Luis de Guindos, vice president of the European Central Bank (EBC), at a press conference of decision -making rates in Frankfurt, Germany, on Thursday, 30 January 2025.
Alex Kraus/Bloomberg by Getty Images
On Wednesday, the European Central Bank stated that the financial markets may be a “fundamental change in the regime” because investors seem to be again assessing how risky assets in the US after trading tariffs are.
In its latest financial stability review, the Central Bank discussed a recent increase in market variability outside global commercial tensions driven by the US tariff policy.
Markets react sensitive to frequent trade updates and fees from the USA and its trading partners. Wrestling first collapsed When US President Donald Trump announced above all the sweeping tariffs reflection when he announced a temporary 90-day pause about duties.
“During the confusion of the functioning of the market – which can be treated as the ability to trade in financial assets quickly without continuous prices – on financial markets in the euro area,” noted EBC. “It was despite some unusual changes from some traditional safe paradise, such as American treasury and American dollar.”
Although this could have been associated with technical factors, EBC said that it could also have wider triggers.
“These movements could also reflect the perception of a more fundamental change in the regime, with investors seem to assess the risk of American assets again, which can lead to wider changes in global capital flows,” EBC noted. “This would have potentially far -reaching consequences for the global financial system.”
On Wednesday, Vice President of ECB Luis de Guindos suggested CNBC that there is a risk of market correction. Two key things to consider are increased valuations and strong uncertainty, said Annette Weisbach from CNBC.
“Markets are very mild in relation to this scenario. They think that you know, the height will be low, but we will not get into recession, inflation will fall, and the monetary policy will follow in his footsteps,” explained de Guindos.
He said that there may still be a risk, and various issues, such as what can become in the field of commercial and fiscal policy and regulation of the US government.
“And these elements cause variability. I think that variability is perhaps, you know, the consequence of these two elements …, valuations and uncertainty.”
In its report, the Central Bank indicated that it had previously warned about “loars in security resulting from high valuations, which are not supported by the basics”, saying that “this risk source was partly materialized.”
EBC said that Trump's mutual tariff announcement was a trigger.
Uncertainty “game name”
Taking a broader look, de Guindos said that the uncertainty related to American trade, fiscal and regulatory policy was now the “name of the game” on the financial markets and the global economy. The question was now what this uncertainty and all possible political movements meant for Europe and financial stability in the euro area, he suggested.
Looking at inflation and economic growth, de Guindos repeated that the tariffs would be “harmful” for growth, while the impact on prices was less clear.
He said that in a short period the tariffs would raise the prices of imported goods, and at the same time depressing demand that could balance higher costs.
Long -term implications may look completely different.
“(In the long run), if tariffs and trade distortions cause fragmentation that will be harmful to the supply chain, which may increase the costs of corporation. And this can be inflationary,” said De Guindos.
At the beginning of this week, the European Union issued its last economic forecasts, reducing its gross domestic product 2025 forecast For both EU and euros, up to 1.1% and 0.9%, respectively. It compares itself to previous Respect of an increase in 1.5% for the EU and 1.3% expansion for the euro area.
In the meantime, the header inflation is expected to slow down, falling below 2% of the ECB target in 2026.