After an accurate prediction of April's downturn, Steno Research sees positive momentum ahead. Andreas Steno, lead analyst, explains that their Macro Regime Indicator signals a favorable outlook for May, with expected improvements in inflation, growth, and liquidity that should support risk assets and reflationary trades through June.
Growth:
April saw mixed signals, with improving trends in Sweden and Canada but weaker U.S. PMI data. Despite this, Sweden's PMI could offer a strong leading indicator for U.S. ISM Manufacturing data, with growth momentum likely to recover.
Inflation:
Steno's forecasts anticipate higher-than-consensus inflation, with headline and core figures surpassing expectations due to rising food, energy, and rent costs. Although inflation remains stubbornly high, nowcasts suggest a resurgence in goods pricing.
Liquidity:
An earlier and more aggressive tapering of quantitative tightening (QT) may lead to increased liquidity soon. As the U.S. Treasury General Account shrinks and Treasury bill issuance accelerates, liquidity should rise into Q3 and possibly through May and June. The liquidity situation contrasts sharply with April's outlook, with a projected return to over $6.5 trillion by the 2024 election.
Asset Allocation Model:
The current "Up, Up, Up" macro regime favors equities and commodities. Steno's model identifies Asian equities as outperforming European stocks, and Brent crude and copper providing solid returns in commodities. The USD is expected to stabilize, with long positions in USDCNH being favorable.