The Ghost of Inflation Returns: Non farm Contradictions Ignite the Market, and the Federal Reserve's "Eagle Shadow" Shrouds Risk Assets - What is the Solution to the Contradiction between Declining Unemployment and Non farm Weakness? Next Week's CPI Data May Become the Next Eye of the Market Storm Macro data The data released last night brought significant fluctuations to the market Non farm employment data is much lower than expected and previous values (previous value of 30.7, expected value of 17, announced value of 14.3), and the unemployment rate is lower than expected and previous values (previous value of 3.3%, expected value of 3.3%, announced value of 4.3%) Consumer confidence index lower than expected and previous values (previous value of 71.1, expected value of 71.1, announced value of 67.8) Inflation expectations are much higher than expected and previous values (previous value of 3.3%, expected value of 3.3%, announced value of 4.3%) 1. Current market situation The Federal Reserve's policy focus has shifted towards inflation: The Fed suspended interest rate cuts at the FOMC meeting at the end of January, indicating a shift in its policy focus from supporting economic growth to controlling inflation. After Trump took office, the market was concerned that his policies (tariffs, illegal immigration) could exacerbate inflationary pressures, which made the Federal Reserve more cautious about cutting interest rates. The liquidity dependence of risk assets: The performance of risk assets such as US stocks and Bitcoin is highly dependent on the liquidity environment. When the market expects marginal improvement in liquidity (such as interest rate cuts or balance sheet expansion), risk assets often perform better. However, the current suspension of interest rate cuts by the Federal Reserve, coupled with rising inflation expectations and delayed expectations of marginal improvement in liquidity, has put pressure on risk assets. The market is always right: when there is a contradiction between non farm payroll and unemployment rate data, the market reflects the expectation of interest rate cuts through the performance of US Treasury yields. After the release of non farm payroll data at 9:30, US bond yields rose, indicating that the market believes that the expectation of interest rate cuts will be further postponed; After the expected 11 point inflation data far exceeded expectations, the market further declined. This reflects the market's concerns about inflationary pressures and tightening liquidity. 2. Explanation of the contradiction between non-agricultural and unemployment rates The reason for the decrease in unemployment rate: The unemployment rate dropped from 4.1% to 4%, mainly due to a household survey showing an increase of 2.2 million employed people (with a larger denominator) The reason for the lower than expected non farm employment: Non farm employment only increased by 143000, far below the expected 170000. The newly added employment is mainly concentrated in the medical, retail, social assistance, and government sectors, with weak growth in other industries. This may reflect the impact of economic structural issues or temporary factors, such as the Los Angeles fire last month. 3. Market reactions and US bond yields After the release of non farm payroll data at 9:30, non farm employment fell short of expectations, but the unemployment rate decreased, and the market's initial reaction was chaotic. The rise in US Treasury yields indicates that the market believes that the expectation of interest rate cuts has been postponed, putting pressure on risk assets. After the release of the 11 point inflation expectation data, the inflation expectation rose from 3.3% to 4.3%, far exceeding market expectations. This data has intensified market concerns about rising inflation, with further increases in US bond yields and significant declines in risk assets such as US stocks and Bitcoin. Market logic: The market focuses more on inflation data rather than employment data, as inflation directly affects the policy path of the Federal Reserve. An increase in inflation expectations means that the Federal Reserve may maintain high interest rates for a longer period of time, leading to a marginal tightening of the liquidity environment, which is unfavorable for risk assets. The Importance of CPI Data Next Week The previous value of CPI data is 2.9%, and the expected value is 2.9%. If the CPI data is higher than expected, it will further strengthen the market's concerns about rising inflation, which may lead to a continued increase in US bond yields and further pressure on risk assets. Escaping risk aversion: The CPI data for next week is particularly important as market risk aversion intensifies due to rising inflation expectations and uncertainty in Federal Reserve policies. Investors may turn to safe haven assets such as gold and the US dollar, while reducing their allocation to risky assets. 5. Conclusion and Prospect Short term market volatility intensifies: Against the backdrop of inflationary pressures and uncertainty in Federal Reserve policies, market volatility may further increase. The performance of risk assets will be highly dependent on CPI data and policy signals from the Federal Reserve. Pay attention to CPI data: The CPI data to be released next week will become the focus of the market. If the CPI is higher than expected, it may further delay the expectation of interest rate cuts, leading to continued pressure on risk assets; If CPI meets or falls below expectations, the market may temporarily alleviate concerns about inflation.