Inflation / Energy and Prosperity / Question for the Weekend

Good Morning Ladies and Gentlemen

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U.S. Inflation Data

This week’s U.S. inflation data for October showed an increase from 2.4% in September to 2.6% in October. This result is owed to a base effect that was generally in line with expectations and provided the US dollar with an additional boost. While the data does not rule out further interest rate cuts by the U.S. Federal Reserve, it could support those advocating for a slower pace of rate reductions. Currently, nearly 80% of economists anticipate a 25 basis point cut in U.S. interest rates on December 18, while around 20% expect rates to remain unchanged. Broader market participants seem to share a slightly different view, reflected in recent weeks; the yield on 10-year US government bonds has risen sharply. Following President-Elect Trump’s vic-tory in the presidential race, U.S. bond yields rose to their highest level since the Federal Reserve cut interest rates in July, approaching 4.5%. In Germany, long-term bond yields have likewise increased, though to a lesser degree. Ten-year Bunds, which had a low yield of 2.04% at the start of October, are now yielding 2.38%. In contrast, Swiss Confederation bonds have remained relatively stable, with their yield only increasing slightly from a low of 0.34% in early August to 0.37% as of Wednesday.

U.S. Interest Rate Cycle

Already prior to the final election results, the U.S. central bank announced further interest rate cuts, although it did not clarify the rationale behind this decision. Futures traders are anticipating an additional rate cut of 25 basis points on December 18, followed by a pause in January, with another cut expected in March. However, given Donald Trump’s tariff policy, I believe that futures traders‘ expectations may be over-ly optimistic. The rate cut cycle is unlikely to go on and on and should conclude even-tually unless a recession occurs, which is not currently projected.

Goldman’s View

However, economists at Goldman Sachs remain unconcerned. Despite the recent US inflation figures, they maintain their yield target of 3.85% for 10-year US govern-ment bonds by the end of December. Observers note that this would effectively rep-resent a real decline in interest rates over the upcoming weeks. However, the situa-tion does not appear to be trending that way at the moment. The legendary Franz Beckenbauer once said, “ Let’s take a look, and then we’ll see” (freely translated).

Energy and Prosperity and a Question for the Weekend

With a newly appointed government in the U.S. and an expected change in govern-ment in Germany, early elections will be held in February 2025; I wonder what the impact on energy production and consumption will be. This change may bring a new perspective on the issues of energy production and consumption. Statistics show a clear correlation: as a country’s GDP per capita increases, so does its energy de-mand. In other words, prosperity is closely tied to energy availability. Electric vehi-cles, KI, still growing population, etc., demand high and continuous levels of (electric) energy. Where should this come from? Let me know your views.

Ladies and Gentlemen

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Many thanks, indeed!

I wish you an excellent start to the day and the weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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Mail: smk@incrementum.li