The Economy Is Sending a Surprising Signal | Macro Mondays

Mikkel Rosenvold · Steno Research (Real Vision)

Republicans can still win 2028 by flipping 4-5% of white voters; no permanent one-party state.

Republicans lost 37 House seats, a loss typical of an unpopular president near even approval ratings. The biggest drop was among young white men, who didn't turn out, while Republicans mobilised some minority voters. Republicans need 57-58% of white voters to win, not the two to four point margins they got, but only 4-5% of white voters flipping or turning out is doable, so the playbook still works. Since US single-member districts produce a two-party system, parties will keep balancing base against centre. He thinks Democrats will likely fumble the next cycle despite strong 2028 candidates.

“we're talking about 4% to 5% of white voters flipping or getting out to vote. That's still doable.”at 5:44

Mikkel Rosenvold · Steno Research (Real Vision)

Debt ceiling and shutdown fights loom; a 2028 shutdown could hit markets as the last one did.

Trump cannot avoid needing Congress to pass budgets and let him borrow. The debt ceiling X-date is expected around late 2027, most likely early 2028, and 2027 appropriations are coming up. He expects the lame-duck period to be productive, with the 2027 budget a no-brainer despite opposition from Rand Paul. Raising the debt ceiling in the lame duck would free up Trump's time and political capital. He expects continued battles over the debt ceiling and spending for the rest of the term. Because the last government shutdown was very bad for markets, another could hit in 2028.

“expect that last time we have a government shutdown, it was very, very bad for markets. We could have that again during 2028.”at 11:01

Mikkel Rosenvold · Steno Research (Real Vision)

Democratic opposition to the AI buildout is overblown; base case is a 30% holdback in 2028, milder than Thursday.

Expects Democrats to attack the AI buildout on two fronts: governors trying to halt or pause local data center projects, and Democratic Senate and House members working on AI legislation that probably won't pass until a new president. Calls the reaction to this Democratic opposition overblown. A 30% holdback in 2028 is the base case, which is bad but not nearly as bad as Thursday's selloff. Expects uncertainty for suppliers to resolve over the coming months.

“I think the reactions on the AI build out, the democratic opposition to the AI build out, were very overblown.”at 11:35

Mikkel Rosenvold · Steno Research (Real Vision)

Democratic AI legislation could pause the frontier, letting big AI firms shift compute to selling inference.

Hyperscaler bosses asked for legislation, and Trump said 'we need help controlling ourselves', which Mikkel reads as needing help keeping new competitors and China out. A Democratic Congress more willing to consider AI legislation may pause the frontier. That would let AI companies move more compute from developing models into inference, selling it to customers without fearing being overtaken by Chinese or other models, provided the legislation is set at the right level. He is not overly concerned about this, though he acknowledges some uncertainty for data center suppliers.

“So a democratic congress more willing to look at AI legislation may be pausing the frontier.”at 13:29

Mikkel Rosenvold · Steno Research (Real Vision)

Thursday's $70B AI-trade deleveraging looks like a bottom; he expects an upward correction in the AI trade.

Over $70B was wiped out in about ninety minutes on Thursday, the largest one-day deleveraging since 2016 by Morgan Stanley data. Hedge funds had heavy risk on the AI bet and believed the bottom had come, but it hadn't. Anti-AI sentiment after the midterms pulled the rug from under markets and caused the washout. He says it resembles the software washout last spring and winter, which could smell like a bottom. He remains a little worried about rates, which were a big part of the move.

“I have the feeling that this could smell a lot like a bottom.”at 15:19

Mikkel Rosenvold · Steno Research (Real Vision)

US inflation is rolling over sharply; a soft print could end the hiking cycle abruptly.

Steno's Nowcast measures inflation in real time. Over the past two weeks it moved from roughly 50/50 odds that inflation would exceed the latest print to near certainty that inflation has rolled over. Official data typically lags by four to six weeks, so tomorrow's report probably won't reflect it, though even a slight soft surprise could trigger a rally. If the pattern holds, expects a very soft surprise and potentially an abrupt end to the hiking season, which markets are looking for. Notes the model ignores idiosyncratic oil factors.

“We're seeing inflation rolling over massively over the past two weeks.”at 16:34

Mikkel Rosenvold · Steno Research (Real Vision)

Nowcast growth odds rose from 34% to 45%; economy edging toward the gung-ho regime from QE-like.

Steno's Nowcast shows the growth probability rising from around 34% to 45%. This means the economy is edging closer to shifting from the QE-like regime it is currently in toward the gung-ho regime. He says this matters for equity sectors, equity styles and many FX pairs, where the regime classification is a useful input, though it should not steer oil forecasts because of idiosyncratic factors.

“look at the green chart here, the growth, which has gone from around a 34% chance to now 45% chance.”at 17:27

Mikkel Rosenvold · Steno Research (Real Vision)

Skeptical Russia truly wants compromise; security guarantees are the key obstacle to peace.

Russia's economy is doing okay, Putin got past the US midterms, and he has two more years of Trump to work with, so there is no rush for Russia to compromise. Ukraine will be willing to compromise. The border issue, the frontline versus Russia's demand for whole regions, could probably be worked out. The big issue is security guarantees: Ukraine won't accept a peace it must defend again in five years, while Russia won't accept NATO or Western troops on its border. A possible compromise is EU membership plus bilateral security deals with the UK, France and Germany, with Western troops west of the Dnieper and a demilitarised buffer zone. Russia still believes its offensive can hurt Ukraine, and Europe is not in the room.

“I'm still very skeptical that the Russians have a true desire to negotiate and that there's true will to compromise here.”at 21:49

Mikkel Rosenvold · Steno Research (Real Vision)

Ukrainian strikes on Russian refineries explain about a third of the diesel crisis.

He spoke with several oil experts, including Roy Johnston, who agreed that Ukraine's damage to Russian refineries is partly to blame for the diesel crisis, about one third of the blame. A Ukraine peace could therefore potentially solve about a third of the diesel problem. The Iran war is unresolved and remains a major driver, so the diesel crunch is not fully explained by Ukraine.

“Ukraine has done a lot of damage to Russian refineries. ... they agreed that this was partly to blame for the diesel crisis, probably one third of the blame, to be very specific, they both agreed on.”at 25:29

Mikkel Rosenvold · Steno Research (Real Vision)

Peace in Ukraine and Iran would set up a Christmas rally and a rally into 2027.

The Iran war isn't solved and the diesel crisis persists. He hopes Iran will be on the table at the Shenzhen meeting. If the world moves toward peace in both Ukraine and Iran, that would be a set-up for a Christmas rally and a rally into 2027, which is what he is looking for. The view is conditional and hedged with 'hopefully'.

“hopefully moving towards peace both in Ukraine and Iran. And boy would that be a set up for a Christmas rally and a rally into 2027.”at 26:08