect whether rate cut expectations accelerate. 7. This data can bring policy back toward easing expectations but cannot completely reverse it. After all, nominal inflation is still high, and Waller focuses more on inflation issues. So, rate cut expectations driven by employment risk may not last long. Also, Q2 earnings reports for U.S. stocks are still ongoing. I actually think tonight might be a very good opportunity to short and look for a pullback!