Forward Guidance
The Credit Cycle Is Just Getting Started | Andreas Steno Larsen
Feb 12, 2025
Andreas Steno Larsen, a contributor at Real Vision and CIO of Steno Global Macro Fund, offers a deep dive into the current macroeconomic landscape. He discusses the interplay between liquidity dynamics and credit markets, detailing how private credit growth influences equity markets. The conversation highlights the complexities of inflation and its disparate impact across different sectors. They also explore market trends, particularly the implications of wage growth on performance and the evolving role of major companies in shaping economic recovery.
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Quick takeaways
- The current credit cycle shows a significant uptick in private sector liquidity despite central bank tightening, indicating strong risk asset support.
- Inflation dynamics reveal a mixed landscape, with declining goods prices contrasting with stubborn service costs, impacting future Federal Reserve policy.
Deep dives
Understanding Liquidity Dynamics
Liquidity plays a crucial role in financial markets, and its current state reflects significant developments over the past 18 months. Central banks, particularly the Federal Reserve, create a base layer of money primarily through quantitative easing (QE), but there are other mechanisms for liquidity generation. Notably, the private banking sector has demonstrated robust credit creation, which provides a contrasting view to the tightening narrative often observed in central bank measures. Despite the Fed's tightening policies and higher interest rates, private sector liquidity remains abundant, suggesting that the financial environment may still support risk assets.
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