SignalPlus Macro Analysis: Weak NFP Triggers Domino Effect, Market Heading Towards a New Inflection Point?

Original Title: "SignalPlus Macro Analysis Special Edition: Negative Revisions"

Original Source: SignalPlus

The rise will eventually retreat. After experiencing a period of "only rising and not falling" in the market, risk assets declined significantly below expectations following the impact of disappointing non-farm payroll data. The overall employment data was weak (unemployment rate rose from 4.117% to 4.248%), once again confirming the slowing trend in the labor market. Additionally, the U.S. Bureau of Labor Statistics also released the largest two-month downward revision in employment data in recent years (excluding the pandemic period) (-258k).

To make matters worse, the ISM Manufacturing Employment Index fell to its lowest level since the second quarter of 2020, while other leading indicators also suggest that the labor market is likely to deteriorate further.

The market's reaction was rapid and severe. The U.S. stock market closed down 2% to 3%, the U.S. dollar fell 2.2% against the Japanese yen to 147, and compared to the previous day, the market pricing of interest rates reflected an almost 25 basis point increase in rate cut expectations by the end of the year.

The yield curve changes were particularly significant, with the 2-year yield plummeting nearly 30 basis points in a single day, one of the largest daily declines in almost five years. By the end of last week, the market's rate cut expectations for this year had risen to about 60 basis points, compared to only about 35 basis points the previous day, prompting President Trump to harshly criticize Fed Chair Powell for not cutting rates in time and criticize the U.S. Bureau of Labor Statistics for releasing "inaccurate" employment data.

"We need accurate employment data... The current data is produced by people appointed by the Biden administration."

"In my view, the current employment data has been manipulated, with the aim of embarrassing the Republican Party and me." — President Trump

The market's strong reaction last Friday overshadowed the recent hawkish content of the Fed's meeting. During the meeting, Powell emphasized that the Fed is trying to combat commodity inflation by maintaining interest rates unchanged. Meanwhile, with Fed Governor Kugler resigning, President Trump may nominate a new candidate in the short term, further increasing pressure on the Fed.

Regarding policy impact, President Trump also once again postponed the implementation of a new round of tariffs, from the originally scheduled August 1 to August 7, paving the way for intense 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 also continue to monitor the escalation of the Russia-Ukraine situation and the subsequent developments of the U.S. submarine deployment.

Despite various opinions and mockery regarding the tariff negotiations, the United States did achieve a record-breaking $150 billion in revenue in July, following a surplus of $27 billion the previous month, significantly reversing the $71 billion deficit from a year ago. Furthermore, with the return of the U.S. exceptionalism narrative, the market demand for U.S. assets has surged since May, dispelling any concerns of capital outflows.

The U.S. dollar has also rebounded, with the U.S. Dollar Index rising over 3% from recent lows, while safe-haven assets like gold have started to weaken.

On the stock market front, the performance during the earnings season has been decent so far. Visa, Mastercard, and Amex all reported robust growth in payment volume and consumer momentum, while the banking sector's earnings have generally met expectations. In the technology sector, consumers have shown continued resilience in the goods and transportation areas, with Meta and Microsoft posting strong profits but eventually dragged down by Amazon and Coinbase's disappointing earnings.

Lastly, in the cryptocurrency realm, Coinbase saw a 3.3% year-over-year revenue growth to $15 billion but fell short of analysts' expectations and was below the $20 billion in the first quarter of 2025. Net profits were boosted by unrealized gains from cryptocurrency holdings and Circle, although global and U.S. spot trading volumes were overall lackluster in the second quarter.

Coinbase's stock price has retraced 25% from its July peak, aligning with the overall market sentiment weakening, as the BTC price also dropped to $112,000. Last Friday, over $1 billion in long futures positions were liquidated, marking the most brutal event since May.

Unsurprisingly, both BTC and ETH saw significant outflows last week, with BTC experiencing a $1 billion outflow on Thursday/Friday, one of the poorest single-day performances this year, while ETH also ended a nearly month-long streak of net inflows with a outflow of $152 million last Friday.

Overall, considering the speed and scale of the capital outflows, the market performance has actually been more stable than expected, which is also related to the significantly increased market depth of BTC and Altcoins. With institutional funds and professional investors joining, secondary market liquidity has improved, avoiding the kind of severe sell-offs seen before the launch of ETFs.

Looking ahead, the market is currently at a delicate juncture, with both bulls and bears expected to be locked in a tug of war, making it difficult to determine a clear winner in the short term. The bullish camp believes the market has overreacted to the non-farm payroll data, while the bears will point out that given the overheated market in the past three months, this will be the initial signal of a market turn. Ongoing tariff news and Trump's increasingly aggressive rhetoric will further intensify market noise. As the summer enters its later stages and overall trading activity decreases, market volatility is likely to be further amplified.

We do not expect a clear directional breakthrough in the short term, and this month's price trend will also be more volatile compared to July. The fourth quarter will be crucial, as the Federal Reserve will be fully operational, and the combined effects of tariffs and inflation will begin to impact the real economy. Against this backdrop, we believe now is a good opportunity to moderately reduce risk exposure to prepare for the busy September and year-end. Wishing everyone successful operations and happy trading!

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