In today’s briefing:
- Steno Signals #77 – Oil Demand Is ALL TIME HIGH
- The Animal Spirits Are Still Alive
- What Happens After the Momentum Chase?
- Navigating the Fog: Modelling Illiquid Assets in Real-Time
- Overdue Reality Check Required? Aggressive Fed Policy Rate Cut Expectations Underpin Risky Assets
- China Aggregate Finance Under the Hood
Steno Signals #77 – Oil Demand Is ALL TIME HIGH
- Happy Sunday and welcome to our weekly flagship editorial from Steno Research.
- It has been an incredibly odd week in the economic calendar and our thesis of a strong year-end for USD key figures has so far been proven right, which especially after the NFP report re-ignited the USD and front-end USD rates, which has been our bet against especially European peers.
- Most recent economic key figures from the US have not surprised positively to the extent we saw through the autumn, while Chinese key figures have woken up and made a decent comeback relative to expectations over the past months.
The Animal Spirits Are Still Alive
- The combination of strong price momentum, supportive market positioning, positive liquidity, and intermarket factors argue for a rally into year-end.
- However, the CPI report and FOMC meeting next week could derail the bullish scenario and become the source of market volatility.
- Historically, positive year-end seasonality in a pre-election year starts about mid-month, which begins just after the FOMC meeting.
What Happens After the Momentum Chase?
- The market appears to be setting up for a beta and momentum price melt-up into year-end. The question is what happens afterwards.
- Top-Down macro indicators are supportive of the soft landing scenario.
- From a technical perspective, the bulls need to broaden market leadership and allow the market to sustainably advance.
Navigating the Fog: Modelling Illiquid Assets in Real-Time
- Advanced modelling of illiquid assets offers real-time valuation estimates, enhancing decision-making in multi-asset portfolios with elements like Private Equity LP interests.
- These techniques go beyond traditional analyses, correlating assets with macroeconomic factors for a comprehensive view of portfolio performance.
- Implementation includes adjusting the latest Net Asset Value for market dynamics, with back-testing ensuring continual accuracy and relevance.
Overdue Reality Check Required? Aggressive Fed Policy Rate Cut Expectations Underpin Risky Assets
- Fed Chairman Powell has been more balanced with his policy outlook rhetoric. The recent easing of financial conditions makes it more difficult to become dovish about imminent policy rate reductions.
- The dovish tilt in Fed policy rate expectations has been very bullish for US equities, although the impact on currencies has been somewhat more nuanced, particularly against the euro.
- Gold prices are suggesting that easier Fed policy could produce the return of rising inflation. Ideally, the Fed would like to sit on the side lines next year.
China Aggregate Finance Under the Hood
- Xi-Biden Summit: Geopolitical Tensions Easing, But Underlying Issues Remain
- The Xi-Biden summit has led to a perception of easing geopolitical tensions and a conscious effort to de-escalate the situation.
- Topics included talks on fentanyl, military matters, and artificial intelligence.
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