Do not board the Fed “dove boat” just yet.

US equities were stronger Friday, S&P up 0.8% after a beat on US payrolls for June (more below). US10Y yields down 3bps to 1.42%.

In June, the headline up 850k (consensus 720k), private payrolls up 662 (consensus 615k), with 15k of net upward revisions to the prior two months. However, a mixed picture on unemployment: a miss on U-3 unemployment, rising 0.1pts to 5.9% against the consensus at 5.6%, and that coincided with an unchanged participation rate, so not a rise. But U-6 unemployment fell 0.4ppts to 10.2%. Overall, a solid print but unlikely to shift the Fed's needle further.

China A-shares plunged the most in three months on Friday, right after the centenary of the Chinese Communist Party, as investors rushed to take profit under the perception that a period of relative safety with limited downside risks is now ending. One explanation is that President Xi Jinping's speech did not provide many catalysts for the market, which could be disappointing as investors expected government support for semiconductors, clean energy, and high-end manufacturing sectors -- which were also the most outperforming sectors recently. All suggesting the sell-off was more about what was not said than what was. While outfollows were substantial, there was no sense of panic in Asia. 

This week's holiday-shortened calendar is all about the June 16 FOMC meeting minutes, to be released on Wednesday afternoon (July 7) EST. Hopefully, those minutes will shed more light on discussions about the outlook for policy normalization, especially the tapering of the Fed's asset purchases. Recall that in his presser, Chair Powell noted that "the Committee had a discussion on the progress made toward our goals" but that "'substantial further progress' is still a ways off." Furthermore, he noted that the Committee would continue this assessment "in coming meetings" and "will provide advance notice before announcing" tapering.

As we have learned since that meeting, however, Fed officials hold various contrasting views on the timing, composition, and pace of tapering. While several officials – including Dallas's Kaplan, St. Louis's Bullard, and Philadelphia's Harker – are eager to announce tapering "sooner rather than later," other officials – including NY's Williams, San Francisco's Daly, and Cleveland's Mester – would like to see some additional data to get a clearer picture on the appropriate tapering timeline.

The September QE tapering announcement by the FOMC already appeared below 50% before the NFP report; the lack of a meaningful upside surprise on Friday jobs data should narrow those probabilities further.

The slight rally in end-2022 Fed funds futures and Dollar decline on Friday likely reflected some pricing out of early taper risks. That said, I would not board the "dove boat" just yet as within the Fed dual mandate, significant inflation surprises have recently tended to be more influential in "moving the expected policy needle," and a top side surprise in this month's US CPI (July 13) data might be a more substantial driver for FX markets.