Risks: What role does the USA play?

In the weeks following the announcement of the tariffs, we observed a remarkable phenomenon. Not only did the stock markets collapse, but the prices of US government bonds also fell sharply. Normally, investors seek refuge in US government bonds when there is turbulence on the stock markets. The US dollar - actually a typical safe haven - also lost value.

The fact that US equities and bonds were under pressure at the same time is unusual. In recent months, the Trump administration has made several political U-turns. As a result, investor confidence in the US economy and the government's policies has waned.

Abrupt policy changes lead to volatility in government bonds. Investors should therefore be cautious with US government bonds. European government bonds are an attractive alternative, as you can read in the article “Opportunities”.

The US dollar has been the world's leading reserve currency for years. Central banks hold large reserves in dollars and a significant proportion of international trade is conducted in dollars. However, there has been speculation for decades about the end of the dollar era.

We do not believe that the dollar will lose its safe haven status as there is no real alternative. Want to know more? The article 'The US dollar is not in danger of losing its power any time soon' summarizes the important information about the dollar's role as a reserve currency.

In recent months, there has been a lot of coverage in the financial press about the risk of stagflation for the US economy. This is a rare combination of two unfavorable factors: high inflation and stagnating economic growth. Economists are not usually happy about this.

In fact, we expect inflation in the US to rise as a result of US tariffs. How high these tariffs will ultimately be depends on the agreements between the US and its trading partners. Not all economists use the same definition of “stagnation”. We do not believe that growth in the US will come to a complete standstill. Regardless of whether stagnation occurs or not, we expect growth in the US economy to slow this year and next.

Looking at the latest soft data such as business and consumer sentiment surveys, economic sentiment has undoubtedly deteriorated. However, this pessimism is not yet clearly reflected in the hard data - the actual figures on economic activity such as GDP, employment rate and company turnover. Advance orders at the beginning of the year have even boosted global trade. However, at least some of the poorer sentiment is likely to be reflected in the hard data in the end.

We have therefore recently reduced risks in the portfolio slightly by lowering the equity position from overweight to neutral. In this way, we can benefit from future opportunities through quick purchases, but are positioned more cautiously for the time being. We do not expect a recession. However, fears of recession on the equity markets could resurface if the hard figures reveal the harsh reality: Tariffs are having a dampening effect on economic growth.