Weekly Brief | July 7, 2026 | Macro Insights Queen
Hi everyone,
June NFP printed +57k, well below the +114k consensus. On the surface, this looks soft. But the internals are more complicated — and in some ways more hawkish than the headline suggests.
The market treated the weak print as dovish: the front end rallied while the long end sold off, a classic bear steepener. Before accepting that headline narrative, two corrections matter for the regime call.
1. The Leisure Weakness Looks More Seasonal Than Structural
The contraction in leisure and hospitality jobs looks less like a World Cup effect and more like a seasonal-adjustment issue. Hotels, restaurants, and entertainment businesses normally hire aggressively in June ahead of summer demand. This year they likely still hired — just less than usual — and after seasonal adjustment, that shortfall shows up as a headline contraction.
Leisure jobs did not necessarily collapse. They simply failed to grow as much as they normally do in June. That’s why the seasonally adjusted number turned negative.
This lines up with an observation from Danny Dayan and Omar Sharif: if the World Cup had driven a real hiring boost, it should have shown up most clearly in accommodation, where hotels typically staff up ahead of fan inflows. It didn’t.
The rest of the economy also held up better than the leisure headline implied:
- Professional and business services: +36k
- Social assistance: +25k
- Health care: +22k
MIQ read: the leisure and hospitality weakness looks like a seasonal-adjustment anomaly, not a structural or event-driven deterioration in the economy.
2. The Wage Picture Is More Hawkish Than the Headline AHE Suggests
Headline average hourly earnings printed 3.5% YoY — which looks like moderation. But it’s being dragged down by health care, where wages fell to roughly 2% YoY on a specific tax-policy effect, not softer labor demand or weaker macro conditions. Because health care is a large share of the workforce, that drag alone is enough to pull down the headline.
Strip health care out, and cyclical wage growth actually rose from 4.1% to 4.3%. Cyclical wages are the part of the wage data that feeds most directly into services inflation, supercore inflation, and the Fed’s reaction function.
MIQ takeaway: the headline wage number looks softer than the real cyclical wage impulse. Wage pressure is not breaking down — it is tightening in plain sight, as Danny Dayan has also flagged.
What the June NFP Data Actually Says
The labor market is stronger than the +57k headline and 3.5% wage print suggest.
The unemployment rate fell from 4.3% to 4.2% — the most hawkish detail in the report. Part of that decline was mechanical, though: labor force participation fell 0.3 percentage points to 61.5%, meaning some of the drop reflects fewer people actively looking for work (which could also reflect people starting businesses — a longer-run positive).
Revisions were negative:
- April: revised down 31k to 148k
- May: revised down 43k to 129k
- Total revisions: -74k
The 3-month moving average is now around 111k, down from 170k in May — slower, but not weak enough to justify a rate-cut narrative.
Our framework for a rate cut is simple. These three conditions below have to hold simultaneously:
- At least one quarter where the 3-month payroll moving average is below roughly 150k
- That 3-month average falling below the 12-month average, to confirm a real downtrend
- Ideally, at least some outright negative payroll prints during that period
Right now, the data doesn’t meet that threshold. The 3-month average is still above the 12-month average, and the payroll trend has been picking up since the start of the year (see chart above). And, we don’t have yet a quarter of 3-month payroll moving average below 150k.
The Regime Call
Nothing about the mid-cycle reacceleration thesis has changed.
The market is currently pricing meaningful odds of another 25bp hike later this year — 46.9% for the September meeting, per current futures pricing. We’re not convinced the Fed has enough evidence to hike immediately, but we also don’t think the data supports a rate-cut narrative.
That caution is reinforced by the Fed’s own track record. This time last year, the Fed cut rates into a forecast that turned out to be wrong on both counts: its September 2025 projections called for 2.6% PCE and 1.8% growth in 2026, while actual PCE is running at 4.1% and real GDP growth at 2.1%. A miss of that size argues for taking the Fed’s current forecasts with some skepticism in either direction.
A hike in July meeting is likely too soon regardless despite that the FCI is still quite loose and inflation is reaccelerating. The Fed still needs to assess:
- June CPI & June PCE (July 14 & July)
- July labor market data
- Confirmation of whether core inflation is reaccelerating (upcoming July & August CPI and PCE)
From the surface, +57k looks soft, which explains the market’s initial dovish reaction. But our edge is to look past the headline: the labor market still shows a positive trend on the moving averages, unemployment remains low at 4.2%, and the market appears to be underrating both facts.
Our view: there isn’t yet enough data to confirm that “peak hawkishness” is the right trade. The decline in 2-year yields may be limited unless CPI comes in meaningfully soft.
Why CPI Matters Even More Now
We see a greater likelihood of elevated core CPI because the AI buildout is still in its early phase.
The core argument: AI infrastructure demand is creating cost pressure through chips, electronics, data centers, power demand, and logistics. That pressure first shows up in PPI, then passes through to CPI with a lag.
