U.S. Inflation Expectation / Interest Rate Expectation / UEFA EURO 2024

Good Morning Ladies and Gentlemen

„Learning and enjoyment are the secrets to a fulfilled life. Learning without enjoyment hardens. Enjoyment without learning stultifies.“

Richard David Precht

U.S. Inflation Expectation

Inflation in the USA is easing noticeably, fuelling the financial markets‘ hopes of an interest rate turnaround in September. Last Friday, weak labour market figures reinforced the conviction in the US markets that the Federal Reserve will begin to cut key interest rates in September. The Atlanta Fed’s nowcast (GDPNow) describes the US GDP trend for the second quarter of 2024. The latest estimate fell to just 1.5%. This is the lowest estimate for Q2 2024 to date. Real US GDP growth in Q1 2024 was 1.4%. A 1.5% in the second quarter would mean that US growth for the first half of 2024 is below expectations of 2.0%. The 5-year break-even inflation rate currently stands at 2.22%. It is close to the level of the previous week. There are no signs of inflation flaring up again.

Department of Labour in Washington

Yesterday’s inflation numbers by the Department of Labour in Washington showed that the June inflation rate fell surprisingly significantly to 3% from 3.3% in the previous month. This represents the lowest reading in the current year. Economists polled by Reuters had expected a slightly higher figure of 3.1%. Even more noteworthy is the fact that June prices fell by 0.1%, while experts expected an increase of 0.1%.

September Interest Rate Cut

These numbers had an immediate impact on future markets. Following the surprisingly good data, the probability of a September interest rate cut by the US Federal Reserve is now estimated at 85%, up from around 70% just before the publication of the inflation numbers.

U.S. Interest Rates Development

The 10-year US yield already ended trading last week at 4.28%, thus below the 1-year moving average and the 200-day line. It not only closed the price gap but fell below it, which is a negative sign. (The weaker the US economy and US inflation, the more yields are likely to fall). However, Mr Powell did not indicate any immediate interest rate cut during his recent performance before Congress members. I suppose this will change in the near-term future.

UEFA EURO 2024

Ladies and Gentlemen, the European Football Championship is over for Germany and Switzerland. Hans and I will support Spain or England. Despite the elimination, I am happy about the Swiss team’s performance. For the last few weeks, the media over here concentrated on issues other than immigration and war thanks to EURO 2024, Switzerland’s good performance, and, again, at least here in Switzerland, Taylor Swift, who gave two apparently remarkable concerts. This was a fantastic and more than welcome break.

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