Diverging Forces: China’s Growth and Higher Inflation in the U.S.

Good Morning Ladies and Gentlemen

“The US is being ‚humiliated‘ by Iranian leaders as President Donald Trump struggles to negotiate an end to the war.”

Chancellor Friedrich Merz

At times, I get the feeling that today’s so-called ‘free space for debate’ on social media is dominated by the commercial interests of a relatively small group of very large tech companies, and quite frankly, I think this tends to foster fatalism and pessimism rather than optimism and resilience.

Last Week’s “Stefan’s Weekly”

Following my post last week, I have had several conversations, particularly about my views on renewable energy. Structural changes will take time, and current technology cannot yet fully and reliably integrate renewable energy into the grid without interruptions. However, I also believe that moments like these are essential for fostering creativity.

Boosted Chinese Trade

Examining the trend in Chinese trade since 2017, which coincides with the period just before President Trump enacted his initial punitive tariffs on China, yields remarkable insights. Contrary to expectations, the U.S. approach has not impeded China’s foreign trade; instead, it has spurred a structural shift that has significantly enhanced the export sector. In essence, a modest trade miracle has occurred in China. Had it not been for the Trump administration’s persistent focus on tariffs, the U.S. would have had to concede that merely threatening its rival and imposing trade restrictions is largely ineffective on its own.

A More Effective Strategy to Deal with China

We believe that a more effective strategy would entail systematically identifying areas for cooperation that could alleviate tensions and provide benefits for both parties, despite the existing competition. The Chinese refer to this approach as a „win-win,“ though they usually seem to seek a slight edge in benefits for themselves, just as does the U.S.

U.S. Inflation

The latest inflation figures were released on Tuesday, revealing that U.S. inflation remains uncomfortably high. April’s data show that the headline consumer price index rose by 3.8%, aligning with analysts’ predictions and continuing an upward trend that began prior to the Iran war, surpassing the Federal Reserve’s upper target of 3%. This marks the highest inflation rate recorded in three years. Additionally, the core inflation rate increased slightly more than expected, reaching 2.8%. While the overall inflation rate did not significantly impact financial markets, the 4% surge in oil prices caught attention due to intermarket dynamics. Consequently, the yield on the ten-year Treasury rose by 5 basis points to 4.46%, while the yield on the thirty-year Treasury surpassed the psychologically important 5% mark, reaching 5.03%. However, the primary issue remains the surge in energy prices caused by the blockade of the Strait of Hormuz. Energy prices are often subject to significant volatility, and monetary policy has limited ability to influence them. Consequently, central banks typically focus on core inflation, which excludes food and fuel prices. By excluding energy costs, the inflation rate can be lowered to 2.8%, just below the Federal Reserve’s target of 3% (which used to be 2%). Therefore, the consumer price index excluding energy paints a much more moderate picture than it did at the height of the post-pandemic inflation crisis.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li. Many thanks, indeed!

I wish you an excellent start to the day and 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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9494 Schaan/Liechtenstein
Mail: smk@incrementum.li