Gold prices slip slightly after recent gains; U.S. data eyed
Investing.com - Speculation around a potential bout of financial market turmoil is rising as the height of summer approaches, according to analysts at Deutsche Bank (ETR:DBKGn).
In a note to clients, the brokerage flagged that liquidity is currently thin, which can contribute to increased market ructions, while the third quarter is historically when the biggest spikes occur in the VIX volatility gauge.
They added that "many crises" in the past "have begun in the late-summer period," noting that a slew of market-shaking events occurred in August -- including an unwinding of the yen carry trade in 2024, surging gas prices and hawkish Federal Reserve rhetoric in 2022, and fears of a Greek exit from the euro area in 2015.
Several factors could similarly upset markets this summer, the analysts argued.
The threat of now-delayed elevated U.S. tariffs on a range of countries kicking in on August 1 is one "contender," they said. U.S. President Donald Trump sent letters to 14 countries on Monday detailing their heightened levies, leaving the door open for more negotiations but still retaining the risk that these punishing duties could soon snap back into place.
Concerns are also swirling around U.S. fiscal policy, the Deutsche analysts said. Trump’s sprawling tax-cuts and spending package, which he signed into law last week, is estimated to add to the U.S.’s ballooning debt pile and expand the government’s budget deficit.
"And of course, there’s the unknown factors (like the yen carry trade unwind in 2024) that we haven’t even considered," the analysts said.
However, they noted that markets have so far proven to be "remarkably resilient" this year, even as many economists have predicted that the tariffs could dent economic activity and drive up inflationary pressures. Policymakers have also shown a willingness to react to turmoil in the financial markets as well, the analysts said.
"So market dynamics are acting as a constraint on policy and, as long as that remains the case, it would take a bigger shock that policy can’t fix to cause long-lasting market turmoil," they added.