At 5:00 a.m., a rare scene occurred

Source: Wall Street Intelligence Circle

Last night, traders had smiles on their faces for the first time in a while.

—Usually, worsening economic data would drag down the stock market, but this time, the bad news didn't cause panic. Instead, US stocks, gold, and US Treasuries almost all rose together.

At 5:00 a.m. East 8 Zone, as global markets closed, a rare scene unfolded: "The dollar fell, and everything else rose."

- US stocks rose across the board: the Dow Jones up 0.28%, the S&P 500 up 0.62%, and the Nasdaq up 1.30%;

- Gold surged $100, closing above $4,300;

- US Treasuries rose, with the 10-year US Treasury yield falling to 4.64%;

- The dollar dropped to a two-month low.

After the nonfarm payrolls data was released, the market found an almost perfect explanation— the economy is weak enough to stop the Federal Reserve from continuing rate hikes, but not so weak as to destroy corporate profits.

July nonfarm payrolls: "-23,000", far below the market expectation of "+80,000", and the previous two months were also significantly revised downward, enough to make the market worry about the economy. But with gold, stocks, and bonds all rising and the dollar falling, the market isn't trading on "recession," but on "no rate hikes"—the probability of a Fed rate hike in September has dropped to 44%, from 55% before the data release. The "bad news is good news" trading logic has returned.

The dollar index is moving away from the 100 level, US crude oil is moving away from $80, and the 10-year US Treasury yield is moving away from 4.70%. Market risk appetite is back.

Next week's CPI will test the market's latest logic: will inflation allow the market to keep climbing? If next week's CPI is also weak, it will create the combination most favored by risk assets: "stocks, bonds, gold all rise, dollar falls," and this structure may continue. But if CPI unexpectedly jumps, everything changes. From now on, every piece of "bad news" must be watched to see if stocks can still go up.

A detail worth noting is that in the second hour after the nonfarm data release, the market saw a slight reversal—gold gave back nearly half of its post-data gains (the most intense part of the surge was largely erased), and the dollar recovered nearly half its losses.

Nonfarm payroll data has brought back the "bad news is good news" logic, but how long this rule will last is still unknown.