Original title: (SignalPlus Macro Analysis Special Edition: Negative Revisions)
Original source: SignalPlus
After a period of 'only rising and not falling' market conditions, risk assets have declined under the impact of significantly lower-than-expected non-farm employment data. Overall employment data is weak (the unemployment rate rose from 4.117% to 4.248%), further confirming the trend of a slowing job market. Additionally, the U.S. Bureau of Labor Statistics has also released the largest two-month downward revision of employment data in recent years (excluding the pandemic period) (-258,000).
Compounding the problem, the ISM manufacturing employment index has fallen to its lowest level since the second quarter of 2020, and other leading indicators also suggest that the job market may further deteriorate.
The market reacted quickly and violently, with the U.S. stock market closing down by 2% to 3%, the dollar against the yen falling by 2.2% to 147, and compared to the previous day, the interest rate market's pricing reflected an increase of nearly 25 basis points in expectations for rate cuts by the end of the year.
Yield changes are particularly significant, with the 2-year yield plummeting nearly 30 basis points on the day, one of the largest single-day declines in the past five years. By the end of last week, market expectations for rate cuts this year rose to about 60 basis points, compared to only about 35 basis points the day before, prompting President Trump to harshly criticize Federal Reserve Chairman Powell for failing to cut rates in a timely manner and to criticize the U.S. Bureau of Labor Statistics for releasing 'inaccurate' employment data.
"We need accurate employment data... the current data is made by people appointed by the Biden administration."
"In my opinion, the current employment data has been manipulated for the purpose of embarrassing the Republican Party and me." - President Trump
Last Friday's sharp market reaction also overshadowed the recent hawkish content from the Federal Reserve meeting. During the meeting, Powell emphasized that the Federal Reserve is trying its best to address commodity inflation by maintaining interest rates unchanged. Meanwhile, with the resignation of Fed Governor Kugler, President Trump may nominate a new candidate in the short term, which will only increase pressure on the Federal Reserve.
Regarding policy impacts, President Trump has also postponed the implementation of a new round of tariffs from the original date of August 1 to August 7, paving the way for intensive negotiations this week. The focus of the negotiations will be on Switzerland (with tariffs as high as 39%), Taiwan, Canada, and Brazil, while the market will continue to monitor the escalating situation between Russia and Ukraine and the subsequent developments of U.S. submarine deployments.
Despite various opinions and mockery regarding tariff negotiations, U.S. income did indeed reach a record $150 billion in July, with a surplus of $27 billion in the previous month, significantly reversing a $71 billion deficit a year ago. Furthermore, with the narrative of American exceptionalism returning, the market's demand for U.S. assets has rebounded significantly since May, and any concerns about capital outflows have dissipated.
The dollar also rebounded in line with the trend, with the dollar index rising over 3% from recent lows, while safe-haven assets like gold began to weaken.
In the stock market, the earnings season has performed well so far, with Visa, Mastercard, and Amex all reporting robust growth in payment volumes and consumer momentum, while bank earnings also generally met expectations. In the tech sector, consumers continue to show resilience in goods and transportation, with Meta and Microsoft performing well, but ultimately dragged down by disappointing earnings from Amazon and Coinbase.
Finally, in the cryptocurrency sector, Coinbase's revenue grew 3.3% year-over-year to $1.5 billion, but fell short of analyst expectations and was below the $2 billion target for the first quarter of 2025. Net profit was boosted by unrealized gains from cryptocurrency and Circle holdings, although global and U.S. spot trading volumes were generally weak in the second quarter.
Coinbase's stock price has fallen 25% from its July peak, and as market sentiment weakens, the BTC price has also dropped to $112,000, with over $1 billion in bullish futures being liquidated last Friday, marking the worst performance since May.
As expected, both BTC and ETH experienced significant outflows last week, with BTC seeing outflows of $1 billion on Thursday/Friday, one of the worst single-day performances of the year, while ETH ended nearly a month of continuous net inflows, with outflows of $152 million last Friday.
Overall, given the speed and scale of capital outflows, the market has actually performed more stably than expected, which is also related to the significant improvement in the market depth of BTC and Altcoins. With institutional funds and professional investors joining in, the liquidity in the secondary market has improved, avoiding the dramatic sell-off situation before the ETF launch.
Looking ahead, the market is currently at a delicate juncture, with expectations that both bulls and bears will fall into a tug-of-war, making it difficult to determine a clear winner in the short term. The bullish camp believes that the market is overreacting to the non-farm employment data, while the bearish camp will point out that given the overheating market over the past three months, this will be a preliminary signal for a market turn. Continuous tariff news and Trump's increasingly aggressive rhetoric will further exacerbate market noise, and as the summer progresses, overall trading activity decreases, market volatility may be further amplified.
We expect that there will not be a clear directional breakthrough in the short term, and price movements this month will be more volatile than in July. The fourth quarter will be critical, as the Federal Reserve will fully resume operations, and the combined effects of tariffs and inflation will begin to impact the real economy. Against this backdrop, we believe it is a good opportunity to moderately reduce risk exposure in anticipation of a busy September and year-end. Wishing everyone smooth operations and happy trading!
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