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Steno Signals #106 – The cycle is improving. Not weakening.

It seems like old hat to discuss the weakness in labor markets as the cyclical vibes are getting stronger out of the high-beta economies globally. Will the US cycle follow suit?
2024-06-30

Happy Sunday from Copenhagen and welcome to our flagship editorial!

We spent most of last week examining cycle leads and lags as we continue to observe solid signs of re-acceleration in economies with low duration profiles and high sensitivities to interest rates and exports.

The Riksbank in Sweden, the BoC in Canada, and partially the ECB in Europe have all cut interest rates amidst an already improving cyclical environment. We are already starting to see the positive ripple effects. The Swedish orders-to-inventory ratio has improved to levels typically seen during the recovery phase after a recession or in the very late, ultra-hot stages of an economic cycle.

We wrote about how the “rate of change” will turn positive in terms of economic momentum and price inflation during the second half of 2024. The bellwethers in Sweden, Korea, and Canada serve as “monetary canaries,” but the big question is whether they can be used as early indicators for the US economy as well, which seems very out of sync with the global cycle due to a longer duration profile and extremely expansionary fiscal policy.

Will we see a similar re-acceleration of the “rate of change” in the US economy should the Fed move closer to an insurance cut or two during H2-2024?

Chart 1: The Swedish PMI details are very bullish

It seems like old hat to discuss the weakness in labor markets as the cyclical vibes are getting stronger out of the high-beta economies globally. Will the US cycle follow suit?

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