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Investing.com -- Deutsche Bank is cautioning investors about a potential wave of market volatility as the August 1 tariff deadline looms, warning that financial markets have yet to fully price in the risk of steep new tariffs.
“Markets are clearly not pricing in these higher tariffs, and we may only know the outcome in the final hours,” analysts wrote, adding that the result could be “a very sharp market reaction and heightened volatility.”
The tariff deadline, coupled with a U.S. jobs report on the same day, presents a dangerous setup, the bank said, reminiscent of the market turmoil seen in late July and early August 2024.
After the expiration of a 90-day reciprocal tariff extension on July 9, new duties are set to rise sharply, 30% on EU goods, 35% on Canadian imports, and 50% on Brazilian products. “Trump himself posted last week that ‘No extensions will be granted,’” Deutsche Bank (ETR:DBKGn) noted.
The risks are said to be compounded by the fact that long-term U.S. Treasury yields are already elevated.
“It would take less of a jump before we move into problematic territory that re-ignites fears around fiscal policy,” the analysts wrote. Yields on the 30-year Treasury have climbed from 4.52% on April 1 to 4.97%.
Deutsche Bank stressed that if the new tariffs are followed by a weak jobs report, “that would easily resurrect fears around a US recession.”
The firm also flagged additional catalysts for volatility, including a Fed decision, the U.S. Treasury’s refunding announcement, and the second-quarter GDP print, all set for the same week.
“Given how much the new tariff deadline is being discounted by markets,” Deutsche Bank concluded, “this is setting up a key period of event risk at the end of the month.”