Tonight, the first nonfarm payroll report of the Walsh era will be released, and the World Cup may create a "false boom" in employment.

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The first Non-Farm Payrolls report since the new Fed Chair Kevin Warsh took office will be released tonight Beijing time (July 2). The market expects a clear slowdown in job growth, but the World Cup effect may artificially inflate the data, masking real signs of a cooling labor market.

According to the Dow Jones consensus forecast, non-farm payrolls in June are expected to increase by 113,000, a sharp drop from May’s 172,000; the unemployment rate is expected to remain at 4.3%. However, Goldman Sachs economists Ronnie Walker and Jessica Rindels point out that the FIFA World Cup may contribute about 40,000 temporary jobs to June’s non-farm figure, mainly concentrated in leisure/hospitality, professional/business services, and trade/transport sectors, prompting Goldman to raise its overall forecast to 140,000. This means that after removing the World Cup effect, the underlying labor market trend may be weaker than the surface data suggest.

The policy implications of this report are equally significant. In his first press conference on June 17, Warsh emphasized the 2% inflation target as the core of policy and described the current labor market as "stable or even improved." Both BofA Securities and Barclays believe that a report in line with or stronger than expectations will support the Fed holding steady in July and pave the way for rate hikes afterward; the money market currently prices in an 80% probability of a hike in September, while a 25 basis point hike in October is fully priced in.

World Cup Effect: Hidden Inflation in the Numbers

Goldman, citing private data from small business payroll provider Homebase, stated that year-over-year job declines in the 11 World Cup host cities were only 1.2%, compared to 3.5% in other cities; hotel hiring even rose 9.5% year-over-year, showing a clear event-driven characteristic.

Goldman estimates that the World Cup will contribute about 40,000 jobs to June’s non-farm figure, setting its forecast at 140,000, higher than the consensus 113,000. In addition, Goldman points out that historically, June’s initial non-farm figure tends to be revised up, but in the past four years, all initial June prints were subsequently revised down, which offers an important reference for interpreting the current data.

On the other hand, May’s jobs data was boosted by substantial local government hiring, a factor analysts don’t expect to recur in June, representing a downside risk. Barclays forecasts June non-farm payrolls to increase by only 100,000, significantly below the market consensus, and notes that without revisions, the Q2 three-month average would still be around 150,000, well above Q1’s 73,000.

Labor Market Cooling Signals Become Consistent

Multiple leading indicators all point to a slowdown in June job growth. ADP national employment data for June came in at 98,000, below expectations of 118,000 and May’s 122,000; the ADP chief economist stated the job market shows a "dual narrative of supply and demand"—job search cycles are longer, some industries face labor constraints, and the net effect is slower job creation.

As for initial jobless claims, the week overlapping with the BLS survey window saw 227,000 claims, above 210,000 during the May non-farm survey week; continuing claims rose from 1.785 million to 1.821 million. Pantheon Macroeconomics noted that since early May, both initial and continuing claims have trended higher, consistent with the judgment that non-farm growth has decelerated below the breakeven line. It is worth noting that analysts point out that the Juneteenth holiday may have distorted that week’s data, and seasonal adjustments have yet to fully reflect this holiday effect.

S&P Global’s manufacturing PMI employment sub-index dropped for a second straight month in June, with manufacturing job cuts occurring at the fastest pace since the 2020 pandemic, or since 2009 if excluding pandemic effects; service sector employment saw only a small decrease. Consumer confidence data also confirmed the cooling: CBRE’s June consumer confidence survey shows the proportion of respondents saying "jobs are hard to get" rose to 22.5%, the highest since January 2021; the labor market differential ("jobs easy to get" minus "jobs hard to get") dropped 2.6 points to +2.4.

Warsh Era Policy Compass: Inflation First, Rate Hike Expectations Rise

On June 17, Warsh, in his first press conference as Fed chair, firmly stated that officials judged the labor market as "stable or even improving," and called curbing inflation the core task under his leadership. The latest economic projections lowered the year-end unemployment rate forecast from 4.4% to 4.3%.

BofA Securities wrote in its report that since mid-last year, the real policy rate has eased by over 100 basis points while the change in the unemployment rate is virtually zero, providing the Fed grounds to reverse last year’s 75 basis point rate cut. BofA expects the Fed to start raising rates in September, forecasting three hikes in total by 2026; if June non-farm is in line with or stronger than expected, the July meeting will become a "live meeting," and the current market pricing for a July hike is about 33%.

Barclays points out that, with non-farm growth still running well above the St. Louis Fed’s estimated breakeven line of 15,000 to 18,000 and the unemployment rate nearly unchanged, the divergence between household and establishment surveys persists, a combination in line with a hold in July while the policy committee continues to weigh tightening reasons.

Market Reaction: Asymmetric Risks Dominate Trading Landscape

BofA Securities emphasizes that there is obvious asymmetry in the current market response.

In terms of positioning and expectations, a Bloomberg survey shows the median market forecast for June non-farm has risen to the highest level this year, so if the data comes in below expectations, shorts could face forced covering pressure; systematic CTAs’ short positions at the front end of rates are especially vulnerable after this week's yield rebound. BofA scenario analysis suggests that if the unemployment rate rises to 4.4%, the 2-year Treasury yield could fall by 5 to 20 basis points; if it falls to 4.2%, it could rise by 5 to 12 basis points—again, the moves are asymmetric.

FX markets also face two-way risk.

BofA notes that the Dollar Index (DXY) is already near a 12-month high, with Warsh’s hawkish stance and FOMC signals of support for hikes driving the latest rally. If data is significantly below expectations, speculative longs could be forced to unwind, causing DXY to give up recent gains; if data matches or beats expectations, the dollar will likely move closer to BofA’s Q3 target (EUR/USD 1.12).

Goldman’s survey of multiple traders also notes that the market is racing to clarify the "Warsh Fed" reaction function—will it choose to tolerate AI-driven inflation temporarily or hike rates proactively to cool the economy? This non-farm report, along with Warsh’s speech at the Sintra central bank forum, will be critical clues in answering that question.

Risk Warning and DisclaimerThe market carries risks, and investment should be cautious. This article does not constitute individual investment advice, nor does it consider the unique investment goals, financial situation, or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Invest accordingly at your own risk. ```