Finimize - 💰 Klarna's big shot

What’s going on here?

US inflation heated up a touch last month, but there was a silver lining.

What does this mean?

US consumer prices rose 2.6% in October compared to a year ago – a tad quicker than September’s 2.4% pace, but in line with what economists were expecting. And the core inflation measure – which excludes volatile food and energy items – held steady at 3.3%. But the news wasn’t all bad for Americans: a separate report that combines consumer prices with wage data showed that real (i.e. inflation-adjusted) earnings were still rising at a healthy pace, climbing 1.4% in October from a year ago.

Why should I care?

The bigger picture: No cause for alarm… yet.

The latest uptick in inflation isn’t likely to ruffle any feathers at the Federal Reserve (Fed), which has spent the past two and a half years fighting its way back to price stability. But what might keep the bank’s policymakers up at night is the prospect of a much bigger acceleration in consumer prices next year if the president-elect goes ahead with the trade policies touted on the campaign trail. He’s proposed a 10% minimum tariff on all imports and a 60% tax on all goods coming from China. According to Barclays, the measures would amount to an import-weighted average tariff of 17% – a lofty level not seen since 1935. Needless to say, that would lead to higher prices for American consumers and faster inflation, which could push the Fed to slow its interest rate cuts or even increase borrowing costs to address the flare-up.

For markets: Curbed enthusiasm.

The markets had been banking on seeing a few interest rate cuts in the next year, but since the election, folks are tempering those expectations. Traders now see rates falling by just 0.8 percentage points by the end of 2025. And that’s about half what they were anticipating a month ago.

What’s going on here?

Klarna, the Swedish guru of "buy now, pay later” financing, has finally filed for its long-anticipated US IPO.

What does this mean?

Investors have been waiting all year for news of this stock debut. Klarna’s alternative credit system – which lets shoppers split their purchases into interest-free payments – was everyone’s shopping buddy during the pandemic lockdowns and is already super popular with younger consumers. After all, Klarna isn’t just about payments: it offers perks like price alerts, personalized picks, and some much-loved exclusive deals. It’s recently ramped up its US game too, by partnering with big fish like Nike and H&M. The IPO details are still pretty hush-hush, but Klarna is expected to shoot for a valuation between $15 billion and $20 billion. That’s a serious drop from the $46 billion peak it saw in its 2021 pandemic heydey, but a hefty bounce higher from last year’s $6.7 billion.

Why should I care?

For markets: AI’s in the bag.

Klarna has been using AI to shave expenses and ramp up efficiency across the board. And that’s literally paid off: the company says its annual revenue per employee has jumped to $700,000 from $400,000 in just a year. And now it’s planning to shrink the current workforce by nearly half and hire some of the best and brightest AI talent to transform what’s left.

The bigger picture: USA! USA!

Klarna’s just the latest of Europe’s leading innovators to cross the pond and plant its stock’s roots in New York City. And, sure, that probably says as much about the state of Europe’s financial markets as it does about America’s. Still, it’s hard to imagine the trend reversing anytime soon, especially with even more investor-friendly policies likely on the horizon in the US.