Steno Signals #113 – Neither Inflation, Growth, Nor Liquidity is rising right now
As most of you know, we remained upbeat on the cycle until around mid-July, as growth parameters continued to perform solidly in real-time, while inflation also posed a risk of re-acceleration.
Our real-time tracking of the three main macro parameters is the cornerstone of our macro thinking, and through July and August, we have begun to observe a significant shift. The risk of rising inflation has collapsed, while growth momentum has also weakened substantially.
Liquidity remains in a lukewarm range, staying above pain thresholds but not rising markedly. It is currently likely that inflation, liquidity, and growth will all surprise to the downside in the coming month or two.
This represents a game-changer compared to the environment we saw throughout most of H1, and it suggests that a bit of patience will be necessary in the coming months. We are now mostly allocated in USD fixed income after riding the wave in risk assets during H1.
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Chart 1: Something changed in July
We track the probability of rising growth, inflation, and liquidity momentum in real-time on a daily basis, and the developments since the start of July have been notably weak. This is the kind of setup needed to prompt central banks to restart their actions.
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