Trifecta of risks heading towards complacent markets, says Deutsche Bank
Deutsche Bank strategists warned that stock market investors haven’t appropriately discounted risks from tariffs, as multiple negative factors are set to be in play by the end of the month.
“Markets are clearly not pricing in these higher tariffs, and we may only know the outcome in the final hours, offering the potential for a sharp market reaction and heightened volatility,” said Henry Allen, macro strategist at Deutsche Bank.
“Second, it’s the US jobs report that same day, and last year demonstrated that even a modest downside surprise can cause a big selloff, if investors are already jittery,” added Allen. Markets had fallen nearly 3% on the week ending 2nd August 2024 after data showed that far fewer jobs were created than expected, while unemployment had risen the most in nearly three years.
“Third, long-end bond yields are going into this period at higher levels today, meaning it would take less of a jump before we move into problematic territory that re-ignites fears around fiscal policy,” Allen concluded.
The U.S. 10-year bond yields, currently trading at 4.43% are well off their recent peak of 4.6% in May. However, they have risen sharply by about 20 basis points over the past two weeks.
