July Non-Farm Payrolls to Test U.S. Market Balance

On August 1, the U.S. Department of Labor is set to release the July non-farm payroll data at 20:30 Beijing time. This data release is anticipated to be a pivotal moment for the U.S. financial markets, following a week of significant events and market movements.

Despite a three-day decline in U.S. stocks, the market has been largely balanced by the strong financial reports from major tech giants and the hawkish stance of the Federal Reserve. This equilibrium is expected to be tested by the upcoming non-farm payroll data, which could either reinforce or disrupt the current market sentiment.

From a macroeconomic perspective, the unexpected surge in the U.S. PCE price index on Thursday provided strong support for the Federal Reserve's decision to maintain its current monetary policy, despite pressure from the administration. However, the Federal Reserve's dual mandate includes not only maintaining price stability but also promoting employment growth. Therefore, the July non-farm payroll data could become a critical point of contention between the administration and the Federal Reserve.

Economists' consensus predicts that the July non-farm payroll data will show a slowdown in job growth to 110,000, up from 147,000 in the previous month. The unemployment rate is expected to rise slightly to 4.2% from 4.1%, while wage growth is projected to increase marginally.

Market analysts have expressed a range of expectations for the July non-farm payroll data, with predictions varying widely from 0 to 170,000. If the data comes in at 110,000 or lower, it would mark the weakest non-farm payroll report of the year.

The "whisper number" for July non-farm payrolls, an unofficial and unpublicized prediction circulating among Wall Street professionals, initially stood at 125,000 but has since fluctuated, reflecting market sentiment towards the U.S. job market.

Market participants have been closely monitoring various leading indicators of the U.S. job market, including the ADP employment report and initial jobless claims. The ADP data showed a significant increase in private-sector employment in July, surpassing market expectations. Meanwhile, initial jobless claims for the week ending July 19 fell to 218,000, below the expected 224,000.

Despite these positive signs, some analysts remain cautious about the July non-farm payroll data. For instance, the U.S. Bank has set a relatively low expectation of 60,000 new jobs for July, suggesting that the market could react positively to any data above this threshold.

In addition to the main non-farm payroll figures, the unemployment rate is also expected to attract attention. After an unexpected drop to 4.1% in June, the unemployment rate is projected to rise back to 4.2% in July.

The Federal Reserve's current focus is on inflation rather than employment, but a sudden deterioration in the job market could prompt the central bank to reconsider its monetary policy stance.

Market analysts have outlined various scenarios for how the July non-farm payroll data could impact financial markets. If the data exceeds 140,000, it could trigger a 1% to 1.5% rally in the S&P 500 index. Conversely, if the data falls below 80,000, it could lead to a 1.5% to 2.5% decline in the index.

Overall, the market is expected to react positively to any data above 100,000, as this would indicate continued job growth and support the current economic recovery. However, if the data falls short of expectations, it could raise concerns about the sustainability of the economic recovery and prompt a reassessment of the Federal Reserve's monetary policy stance.