In the May PPI data, final demand core goods excluding food and energy increased +0.8% MoM. That may already reflect AI-driven cost-push dynamics alongside other factors.
If the AI buildout continues, producers of computers, appliances, and electronics may continue raising prices. That would eventually show up in core goods CPI.
This is why we remain in a regime where the probability of a hike is still higher than the probability of a cut.
A true Goldilocks regime would require the Fed to fight cost-push inflation without killing growth. Given the strength in AI capex, labor, and GDP, we do not think the market would necessarily break even if the Fed eventually had to hike further — but that depends on the continuation of AI capex, the durability of demand, and the growth spillover from the AI boom.
Cross-Asset Implications
Rates
The 2-year yield led yields lower on the NFP print as the market priced peak hawkishness more aggressively — a tactical move we’re not yet buying into. Our model still sees the 2-year real rate as insufficiently restrictive given near-term inflation expectations; with cyclical wages running at 4.3% + seasonal adjustments in leisures, that view gets more confident, not less.
The more important signal is that the 10-year yield moved higher after the NFP print. With the 2-year yield lower and the 10-year yield higher, the curve bear-steepened. That is not a clean disinflationary signal. Instead, it points to inflation risk still being priced into the long end.
The chart shows that this bear-steepening began after the June 24 PCE release. It continued earlier last week, even before the NFP print. Since the PCE release, the 10-year yield has trended higher, while the 2-year yield has remained broadly flat. In other words, the move is signalling that the inflation risk is here to stay as the 10-year yield has trended higher while 2-year is on hold.
In addition, after Warsh’s first press conference, the curve was broadly flat. However, despite the additional flattening following FOMC, the post-PCE signal has changed. The outlook has shifted away from a simple flattening dynamic and toward bear steepening.
The 10-year has also risen meaningfully since the Fed’s September rate cut, consistent with the market continuing to challenge the Fed’s own inflation and growth assumptions (see below).
Current levels (as of July 7):
- US 10Y: 4.497%
- US 2Y: 4.141%
Our view is that the short end stays relatively stable until the June CPI print on July 14. If CPI is sticky, the bear-steepening move likely continues, with the 2-year flat-to-slighlty higher and the 10-year moving higher.
Dollar
Dollar weakness can happen tactically if front-end yields fall, but structural support remains intact: the Fed still looks more hawkish than its peers, US growth continues to outperform, and Middle East ceasefire fragility keeps safe-haven demand alive. Absent a genuinely softer growth and inflation path, we expect dollar weakness to stay limited and remain bullish USD.
The key levels from our previous letter still hold: a retracement to 1.14-ish, then 1.150–1.152 (the ~60% fib on the 4H timeframe), would be a healthy setup before a break lower toward 1.127. EURUSD is currently forming a channel on the 4H.
Read our previous letter for the full EURUSD thesis: macroinsightsqueen.com/regime-update-pre-pce-edition
Equities
We remain in a buy-the-dip framework. The labor-data weakness is concentrated and the leisure decline is likely to be revised; breadth continues to hold up, and Russell 2000 strength confirms the broader economic story is intact. The bigger risk isn’t the whole market — it’s concentrated in capex-heavy, debt-funded names where balance-sheet quality matters.
For ES, buy-the-dip stays intact above 7,495. A failure there on inflation or stagflation fears could open a test of the June low; if that doesn’t hold, we’d look for a monthly higher low above 6,363, ideally with 7,000 or 6,800 holding.
July can be volatile on negative seasonality, but given the AI buildout thesis, we’d treat volatility as a buying opportunity as long as key technical levels hold.
US100 Technical View
US100 still looks like a weekly bull flag. Three scenarios from here:
Scenario 1 — Breakout scenario: The market clears the daily triangle and breaks above 30,200, making a new all-time high by the end of the week.
The first setup is to trade from the bottom or support area of the triangle, with a stop below 28,616. But if you are late to the move, it is better to wait for CPI before entering.
If price is only tightening into next week’s CPI print, the cleaner trade is the post-CPI break above 30,200, with a stop below 28,616. This would be the type of position to hold through the summer, while taking profit if price rejects the current high.
Scenario 2 — Continue solidation, then new high. The market chops while the Fed’s path stays unclear, tests the June low and creates a false break of the triangle, then makes a new high into CPI next week.
Scenario 3 — Deeper correction / higher low. The market corrects further, forming a weekly higher low above 22,812, possibly closing the week near 25,520, then slowly regaining momentum into July 14.
A sticky CPI could trigger another leg down, but as long as 22,812 holds we’d treat that as a buy-the-dip setup, with a stop below that level.
For newer traders — what is a weekly higher low?
It typically starts once the daily timeframe turns bearish first: the 12 EMA crosses below the 20 EMA, daily RSI goes oversold (ideally below 30), and price corrects but holds above the prior major weekly low. The weekly candle then closes back above that low, ideally above a key support level like a Fibonacci level. Confirmation comes once the daily timeframe turns bullish again — setting a bottom above the prior low within 1–4 weeks (lower high, higher low, higher high after a retest of support), with the 12 EMA crossing back above the 20 EMA on the daily.
