So let's try to become as concrete as we can. The liquidity outlook and the outlook for interest rates, both of those outlooks obviously matter for risk allocations and for trading. And when we look at the liquidity outlook first, it looks very benign for the US economy over the course of Q1 and early Q2. The reason is that the so-called reverse repufficility at the Federal Reserve is being depleted right now. Money markets funds pull out money from the Fed. They invest in bills, meaning that deposits in the real world are created during the process. The Federal Reserve has told us as soon as this overnight reverse repufficility is close to zero, they'll end the quantitative tightening program. To me, that means that the March meeting is very live in terms of taking that decision. So maybe we do not get a right cut in March, but we'll get a tapering decision to the QT program, which is pretty bullish for risk assets. So a benign liquidity scenario with interest rates cuts upcoming through the spring. It sounds like a pretty decent cocktail, and it is when we look at it empirically. When we look at liquidity versus the S&P 500, first of all, we have an almost picture-perfect correlation between the yearly changes of the two. As I told you, we should expect liquidity to increase, say, 10% to 20% on the year through the spring year, meaning that there is a pretty decent probability of new highs in the S&P 500, in particular in stocks with a high sensitivity to this liquidity story. I've made a heat map of such indices with a high liquidity sensitivity, and at the very top of the leaderboard, you have the NASDAQ index, so basically technology. I'm heavily invested in that narrative myself. I know Raoul is as well, and it basically rhymes with what we see in the economic cycle and in the liquidity cycle right now. If we look at how interest rates typically behave given the increase in liquidity, I think it's relatively safe to say that the yield curve will steepen in such a scenario. On the next page, we have a chart showing the yearly change in liquidity, versus the spread between five-year and two-year interest rates in the dollar curve. Essentially, when we see liquidity increase, it's typically a sign that interest rates will be cut, but it is also a sign for longer-term interest rates, in this case, five-year interest rates to move up relative to the front end, and therefore, the curve steepen in the dollar curve looks very attractive here as a consequence as well. All of this in relation to the Fed Outlook, we've basically talked about how they can take a decision on QT already by March as a consequence of these liquidity trends and as a consequence of the overnight reverse repo facility. But what about inflation? Now that the cycle is improving again, at a time where inflation is not back at target levels, is that an issue from an inflation perspective? In the last special edition of Stenosecals, we talked about how the distortions to global supply chains could lead to a revival of inflation due to higher shipping costs, both due to issues in the Red Sea and the Swiss Canal, but also due to issues in the Panama Canal. But let's have a brief update on the actual developments in shipping space. If we look at freight rates over the past couple of weeks, we've actually seen a fading trend in the shipping routes between China and Europe, and those have been sort of a center of attention due to the issues in the Red Sea. We're

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But we still see increases in the shipping rates between say Shanghai and LA for example, so between China and the US. So there's a discrepancy here, and why is that? Well, if we listen to MERSC, so the biggest Danish shipping company, they posted their annual report earlier, and they basically said that they saw better demand site in the US relative to Europe. And that's one of the reasons why we see this divergence in trends in freight rates now with shipping rates towards the US, still picking up relative to Eurozone equivalents. And I think that's a strong hint that the US economy is performing better than Piers. But we're still stuck in a situation with very few ships in the Red Sea, and very few ships in the Panavacanel. This fresh example here is an example of the amount of activity in the Red Sea relative to usual levels. So 100% is sort of a typical level, and we're, as you can see, far below that 60% down or so, meaning that the Houthis, this group from Yemen, they've still managed to sort of wreak havoc with supply chains through the Red Sea. And we know that the Panavacanel is still not functioning at full capacity either, so we have shipping distortions despite this slight veining trend in freight rates. But we're currently helped a lot by seasonality in terms of global shipping. That's the final shot I want to show you today. If we look at typical patterns of when goods are shipped from China to the US, we're basically at local lows or yearly lows here in February. This is the month with sort of least activity in shipping space from China to the US. As you can see, as soon as we approach March and April, we get a sort of a cyclical pickup from seasonal patterns in the actual shipping activity. And if we get to March April without any improvement in the situation in the Red Sea or in the Panavacanel, currently that would be my base case that we don't get that improvement before March April. We should probably expect prices on various shipping routes to increase again. And ultimately, I think this is currently the biggest risk to the whole cutting cycle narrative. We get increasing freight rates, increasing price patterns in goods imported via sea, and an ultimate spillover to consumer price inflation as a consequence. So ultimately, how do we trade all of this? This is a snippet from our current portfolio, where long tips, so rising inflation relative to interest rates. We're short euro dollar, basically on a bet on a relatively stronger demand development in the US. And as you can see, we're long XLK, the technology bet. We're also long the curve steep, STU, and a couple of other trades. So it all rhymes with this improving cycle, but we still need to be aware of the risk of an acceleration in the price of goods as a consequence of this re-acceleration of the economic cycle in the US. And that is one of the things that I'll keep on tracking over the course of the early spring in this show. With those words, I'd like to say thank you for watching Stenos signals, and I'll be back again next week with another macro update. Remember that this is a window into my thinking on macro and how to trade it. I cannot guarantee that you have the same risk appetite or risk horizon as I have. But what I can guarantee you is that I'll be back week in and week out with the show Stenos signals here at Real Vision. Thank you for watching. We hope you

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