Welcome to this short and sweet New Year’s edition of our flagship editorial Steno Signals!

Before we get to the “Stealth QE” arriving in Q1-2024, I’d like to take a brief victory lap on some of the results that I am most proud of during the first year of business at Steno Research.

We have probably been the most accurate inflation forecaster on earth over the past 3-4 months as we have slowly but surely launched our state of the art nowcasting methods for the big countries. We will continue to expand on our nowcasting capabilities into next year and invest in further quant-ressources to be ahead of the curve on inflation, growth, liquidity and other key macro variables!

And yes, we are very confident that Euro-zone inflation prints 0.2%-points below consensus next week (We had Spanish CPI almost smack dab af forecast on Friday as well).

Chart 1: Our inflation accuracy has been tremendous over the past 3-4 months

While we are celebrating our inflation-progress, Powell and Yellen intend on handing out Stealth QE gifts to the banking system in Q1-2024.

USD liquidity is likely going to increase massively in Q1 due to a series of technicalities surrounding the BTFP, ON RRP and TGA facilities, which makes us set for a material rally (or a blow off top) in Q1.

These three liquidity adding mechanisms will more than outweigh the QT program (running at a little less than $95bn a month on average), leaving a very benign liquidity picture ahead for Q1-2024.

By our estimates, liquidity will increase with $8-900bn until end-March, which almost resembles a QE-light / stealth QE scenario, and the Fed has seemingly lost control of these mechanisms.

This will in case be one of the fastest liquidity additions on record, only outpaced during the early innings of the pandemic!

Chart 2: USD markets will be flooded with Q1 liquidity