The June 2012 Unemployment Report Is The Most Important Data Point That Could Lead To QE3:
Last time we told our readers to stay focused on an unemployment report, markets fell sharply after the news was announced. Since then an extended ‘Operation Twist’ occurred which we predicted, China lowered interest rates for the first time in four years while Australia also cut rates. This week we believe similar outcomes are possible with 4 weeks of dismal initial jobless claims reports now solidifying the U.S. economy is weak and putting downward pressure on the global economic recovery.
Global PMI data from around the world won’t trump U.S. jobs data and we expect the ECB could cut rates along with more easing from the U.K. in the form of greater LTRO. If unemployment spikes to 8.3 percent, the Federal Reserve Bank may move quickly towards QE3 after overestimating growth earlier in the year. Inflation is tame and suggests the economy could stagnate. Stagflation is incredibly difficult to contain so we expect Ben Bernanke and the Fed to move swiftly as market participants will be extremely disappointed that after ‘twisting’ – there was no more easing.
May 2012 unemployment came in at 69,000 and we believe the June numbers will be relatively similar barring significant changes in the labor participation rate. Increased or relatively similar unemployment rates will make headlines worldwide. We reiterate our prediction that unemployment will come in at 75,000 +- 50,000.