At the beginning of the tariff announcements in early April, everything looked like it could become a full-blown trade war. You could see this in the elevated stress levels in the market – that is, volatility. There were sharp moves in both directions across various market segments. Although volatility levels were not comparable to the financial crisis, the moves were still substantial. About a month and a half later, the market is more or less back to where it was before the „Liberation Day“ or even higher, such as with the Dax. This shows how quickly capital markets can anticipate, process, and adapt to such developments. This is also because Trump retreated somewhat, and relatively quickly. There are now initial deals, such as the trade agreement with the UK, which brings some relief. The decisive signal now is that companies regain planning reliability. This creates security that stabilises the financial market.

We must prepare for the fact that the US will continue to exert pressure on its European trading partners when it suits its economic policy situation. There is a good chance that the EU can reach a trade agreement with the US – possibly with tariffs around 10%. That level is acceptable for the EU. If no agreement is reached, it would be much more difficult for the EU, especially in sectors like automotive and mechanical engineering.

These would be the discussed capital controls by the US or the consideration that foreign investors might have to exchange their US Treasury bonds for possibly 100-year bonds with zero interest in order to finance the US federal deficit over the long term. Such measures would be highly counterproductive. The US has large trade and budget deficits and depends on steady capital inflows from abroad. I see only a low probability that such measures will be implemented. Because of these discussions, US Treasuries are already viewed more critically by many foreign investors. There remains the power instrument of the dollar. No country can conduct global trade without access to US dollar financing – so far, the dollar has not been used as a pressure tool in the trade conflict.

A reduced engagement is quite possible. But if positions were reduced on a large scale to transfer capital back home, that would lead to a stronger immediate appreciation of the respective home currency and a depreciation of the US dollar. China currently suffers more from deflationary tendencies. A strong appreciation of the yuan caused by selling US assets and repatriating capital would likely worsen these deflationary trends. Therefore, China probably has little interest in liquidating its US financial assets. Generally, however, Asian countries should gradually allow their currencies to appreciate, thus helping to reduce global imbalances.

Indeed, some clients have already slightly reduced their holdings in US Treasuries. The reason is less the trade war and more growing concerns about the ongoing US national debt issue, which has been more openly discussed in the capital markets over recent months. Investors are also worried about potential attacks on the independence of the US Federal Reserve, particularly regarding who will become the next Fed Chair next year.

Gold still looks very attractive. Foreign central banks might sell dollars and invest in gold. Last year, central banks worldwide bought about 100 billion dollars worth of gold. Global foreign exchange reserves stand at around 12 trillion dollars, so a portion could still flow into gold. We are likely to see a structural weakening of the dollar. Emerging markets will especially benefit, as they depend on dollar financing. In recent years, it has become clear that during phases of a weak dollar, emerging markets found it easier to obtain dollar financing. Gold and emerging markets will probably be the biggest beneficiaries.

Basically, yes. Germany remains a safe haven politically and fiscally. It will be crucial that additional funds flow into productive, growth-promoting projects. It must not turn into mere transfer programs – that is the risk. The market has shown in recent months that it can absorb higher issuance volumes. Institutional investor demand remains high. If the trade war situation intensifies, German government bonds would benefit. The environment is therefore generally positive for Bunds.

The market structure has changed in recent years. Many long-term investors such as pension funds buy long-dated swaps to gain duration without buying government bonds. This allows them to invest their capital elsewhere for better returns. Thus, we have strong structural demand for swaps, and we expect the Bund-swap spread to remain negative for a longer period. This has less to do with Germany’s national debt.

We prefer companies and sectors with relatively flexible supply chains. Also, companies with strong market positions that can better withstand the pressures triggered by politics and geopolitics. We focus on defense and cybersecurity, which tend to profit from geopolitical shifts. Key industries like energy and semiconductors are also interesting. Additionally, independent areas such as agricultural technology, water, and infrastructure could stand out positively in the new environment.

Clearly, export-oriented industries and cyclical sectors will suffer. With a prolonged trade war, there will be no strong global economic growth. Cyclical stocks could be sold off sharply. Traditional export sectors like mechanical engineering, automotive suppliers, and even luxury goods – normally quite crisis-resistant – could be hit hard by the trade barriers, especially regarding China. We also view logistics critically, as these firms face a structural problem: supply chain fragmentation is not new but has existed since the start of the Ukraine war. Financial services with exposure to Asia or high dollar needs could also come under pressure in the near term.