Huachuang Securities: Steady non-agricultural growth in March, difficult to alleviate market concerns.

Huachuang Securities released a research report stating that the stable non-farm employment data and low CPI expectations can alleviate concerns about stagflation in the United States at the hard data level. However, the significant uncertainty of tariff policies will continue to suppress risk appetite. Therefore, the restoration of risk appetite for US dollar assets at the macro level in the future depends on three factors: the basic landing of tariff policies, the stimulus of tax reduction policies, and whether the secondary inflation risk caused by tariffs can be initially refuted. The main points are as follows: March non-farm data: New job additions significantly exceeded expectations 1. The addition of non-farm employment significantly exceeded expectations, reaching 228,000, compared to the expected 140,000; data from the previous two months was revised down, but the average employment growth in the first quarter was still at 152,000. According to the current labor force participation rate and population growth rate, 150,000 new jobs per month is roughly the balance level to maintain unemployment relatively stable. Overall, the growth of non-farm employment remains stable. Looking at the major industries, the sectors with the most new employment additions were education healthcare, leisure and hospitality, retail, and transportation and warehousing, followed by other services, government departments, and construction. Aside from "economy still stable" (Powell's latest statement), the better-than-expected non-farm employment this month may be related to three temporary or disruptive factors: first, it may be related to the fading impact of adverse weather in the previous period. This month, the number of people who switched from full-time to part-time work due to bad weather and the number of people who were unable to work due to bad weather significantly decreased compared to January and February, with a decrease that significantly exceeded the average level of the past five years. Second, about 15,000 strikes in the medical and retail industries ended. Third, the impact of government layoffs has not yet been clearly reflected, as government employees on paid leave and receiving severance pay are still included in the government's employment statistics. According to Challenger Company data, the federal government announced plans to eliminate about 216,200 jobs in March, but the non-farm report shows that federal government employment in March only decreased by 4,000. 2. The unemployment rate rose slightly, from 4.139% to 4.152%, overall stable, rounded to 4.2%, compared to Bloomberg's expectation of 4.1%. The increase in new entrants to the labor market and layoffs by companies (permanent unemployment) each led to an increase in the unemployment rate by about 0.04 and 0.03 percentage points, respectively. The end of temporary work, the decrease in resignation numbers, and the decrease in those re-entering the labor market, led to declines in the unemployment rate by about 0.04, 0.03, and 0.02 percentage points, respectively. 3. Average hourly earnings were in line with expectations, with a 0.3% month-on-month increase, as expected, and the previous value was revised down from 0.3% to 0.2%. In theory, during the slow downward trend of inflation, maintaining resilience in wage growth that remains higher than inflation is beneficial for improving residents' real income and purchasing power. But consumers may attribute wage growth more to themselves and price increases to the government, which may be an important psychological factor in consumer dissatisfaction with inflation. Stable non-farm data fails to alleviate market concerns The stable non-farm report did not calm market concerns. On the one hand, the uncertainty related to tariff escalation remains significant, with possibilities such as "1/2 equivalent" tariff adjustments still being considered, specific tariffs on semiconductors, pharmaceuticals, and critical minerals not yet finalized, and the responses of various trading partners and negotiation statuses. On the other hand, Powell's latest statement did not signal a "dovish option" for market volatility, and he still believes that the Federal Reserve is in a favorable position to continue observing and waiting for the clarity of the effects of Trump's policies. Following the release of the non-farm report, market expectations for rate cuts have actually increased, with the number of expected rate cuts for the year rising from 3.8 to 4, and the year-end policy rate expectation dropping from 3.37% to 3.307%. In terms of asset performance, the combination of plunging US stocks and commodity prices, along with the rise in the US dollar index and long-term US bond yields, is very similar to the liquidity shock performance in mid-March 2020. With a significant market pullback, the potential risks of self-propelled liquidity shocks in the financial markets have further amplified the negative impact on risk appetite due to tariff policies. The Dow Jones Industrial Average fell by 5.5%, the Nasdaq index fell by 5.82% (dropping more than 20% from its peak, entering a technical bear market), the S&P 500 index fell by 5.97%, COMEX copper fell by 9.12%, and WTI crude oil fell by 6.92% (impacted by OPEC+ growth exceeding expectations). The US dollar index rose by close to 1% from its bottom, ultimately closing up by 0.89%, and the 10-year US bond yield rose by nearly 12 basis points from its bottom, closing at 4%. As mentioned earlier, the stable non-farm data and low CPI expectations can help alleviate concerns about stagflation in the United States at the hard data level. However, the significant uncertainty of tariff policies will continue to suppress risk appetite. Therefore, the restoration of risk appetite for US dollar assets at the macro level in the future depends on three factors: the basic landing of tariff policies, the stimulus of tax reduction policies, and whether the secondary inflation risk caused by tariffs can be initially refuted. Currently, these three clues are still not clear, indicating that the adjustment of risk assets may not be over. In this process, it is necessary to be vigilant against potential liquidity shocks. In addition, the longer the adjustment cycle and the greater the magnitude, the higher the possibility of a spiral of endogenous risks leading to a collapse in asset prices, reversing the wealth effect of residents and breaking the virtuous economic cycle in the United States. Risk warning: Uncertainty of Trump's policies; US inflation exceeding expectations.