Trump Policy Uncertainty Could Trigger Deeper Market Correction, Warns ING Economist
ING's Chief International Economist James Knightley warns that Trump administration policy uncertainty could trigger deeper market corrections beyond typical volatility. Key risks include geopolitical tensions with Greenland and Denmark, potential European tariffs, and Japan's fiscal concerns with debt-to-GDP over 200%. Europe is expected to respond more robustly to US trade pressures, potentially leading to prolonged negotiations and extended uncertainty. With traditional safe havens like US Treasuries and the dollar selling off, gold is benefiting as the pool of reliable safe-haven assets shrinks.
*this image is generated using AI for illustrative purposes only.
James Knightley, Chief International Economist at ING, has issued a warning that policy uncertainty from the Trump administration could drive deeper market corrections, extending beyond typical short-term volatility. His analysis points to multiple converging risk factors that are reshaping market behavior and investor sentiment.
Geopolitical and Trade Tensions Escalate
Knightley identifies several key sources of uncertainty currently affecting global markets. These include geopolitical tensions involving Greenland and Denmark, coupled with threats of new tariffs against Europe that risk re-escalating a global trade war. The economist also highlights fiscal concerns in Japan, where the debt-to-GDP ratio exceeds 200%, and the potential for Europe to "weaponise" its substantial US asset holdings, estimated at $10.00 trillion.
| Risk Factor: | Details |
|---|---|
| Geopolitical Tensions: | Greenland and Denmark disputes |
| Trade Threats: | New European tariffs |
| Japan Fiscal Concerns: | Debt-to-GDP over 200% |
| European US Assets: | $10.00 trillion holdings |
European Response Expected to Differ
According to Knightley, the European response to US trade pressures is likely to be markedly different this time around. He believes European leaders will adopt a much more robust stance and show reluctance to quickly sign new agreements, feeling that previous deals were unilaterally discarded by the US. "I think Europe is likely to be much more robust in its response this time around," Knightley commented, suggesting a prolonged period of negotiations and consequently extended market uncertainty.
Economic Risks for Both Continents
The potential for mutual economic damage remains high if trade tensions escalate. Knightley warns that if the US proceeds with tariffs and Europe reciprocates, it would create significant economic uncertainty for corporations on both continents. He notes that the US jobs market, already showing signs of cooling, could lose further momentum under such conditions.
"There are some real risks here for the US economy and for the European economy as well, and that does, of course, feed through into valuations in both equity markets, bond markets and the dollar too," Knightley explained.
Safe Haven Assets Shift Dynamics
In this environment of heightened risk, traditional safe-haven assets are exhibiting unusual behavior. Knightley observes that US Treasuries and the dollar have been selling off, effectively shrinking the pool of reliable safe havens available to investors. This shift is benefiting gold, which is capitalizing on the reduced alternatives.
| Asset Class: | Current Behavior |
|---|---|
| US Treasuries: | Selling off |
| US Dollar: | Declining |
| Gold: | Gaining strength |
| Bitcoin: | Continuing to fall |
"The pool of so-called safe havens seems to be shrinking, and gold is certainly there," Knightley stated. He contrasts this with assets like Bitcoin, which despite being viewed as a potential safe haven by some investors, has continued to decline.
Market Outlook Remains Uncertain
Until greater clarity emerges on both economic and geopolitical fronts, Knightley sees limited factors that could prevent further gains for gold. The combination of policy uncertainty, potential trade conflicts, and the unusual behavior of traditional safe-haven assets suggests that market volatility may persist, with investors increasingly turning to alternative stores of value amid the uncertain landscape.
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