Chinese stock indices experienced a volatile session on Thursday, initially rising before pulling back, with overall trading activity continuing to decline.
Daily Market Perspective
The three major Chinese indices closed with modest gains today following a choppy trading session. The combined turnover for the Shanghai and Shenzhen markets shrank further to 3.2 trillion yuan. Overnight, U.S. data showed the economy added only 57,000 non-farm payrolls in June, significantly missing the consensus forecast of 113,000. Notably, the leisure and hospitality sector shed 61,000 jobs, partially reversing May's exceptionally strong figures. While the unemployment rate dipped from 4.3% to 4.2%, this was primarily driven by a drop in the labor force participation rate from 61.8% to 61.5%. On the wage and inflation front, average hourly earnings rose 0.3% month-over-month and 3.5% year-over-year, remaining relatively stable and showing no signs of a reinforcing wage-price spiral. Following the data release, short-term rate futures moved higher, the U.S. Dollar Index fell below 101, and gold prices rallied. The weaker employment figures have reduced near-term pressure for interest rate hikes, increasing the probability that rates will remain unchanged in July. The focus now shifts to upcoming CPI and PCE data to confirm whether inflationary momentum is subsiding. For equity markets, navigating the dense July window of overseas data and central bank meetings, sectors with stable cash flows and high earnings visibility may hold a relative advantage. High-valuation technology stocks face dual tests from inflation and the earnings season, where elevated positioning and portfolio rebalancing could still lead to amplified volatility.
Key Developments
Data released by the U.S. Labor Department on July 2nd revealed that the U.S. economy added a mere 57,000 non-farm jobs in June, far below the market expectation of 115,000. Figures for April were revised down from 179,000 to 148,000, and May's were revised down from 172,000 to 129,000, resulting in a combined downward revision of 74,000 jobs over the two months. By sector, leisure and hospitality was the biggest drag, losing 61,000 jobs. The June unemployment rate unexpectedly fell from 4.3% to 4.2%, hitting a near one-year low, primarily due to a 0.3 percentage point decline in the labor force participation rate to 61.5%.
Brief Analysis: The June non-farm payrolls "miss," coupled with significant downward revisions to prior months' data, has interrupted the trend of consecutive months of stronger-than-expected growth. The sudden cooling in the labor market—with leisure and hospitality posting its largest monthly decline since 2020—stands in stark contrast to World Cup-related hiring expectations, raising questions about the sustainability of the labor market recovery. Post-data, market expectations for Federal Reserve rate hikes have moderated. However, attention remains on the divergence between employment and inflation data, with uncertainty surrounding the Fed's policy path persisting.
On July 2nd, details were published regarding liquidity operations via various central bank tools in June 2026. For central bank lending, the Medium-term Lending Facility (MLF) saw a net injection of 200 billion yuan, while the Standing Lending Facility (SLF) had a net injection of 0 yuan. The Pledged Supplemental Lending (PSL) facility recorded a net withdrawal of 50 billion yuan, and other structural monetary policy tools saw a net withdrawal of 137.2 billion yuan. In open market operations, 7-day reverse repos resulted in a net injection of 582.6 billion yuan, other tenor reverse repos had a net injection of 300 billion yuan, and outright Treasury bond transactions provided a net injection of 10 billion yuan. Overall, the central bank's combined net liquidity injection through various tools in June exceeded 900 billion yuan.
Brief Analysis: The June liquidity injection data exhibited a "targeted strengthening" characteristic. The MLF's net injection of 200 billion yuan for two consecutive months demonstrates the central bank's proactive support for medium-to-long-term liquidity at a critical quarter-end juncture. The 582.6 billion yuan net injection via 7-day reverse repos, coordinated with the newly introduced overnight reverse repo tool at the end of June, worked together to ensure stable funding conditions across the quarter-end. The net withdrawals of 50 billion yuan from PSL and 137.2 billion yuan from structural tools reflect the central bank's prudent stance of avoiding a "flood-like" stimulus while maintaining overall accommodative conditions. The large-scale liquidity injection at quarter-end provides fundamental support for market valuations. Going forward, attention should be paid to the central bank's handling of the 400 billion yuan in MLF funds maturing in July.
Market Recap
On July 3rd, China's three major stock indices closed higher. At the close, the Shanghai Composite Index was at 4043.64 points, up 0.37%; the Shenzhen Component Index was at 15597.51 points, up 0.64%; the ChiNext Index was at 4019.93 points, up 0.07%; and the STAR 100 Index was at 2246.32 points, up 0.97%. Among Shenwan primary industries, Automobiles, National Defense & Military Industry, and Machinery & Equipment led gains, rising 4.43%, 3.53%, and 2.37% respectively. Basic Chemicals, Media, and Conglomerates were among the top decliners, falling 1.87%, 1.80%, and 0.94% respectively. 3,804 stocks advanced while 1,628 declined.
Capital Flows
Total market turnover was 3205.476 billion yuan, down from the previous trading session. The balance of margin trading and securities lending stood at 3022.896 billion yuan as of the last close, also down from the day before.
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