Rising Yields? / Elections’ Impact on Financial Markets

Good Morning Ladies and Gentlemen

”Art is like oxygen.”

Marina Abramović

Rising yields?

I was asked why yields are rising in the U.S., and I am happy to share my view. It seems many market participants are selling some of their bond holdings before the elections (= yields are rising) as a hedge against a Trump election victory. Although Donald Trump wants to stimulate the US economy, he also wants to significantly expand and increase tariffs on imported goods. This would consequently increase the US inflation rate, which would cause yields to rise.

Does the economic data support rising yields?

The latest data for the third quarter, published on Wednesday, shows that the net investment ratio of US companies was on the verge of falling in the spring but is now turning around again. The U.S.’s gross domestic product (GDP) grew by 0.7% compared to the previous quarter (2.8% annualised). Therefore, the soft landing of the economy that so many observers had been waiting and even hoping for could materialise, and if it does, it will probably happen shortly after the elections. Meanwhile, the rise in government bond yields will likely end in anticipation of the US elections. However, this week’s solid economic data also suggests that the US Federal Reserve will be in no hurry to increase the pace of interest rate cuts.

What about the EU?

Yes, Ladies and Gentlemen, that is a valid question. Spain is driving the economic bloc in the EU, while Germany is slowing down. Wednesday’s numbers for Q3 show that the differences between the major economies have widened. The eurozone’s GDP increased by 0.4%, with French GDP growing at the same rate. On the other hand, Italy only managed a red zero, and although Germany’s GDP increased by 0.2%, this was not enough to compensate for the more substantial decline in spring, which was revised downwards from -0.1% to -0.3%. Germany’s economic output is currently 0.1% lower than in Q1 2024 and just 0.15% higher than at the end of 2019. This marks the third consecutive year of stagnation following Russia’s invasion of Ukraine and the resulting energy crisis in Germany. I found some interesting comparative figures highlighting the challenges Germany’s economy faced over the past five years, i.e., before Russia’s invasion of Ukraine and the current government’s tenure. Since the end of 2019, France’s GDP growth has outperformed Germany’s by 3.9%, Italy’s by 5.4%, Spain’s by 6.5%, and the United States GDP growth was a hefty 11.3% higher than Germany’s.

The positive twitch

Lack of growth in the European Union may increase the chances that the European Central Bank will lower its key interest rates by 0.5% in December. I would not be surprised to see the Swiss National Bank act accordingly.

Elections’ Impact on Financial Markets

Over four billion people, about half the world’s population, are being called to vote this year. One of the significant events in this super-election year is the U.S. Presidential Election. However, elections in Brazil, India, Indonesia, and the European Union have not significantly impacted their respective stock markets. It can be assumed that the same will hold for the U.S. Economic growth remains the critical factor influencing stock market performance. However, in the short term, I would not exclude a rumble in the jungle after another dirty U.S. election campaign.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

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

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
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Mail: smk@incrementum.li