Markets are breathing a sigh of relief after US President Donald Trump's latest threat to impose tariffs on European countries, including the UK, failed to send shockwaves through financial markets. The FTSE 100 index closed down 0.4% in response to Trump's weekend statement, which many had anticipated would spark a panic sell-off.
The relative calm is a result of market participants having become increasingly desensitized to Trump's rhetoric over the past year. Investors have learned that his bombastic statements often don't translate into concrete action, and the impact of any tariffs imposed remains uncertain. As Jonas Goltermann, deputy chief markets economist at Capital Economics, notes, "more than a year into Trump's second term, market participants have become increasingly sceptical that it will feed through into action."
However, there are also longer-term risks lurking beneath the surface. Economists warn that if extra tariffs were to be imposed for an extended period, it could push the UK or eurozone into recession. Moreover, the ongoing tensions over Nato and the US's relationships with its European allies have created a sense of uncertainty that markets struggle to price.
One potential flashpoint is the possibility of tit-for-tat measures going beyond tariffs on goods and into capital markets. Deutsche Bank currency strategist George Saravelos has warned that European funds may become less willing to own US assets if the western alliance's geoeconomic stability is disrupted. This could lead to a sharp sell-off in the dollar and an increase in US borrowing costs, which would have far-reaching consequences for global trade and finance.
The stakes are high, with European countries owning over $8 trillion of US bonds and equities – nearly twice as much as the rest of the world combined. While it's unlikely that all European funds will simultaneously sell their US holdings, the spectre of a coordinated exodus remains a disturbing possibility.
For now, however, markets appear to be taking a wait-and-see approach. As long as Trump's threats remain rhetorical and do not lead to concrete action, investors can continue to hold on to their shares. But the long-term risks associated with a rising global trade war and the breakdown of alliances are very real – and markets would do well to prepare for them.
The relative calm is a result of market participants having become increasingly desensitized to Trump's rhetoric over the past year. Investors have learned that his bombastic statements often don't translate into concrete action, and the impact of any tariffs imposed remains uncertain. As Jonas Goltermann, deputy chief markets economist at Capital Economics, notes, "more than a year into Trump's second term, market participants have become increasingly sceptical that it will feed through into action."
However, there are also longer-term risks lurking beneath the surface. Economists warn that if extra tariffs were to be imposed for an extended period, it could push the UK or eurozone into recession. Moreover, the ongoing tensions over Nato and the US's relationships with its European allies have created a sense of uncertainty that markets struggle to price.
One potential flashpoint is the possibility of tit-for-tat measures going beyond tariffs on goods and into capital markets. Deutsche Bank currency strategist George Saravelos has warned that European funds may become less willing to own US assets if the western alliance's geoeconomic stability is disrupted. This could lead to a sharp sell-off in the dollar and an increase in US borrowing costs, which would have far-reaching consequences for global trade and finance.
The stakes are high, with European countries owning over $8 trillion of US bonds and equities – nearly twice as much as the rest of the world combined. While it's unlikely that all European funds will simultaneously sell their US holdings, the spectre of a coordinated exodus remains a disturbing possibility.
For now, however, markets appear to be taking a wait-and-see approach. As long as Trump's threats remain rhetorical and do not lead to concrete action, investors can continue to hold on to their shares. But the long-term risks associated with a rising global trade war and the breakdown of alliances are very real – and markets would do well to prepare for them.
think about it, european countries have like $8 trillion invested in the US market thats a LOT of money and if ppl start selling en masse it could cause some major problems for global trade 
i'm low-key scared lol dont get me wrong, i love investing and all but this stuff is just so unpredictable 
anyway, guess thats just the price we pay for living in uncertain times 
... I mean, I've been saying it for ages, the guy is all bark no bite 
. People have gotten so used to his bluster that they're just rolling their eyes now and waiting for him to do something concrete (or not, tbh 
). But seriously, this whole situation is still super sketchy... if those tariffs kick in for real, it could get ugly 
. Can't let our guard down for a second 
.
... i was thinking of drawing a simple diagram to represent this situation... 
but if trump starts imposing concrete action, its gonna be game over 
to represent the long-term risks... 
and increased borrowing costs for us 
. It's crazy how Trump's words don't seem to carry much weight anymore. I mean, it's been like that since his first term, but now everyone's just so used to it 
. Still, you can't rule out a major market shakeup if things escalate into capital markets. $8 trillion worth of European investments in the US? That's a big deal 
.
so calm now but i think its all just a facade they know trump isnt gonna follow thru on his threats 
anyway, its like, europe has way too much money invested in us and if it happens to them ill be laughing all the way to the bank lol 
. If things escalate into a global trade war or even just capital market chaos, it could have major ripple effects on the world economy 
. I'm not saying markets should be panicking or anything, but they need to start taking this stuff seriously 
Market drama is like a soap opera I get why people are chill about Trump's threats now, but let's keep an eye on those tariffs, folks! 
. We need to think about the bigger picture here, global trade wars can have serious consequences 
. And if it goes beyond tariffs, into capital markets... *shudder* 
Deutsche Bank is warning us about a potential sell-off in the dollar and increased US borrowing costs 
#MarketWatch #TradeWar #GlobalEconomy
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, but I'm not holding my breath. Investors have become way too used to his bombastic statements, but it doesn't mean he can't cause some chaos 
. Markets may be taking a wait-and-see approach now, but I don't think that's going to last forever 
.