Gold prices heading for negative week as safe haven demand wanes
Investing.com -- Investors are facing market losses of historic proportions after the introduction of sweeping U.S. tariffs last week on the so-called “Liberation Day.”
The fallout has triggered the fourth-worst two-day slump in U.S. equities since World War II, surpassed only by the 1987 crash, the 2008 global financial crisis, and the early pandemic panic in 2020.
According to Deutsche Bank (ETR:DBKGn), the downturn marks “the biggest shock to the global trading system since the Bretton Woods collapse in 1971” and amounts to the largest tax increase for U.S. consumers since the Vietnam War.
While Trump’s pro-tariff views are well-known, the new measures were broader and more arbitrarily applied than expected, undermining market confidence and calling into question the credibility of the administration’s economic strategy.
The policy has redefined the U.S. approach to trade, breaking with the post-WWII model under which the country acted as the global importer of last resort.
But the implications extend far beyond trade. Deutsche Bank strategists warn the current stance could “impact the whole relationship between the U.S. and the rest of the world (RoW) in everything that is important, including defence, geopolitics and the multi-lateral rules-based world order.”
As market losses mount, investors are grappling with the cost of reversing decades of globalization.
U.S. equities, which benefited most from global supply chains and access to low-cost labor, are now particularly vulnerable, “especially when starting valuations have been so high,” the strategists said.
The administration’s reshoring push may bring long-term strategic benefits, but in the near term it risks triggering a recession. Deutsche Bank expects growth below 1% and the unemployment rate to rise towards 5%, while PCE inflation could spike to 4%.
With few signs that the U.S. administration plans to reverse course, the uncertainty is expected to continue weighing on sentiment. “Rarely if ever have the next few days been so important,” Deutsche Bank concludes.