For US100, the key level is 22,812. A weekly higher low needs price to hold above that level and reclaim momentum on the daily timeframe.
What’s Next: CPI Is the Key Test
CPI release: July 14
Our thesis remains: AI-driven data center, chip, and power demand is inflationary through the PPI-to-CPI pass-through channel in the medium term, before turning deflationary later. That means the CPI subcomponents matter more than the headline alone.
Key components to track:
1. Core goods (durables, electronics, appliances, vehicles, household furnishings) AI spillover signal: +0.3% MoM or higher, or acceleration versus May. If core goods stop disinflating or start rising again, it supports the view that AI-driven cost pressure is reaching consumers.
2. Energy and transportation services (gasoline, electricity, auto repair, airfares, logistics-sensitive categories) Energy signal: +1.0% MoM or higher, or sustained high YoY readings. Transportation services signal: +0.4% MoM or higher, or no meaningful decline. Broad increases here would support the view that AI-related power demand and logistics pressure are feeding through the inflation chain.
3. Core services ex-shelter / supercore (core services, core services ex-shelter, transportation services, medical care services) This is the cleanest read on non-housing stickiness. Hot signal: +0.4% MoM or higher — a hot print would suggest wage- and services-driven inflation is broadening again.
CPI rule of thumb:
- Soft: below +0.2% MoM — helps the disinflation story
- Hot: +0.4% MoM or higher — supports sticky inflation
- Reaccelerating: confirms inflation pressure isn’t fading
The key signal is whether core goods and supercore reaccelerate. If they do, it strengthens the thesis that AI is net inflationary in the near term. If they soften, it suggests producers are still absorbing cost pressure in margins.
Hyperscaler Earnings: The Next AI Test
Late-July earnings from the big cloud companies will test the AI investment story. Companies to watch: Google (~July 22), Microsoft and Meta (~July 29), Amazon (~July 30), Oracle (September 8).
The key number to watch: capex, and management’s tone around it. Earlier in 2026, the four largest hyperscalers guided to a combined ~$610–725 billion in capex for the year — a 60–77% increase from 2025 levels. Current full-year guidance stands at:
- Amazon: $200 billion
- Microsoft: ~$190 billion
- Alphabet (Google): $180–190 billion
- Meta: $115–145 billion
What to look for in the upcoming reports:
- Quarterly capex run-rate — are they spending at a pace consistent with (or above) these targets? Recent reference points: Microsoft reported $37.5B and $31.9B in successive quarters (roughly two-thirds typically going to short-lived AI assets like GPUs and CPUs); Google reported $35.7B in Q1 2026, almost entirely for AI infrastructure.
- Updates or reaffirmations to full-year 2026 guidance
- AI-specific allocation — how much is explicitly tied to data centers, GPUs, servers, and networking
- Management commentary on demand versus supply and capacity constraints — continued language like “demand continues to exceed supply” or “we remain capacity constrained” would be strongly supportive
Also worth tracking: AI/cloud revenue growth and acceleration (especially Azure, Google Cloud, and AWS), backlog/RPO trends, and free cash flow impact alongside commentary on the timeline for returns on the AI investment.
A strong, confident print would confirm Big Tech remains fully committed to the buildout despite softer macro data. A weak or noticeably cautious one — materially lower quarterly spend, downward revisions, or concerns about returns/overbuild — would raise real questions about the pace of the cycle.
Bottom Line
The bond market read the weak NFP headline as dovish (US02Y went down post-NFP), and the peak-hawkishness trade got near-term fuel. We think the consensus reaction is missing the fuller picture. And, it is very likely that we will see a continuation of bear steepening from here where the US02Y ranges and the US10Y is moving slightly higher until next week.
Leisure weakness looks seasonal, not structural. Headline wage growth of 3.5% is being flattered by a health care tax effect — cyclical wages, the part that actually feeds inflation, accelerated to 4.3% (refer to Danny Dayan). The payroll trend, on a 3-month/12-month basis, still isn’t weak enough to justify a rate cut. And the long end isn’t confirming a clean disinflationary story: the 10-year rose after the NFP print and the curve bear-steepened, consistent with the market still pricing inflation risk rather than a genuine growth scare — a read reinforced by the Fed’s own track record of underestimating both inflation and growth over the past year.
One soft payroll headline, which is likely to be revised anyway, alongside accelerating cyclical wages, is not a disinflationary regime change. CPI on July 14 will tell us whether the market is right to be this comfortable — or whether the next data point further confirms our view that inflation is reaccelerating.
MIQ Team
This is educational macro commentary only and should not be treated as financial advice. Always do your own research and due diligence before making any trading or investment decisions. Never copy our ideas blindly; only act if you understand the logic behind the view, the risks involved, and the potential downside.