CMB Macro: June NFP Weakness Hits the Sweet Spot, Market Still Pricing in One Rate Hike This Year
0xBroomberg
US June nonfarm payrolls came in at just 57,000 — half the expected 113,000. China Merchants Macro called the print 'just right,' and markets quickly repriced from multiple hikes to at most one 25 bp raise this year, sending the dollar and Treasury yields lower.
How bad was the jobs number?
June nonfarm payrolls added only 57,000 jobs against a consensus of 113,000 — barely half the forecast.
April and May were revised down by a combined 74,000: May from 172k to 129k, April from 179k to 148k.
This means → job growth over the past three months was significantly weaker than previously believed. Part of the earlier "resilience" narrative was illusory.
Which sectors dragged, and which held up?
The biggest drag was leisure and hospitality, which shed 61,000 jobs (prior month: +40,000). China Merchants attributes this to World Cup tourist inflows falling short of expectations, compounded by high gasoline prices crowding out regular travelers.
Education and health services (+69,000) and professional and business services (+36,000) stayed consistently strong. Construction (+11,000) tracked the ongoing rebound in building spending.
Information lost 9,000 jobs; finance added zero — both remain weak under the weight of AI-driven disruption. Government hiring slowed to just +8,000, with local government nearly flat.
The unemployment rate fell — why isn't that good news?
The headline rate dropped from 4.3% to 4.2%, but the labor force participation rate slid to 61.5% — the lowest since March 2021.
In plain terms = the unemployment rate fell not because more people found jobs, but because more people left the labor force entirely and stopped being counted as "unemployed."
Prime-age (25–54) participation fell from 83.9% to 83.3%. This reflects a contraction not just among retirees but in the core working-age population.
How did markets react, and what will the Fed do?
The 2-year Treasury yield dropped from 4.18% to 4.11%; the dollar index slipped from 101.2 to 100.7 — markets were betting on lower odds of a hike.
China Merchants argues the Fed will not cut rates for now. The logic: with the ECB and BOJ both hiking, the Fed needs to maintain its rate differential to retain cross-border capital.
This means → the market has moved from "possibly two hikes this year" to "one hike of 25 bp at most," but a cut is still off the table.
What does this mean for gold and equities?
Dollar weakness sent gold higher immediately. COMEX gold futures rallied toward the $4,200/oz mark; in Hong Kong, the ChinaAMC Gold Mining ETF (02824) surged 9.05% in a single session.
Yongying Fund's Liu Tingyu argued the market's prior rate-hike trade was "overdone" and that gold is set to return to its core theme: weakening dollar credibility.
This means → as long as hike expectations stop climbing, gold has room to run — but a sudden strong data print could break this thesis.
What risk is China Merchants flagging?
Most non-AI assets are what the team calls "deep out-of-the-money Fed rate-cut option assets" — put simply = they only rally big if the Fed actually cuts, and otherwise sit like options that almost never pay off. No cuts, no sustained performance.
Drawing on the 1999–2000 analog, the team argues that what ends the AI-asset rally is most likely a downturn in AI industry momentum itself, not Fed policy.
Per global listed-company guidance, Q3 may mark the peak in year-on-year capex growth. If AI has no new narrative, Q4 carries adjustment risk.
Content is for reference only, not financial advice.