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Last week (7/3-7/7),meme coins list to buy global markets experienced a general decline. The S&P 500 index fell by 1.2%, the Dow Jones index dropped by 2.0%, and the Nasdaq 100 index decreased by 0.9%. The STOXX 600 index in Europe saw a decline of 3.1%.

【Source: MacroMicro   Date2023/7/3-2023/7/7】

【Source: MacroMicro   Date2023/1/1-2023/7/7】

On July 7th, the US Bureau of Labor Statistics released data showing that the US added 209,000 non-farm jobs in June, lower than the expected 225,000. The unemployment rate dropped by 0.1 percentage points to 3.6%, in line with expectations.

【Source：MacroMicro 】

Wage growth remained strong, with average hourly earnings in June increasing by 4.4% year-on-year, higher than the expected 4.2%. On a monthly basis, the growth rate was 0.4%, surpassing the anticipated 0.3%.

Following the release of the data, market expectations for a 25-basis-point interest rate hike by the Federal Reserve in July increased, while the probability of another 25-basis-point hike in September slightly decreased.

【Source：CME  92.4% Probability of a 25 Basis Point Rate Hike in July 】

Why did the probability of a July interest rate hike increase after the release of lower-than-expected non-farm payroll data?

The probability increased because the unemployment rate remained low and wage growth showed signs of recovery, indicating resilience in the job market. The Federal Reserve is currently most concerned about wage growth. If wages rise too quickly, it suggests a tight labor market and makes it difficult for inflation to trend downward.

Once wage growth exceeds inflation, it creates a wage-price spiral, requiring the Federal Reserve to exert greater efforts and incur higher costs to ultimately bring down inflation. Currently, these two data points are very close: the latest US core PCE price index released in May showed a year-on-year increase of 4.6%, while wage growth has already reached 4.4%.

Mitrade Analyst：

Although job creation has slowed down, the low unemployment rate and strong wage support justify the interest rate hike in July. Currently, there is disagreement in the market regarding Powell's statement that there may be two more interest rate hikes this year. Investors should pay attention to the US June CPI data to be released this Wednesday. If it exceeds expectations, not only will the July rate hike be certain, but it will also further increase the probability of two interest rate hikes within the year.

On July 6th, according to data released by the Institute for Supply Management (ISM), the US non-manufacturing Purchasing Managers' Index (PMI) for June was 53.9, surpassing the expected 51.3. However, the US manufacturing PMI for June was 46, falling short of the anticipated 47.1, marking the eighth consecutive month of contraction and reaching a new low since May 2020.

While the service sector shows strength, the weakness in manufacturing creates uncertainty regarding the future landing expectations for the US economy.

【Source：MacroMicro 】

The future convergence of the service industry towards manufacturing and the ability of household incomes to sustain consumption will determine the speed of economic recession in the United States.

According to Bank of America, as of the end of May, US consumers had approximately $675 billion in excess savings due to fiscal stimulus and spending distortions during the pandemic. These savings are decreasing at a rate of $70 billion per month. Therefore, at the current pace, the surplus savings will be depleted within 9-10 months.

Furthermore, another concern for the US economy stems from the lagging effects of monetary tightening. According to the new Financial Conditions Index released by the Federal Reserve, the market underestimates the extent of deterioration in financial conditions and the impact of Fed rate hikes on the economy. It is expected that the tightening of financial conditions will drag down US GDP by approximately 0.75% next year.

Mitrade Analyst：

The better-than-expected performance of the US economy in the first half of the year reinforces the possibility of the Federal Reserve returning to a tightening trajectory after pausing its interest rate hikes. Coupled with the lagging effects of credit tightening, the recession warning in the United States has yet to be lifted.

On July 14th, JPMorgan Chase, Citigroup, and Wells Fargo will officially release their financial reports, marking the start of the Q2 earnings season.

According to the latest Markets Live Pulse survey, approximately 53% of respondents expect disappointing performances from major banks. Profit warnings from publicly listed companies and concerns about rising interest rates could potentially inflict further pain on the S&P 500 index.

Compared to the unexpectedly strong earnings in the first quarter, this time the outlook appears more subdued. Mislav Matejka, strategist at JPMorgan Chase, stated that as inflation cools down and economic growth slows, corporations are losing the ability to continue raising prices, putting pressure on profit margins.

Technology stocks will receive particular attention during this earnings season, as their valuations have significantly surged with the Nasdaq 100 index soaring 39% in the first half of the year.

More than 70% of the survey participants expressed that the impact of AI on the performance of technology stocks has been exaggerated. If leading companies in the AI field such as NVIDIA and Microsoft disappoint investors with their earnings, they are more susceptible to stock price declines.

Mitrade Analyst：

With the arrival of earnings season, we anticipate the index to enter a period of consolidation with market direction determined by company performance. If earnings exceed expectations, the stock market is likely to experience further gains; conversely, if performance or guidance falls short of expectations, the index will undergo a corrective pullback.