Daily Voice: LGT's Stefan Hofer expects India–US trade deal before Christmas, sees sharp fall in US tariffs on Indian exports

The rate cut of 25 basis points at the October 30 by the Fed was fully expected by investors. The pathway to rate cuts was made clear with the latest inflation report, which was benign. Given the federal government shutdown, most economic indicators are not being tabulated, which complicates the task of the Fed, but it is safe to assume that the labour market is softening further, hence monetary easing is warranted.

During the press conference, Chair Powell tried to downplay notions that another rate cut on December 11 was a foregone conclusion.

Do you expect the rate-cut cycle to continue in December, followed by a pause through 2026?

Our baseline assumption at LGT is that the Fed will move again in December, especially if tariffs come down and lessen pressure on inflation. The Powell Fed runs until May 2026 as we believe the Chair does not want to be associated with pronounced labour market weakening, so rate cuts in 2026 are likely as well.

Are you concerned about the outlook for US economic growth?

The combination of ongoing monetary easing plus the fiscal boost coming from the “One Big Beautiful Bill” tax and spending bill that was signed in July implies that US economic growth in 2026 should be north of +2% - even with some further labour market weakening. Furthermore, we know that capital investment by US economies is at very high levels, which further underpins a solid growth outlook.

Is there any significant impact from the US government shutdown, given that it has stretched for a month now?

There is anecdotal evidence of widening disruptions to the economy due to the government shutdown – for example, air traffic controllers are not showing up to work, causing delays and cancellations of flights across the US. The situation will only worsen as this shutdown continues.

The sticking point is that Democrats seek extensions to tax credits for health insurance, which Republicans do not want to see through. So far, neither side seems willing to compromise, meaning that the shutdown could persist for some time yet.

Do you see a possibility of India signing the first phase of the trade deal with the US in November or before Christmas?

In short, yes. The US has paid particular attention on the source of India’s energy imports, and any changes on this front will be welcomed by the Trump Administration. We expect to see US import tariffs on Indian exports to fall substantially.

Are you currently overweight on the AI theme?

Many investors ask whether the AI theme is now in bubble territory, with the risk of a significant correction being around the corner. The reality is that that US has a very wide lead in terms of the number of datacentres (5,500) against the rest of the world.

If other countries want to remain competitive against the US in terms of AI, then they all need to ramp up AI-related infrastructure, being it hardware and/or software. Hence we are in a global race for AI dominance and that will require significant more spending over the medium term.

Do you foresee any further escalation in the ongoing geopolitical tensions?

Predicting whether (or when) there will be spikes in geopolitical tensions is near impossible – however, we continue to see room for Gold in investors’ portfolios as a very good hedge against risks such as these. Our LGT 12-month forecast for Gold is $4,200 per ounce.

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