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Market Lab Report - Premarket Pulse 3/12/18

Friday's jobs report suggested the strongest labor market in two decades and the biggest gain in nonfarm payrolls since mid-2016. The very low unemployment rates seen at home and abroad seem to contradict reality. Indeed, the recent stance from the European Central Bank suggests things are not economically robust over in Europe, otherwise the ECB would have been more optimistic about reducing their bond buying program. Last week, the ECB said it would continue its program of asset purchases through September, "or beyond, if necessary." The ECB left its refinancing rate at 0%, while the rate paid on deposits parked overnight at the bank was left at -0.4% and the rate on the deposit facility was left at 0.25%. The ECB repeated that it expects rates to remain at present levels "for an extended period of time, and well past the horizon of the net asset purchases."

The ECB's stance is no different than what other central banks are thinking. In other words, despite 9 years of a QE bull market, the money printing party could continue for even longer than expected. With QE money flows still near record levels, the U.S. market continues to be the primary beneficiary. And despite rates at historically low levels, and negative in some cases, that does not deter the ECB from potentially increasing its asset purchases if necessary. Negative rates in Germany and Japan have been shown to corrupt financial structures. But central banks may have no choice should global economic conditions deteriorate.

Meanwhile, an ultra-tight US labor market could spur inflation, causing the Fed to hike rates faster than expected, which could induce stagflation and burst the QE bubble. That said, the Fed knows this so the headwind of higher rates in the U.S. may be a breeze instead of a gale force hurricane as QE money flows from the ECB, Bank of Japan, and Bank of England keeps a shallow floor on corrections in U.S. equities. It is also a bullish sign that stocks closed higher on the day Trump signed his tariff bill.

So while the global economy runs on QE-fumes suggesting growth, the economic engine seems to be, in reality, running on a couple cylinders in great need of an overhaul while central banks continue to pour rocket fuel into the tank hoping for some continued measure of progress. Since 2016, major averages have corrected beyond a few percent just once. The fast bounce back to new highs suggests global QE will win the tug-o-war vs. higher rates in the U.S. The number of actionable set-ups in the form of Wyckoff undercut & rally set ups underscores this point.

Futures are up around half a percent at the time of this writing as the NASDAQ Composite and NASDAQ-100 both continue their march into new high ground. 
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