Market Lab Report - QE/global liquidity will continue to rocket regardless of who is elected

by Dr. Chris Kacher

The JOLTS survey showed total job openings in July fell to the lowest level since the start of 2021. Layoffs, meanwhile, climbed to 1.76 million, the most since March of last year.  



The ratio of empty jobs per unemployed worker fell to 1.1 in July, the lowest since 2021 and well below the 2-to-1 ratio seen in 2022. The report underscored recent concerns from the Fed that the jobs market is getting weaker and labor demand is softening. “As Chairman Jerome Powell said recently, further cooling of the job market is unwelcome,” said Bankrate senior economic analyst Mark Hamrick. “But that is exactly what the JOLTS update conveys.”

Treasury yields fell, with that on the two-year note dipping below the 10-year yield for just the second time since 2022.



The yield curve has been inverted for a historic 27 months without a meaningful economic slowdown. When it uninverts, the S&P 500 has underperformed out to at least a few months. But that data is based on pre-2008 before the Fed and other central banks could simply sandblast markets with QE.

And last Thursday's ADP employment report was the weakest since Jan-2021 coming in at 99k vs 145k est, though unit labor costs came in at 0.4% below 0.8% est and nonfarm productivity matched expectations at 2.5%.

That said, the US credit markets (broken line) see the economy as measured by the headline ISM Index not heading into recession. Credits lead the economy by a few months and statistically show strong causality as noted by Raoul Pal et al. ISM is cyclical so its lows were likely already reached, especially given accelerating global liquidity and lower rates ahead.



Over in the jobs reports, US nonfarm payrolls came in at 142k vs 165k. Unemployment came in at 4.2% matching estimates. The jobs report is key though keep in mind much of the data is distorted. Markets dont seem to pay much attention to this fact, but instead focus on the data as it is reported. Also in July, this number was revised lower by 25k to 89k and in June revised lower by 61k to 118k.

Companies are hiring less but people are quitting less. Only tech and media jobs have been the standout with hiring accelerating 7.2% from July 2023 to July 2024. That said, the tech and media industry has yet to return within range of pre-pandemic levels. All other sectors have been down or flat.

And while people are quitting less, they are also more aggressively looking for work.



So we have moderating inflation, a weakening jobs market, and a tepid economy which will prompt the Fed to start cutting rates probably by 25 bps unless the economy nose dives. So far, based on GDP data, the economy is holding its own. This is due to a combination of doctored data, stealth QE, and utility created by cutting edge tech such as generative AI. But should deflation set in as oil and other commodities fall, that would be a worrisome sign which would force the Fed to be far more reactionary with more aggressive rate cuts and perhaps the relaunch of overt QE.




But overt or covert, QE remains alive and well in all its forms due to unfunded liabilities such as record debt interest. Both Presidential candidates know this so stealth QE will continue whoever wins the election. Trump's tax cuts compared to Harris's tax increases will make a positive difference to stocks but the speed at which fiat is created will make the largest difference.