State of the Union with Andreas Steno

This is one of the episodes from Real Vision and Steno Research for the monthly State of the Union session from Andreas Steno. It's particularly important to note that this seems to be a pivotal moment for the markets, with several factors gearing up towards increased liquidity.

Macroeconomic Overview: Inventory Overhang and Tariff-Led Volatility

As of late May 2025, companies across various sectors appear to have front-loaded raw material imports and stockpiled inventories ahead of anticipated tariff implementations. This has now culminated in a temporary supply glut and production slowdown in the U.S. as the trade restrictions begin to bite. The abrupt enforcement of tariffs—especially on Chinese and Southeast Asian imports—is reversing prior optimism, reinforcing fears of trade protectionism. Some firms are already responding by activating alternative trade routes to bypass tariff-related costs, a trend particularly notable in automotive and electronics sectors.

Inflation Outlook and Bond Yields

Contrary to mainstream predictions, inflation appears to be softening, with projections suggesting a notable decline over the next two months. This moderation is partly due to the inventory front-loading effect, which is creating temporary deflationary pressure. Scott Bessent and other macro strategists have highlighted that 3.75% is the bond yield level they’re targeting as sustainable. Data from platforms like Truflation—aggregated via real-time price scraping from retail websites—supports the view that disinflation is already underway. Concurrently, falling oil prices are adding further downward pressure on yields, which should eventually support financial conditions and improve investor sentiment.

Market Sentiment and USD Outlook

The back-and-forth on tariff policies is causing confusion and uncertainty in equity markets, triggering risk-off sentiment. Nevertheless, GDP growth—though expected to be slower—is largely being interpreted as a reflection of accounting lags rather than economic weakness. Meanwhile, macro conditions are setting the stage for a potential depreciation of the U.S. dollar (USD), with the Dollar Index (DXY) likely to trend below 100. If this USD weakening plays out, it could mark a major turning point for risk assets, especially cryptocurrencies.

Liquidity Dynamics: Mixed Signals from TGA, Fed, and Banks

Of the three major macro liquidity agents—Treasury General Account (TGA), the Federal Reserve, and the banking system—two are currently injecting liquidity into the market. The TGA is actively drawing down funds to meet obligations ahead of the debt ceiling deadline, which is pushing liquidity into the system. While the Fed isn’t currently expanding liquidity, there are signals it may pause Quantitative Tightening (QT) within the next month, especially if disinflation persists. Notably, commercial bank credit—particularly from large institutions—is rising, adding further tailwinds to market liquidity and risk appetite.

Investment Timing and Crypto Implications

Given these dynamics, investors may be entering an opportune window to accumulate risk assets. 4 factors are in play.

1. USD depreciation

2. Peaking bond yields

3. Increasing bank credit

4. Potential QT pause

Historically, USD depreciation has a 90-day lead effect on asset price rallies. If the DXY indeed drops from its current level of around 104 to below 100, this could unlock a 50% upside in Bitcoin prices over the next quarter. Such macro-aligned cycles often correlate with outsized crypto returns, especially for institutional-grade assets like BTC and Ethereum.