On Friday (July 4), as the United States celebrated Independence Day, investors were digesting the market dynamics of the past 24 hours. The key employment report brought multiple surprises: non-farm payrolls increased to 147,000, higher than the 110,000 expected; the unemployment rate unexpectedly fell to 4.1%. On the other hand, average hourly earnings fell slightly to 3.7%, a one-year low, in line with the change in the "prices paid" sub-item in the ISM Services PMI survey.



Meanwhile, after more than three months of negotiations, deliberations and behind-the-scenes pressure, the House of Representatives passed the Senate-approved "Big Beautiful Bill" by a 4-vote margin. Although a few Republican House members expressed dissatisfaction with the Medicaid cuts, only two voted against the bill, which also raised the debt ceiling by $5 trillion. The approved bill has been sent to the White House, and US President Trump is scheduled to sign it today local time.

What does this mean for the Fed?

Trump was vocal about the strong jobs data and the passage of the budget bill, filling his social media accounts with hyperbolic headlines. However, a slew of positive news, with inflationary pressures from wage growth falling while the labor market remains healthy, made the Fed’s job a little easier in the short term.

The lack of weakness in the economic data is likely to undermine the Fed's dovish rhetoric, ease tensions within the Federal Open Market Committee (FOMC), and more importantly, reduce pressure for a rate cut in July. Markets have quickly adjusted expectations, with the probability of a rate cut in July falling from 21% before the employment data to just 5% now. Trump may soon resume his fiery rhetoric and accusations against Powell, but the data supports the Fed's current stance. Therefore, most FOMC members can wait and see for now, pay attention to developments on tariffs, and formulate strategies for the September meeting.

Is Thursday's reversal complete?

Unlike the budget bill, which had no noticeable impact on the market, the release of US economic data had an immediate impact. The US dollar strengthened significantly across the board, and the euro fell by about one large point (i.e. 1 cent) against the US dollar after the release of non-farm data. US stock indexes climbed to a record high, and Bitcoin once again hit $110,000.

However, these moves failed to last, in part because Trump quickly shifted the focus to tariffs. The euro was trading just below 1.18 against the dollar during the session, and stocks have gradually given up a good portion of yesterday's gains. With U.S. stocks and bonds closed for Independence Day, market volatility is likely to be low today.

Tariffs in the spotlight

The issue of tariffs could completely disrupt today's expected calm. After the United States reached a trade agreement with Vietnam on July 2, doubling the number of agreements to two, the US government is turning its focus to tariffs. On Friday, at least 10 countries will receive "tariff letters" detailing the trade restrictions that will be implemented on August 1. In addition, the US Treasury Secretary said overnight that at least 100 countries will soon face reciprocal taxes of at least 10%.