Trump's tariff deadline nears, volatility is set to surge
The latest rally in equities has been powerful and broad-based. The S&P 500 and Nasdaq have climbed to fresh highs, fuelled largely by relentless buying in the Magnificent Seven tech stocks.
In Europe, the FTSE 100 has broken into record territory, and Germany's DAX reached a new peak two weeks ago.
In Asia, Japan's TOPIX index is up 6% this year, with half of that gain coming in the past 24 hours following the announcement of a trade deal with the US. Meanwhile, Hong Kong's Hang Seng has surged 28% since January, reaching a four-year high.
'Momentum has taken hold, and while the optimism is understandable, markets are behaving as if the risks have evaporated,' says Nigel Green, CEO of global financial advisory giant
'But they haven't. The closer we get to August 1st, the more fragile the rally becomes.'
Investors have taken comfort in the fact that the tariffs implemented so far have had a softer-than-expected impact on inflation and growth.
They've also latched onto Trump's recent hesitation to impose the full 'Liberation Day' tariff schedule. But that calm may be premature.
'There's a dangerous assumption taking hold that Trump will continue to delay. That may prove correct, but it ignores a crucial fact: unpredictability is part of the strategy,' says Green.
'Markets don't need a policy change to wobble; they just need a headline they didn't expect.'
The dollar, which struggled through the first half of the year, has regained strength in recent weeks.
This rebound has coincided with relief over limited tariff progress and hopes that more aggressive action may be avoided. But the underlying tension remains.
Any abrupt tariff expansion or new round of trade hostilities could rattle global assets and reignite inflation concerns, especially with Trump escalating his attacks on the independence of the Federal Reserve.
'The president's personalized criticism of Jay Powell is more than just political theatre,' said Green.
'It's corrosive to global confidence in US institutions. If markets lose faith in the Fed's independence, the impact will ripple through every asset class.'
Fund flow data helps explain why markets are still moving higher despite the risks. US retail investors continue to buy every dip, especially in tech, with little regard for traditional valuation measures.
Meanwhile, institutional investors—particularly those outside the US—are becoming more cautious, rotating into Europe and Asia where earnings multiples are lower and policy risks less immediate.
'We're seeing a growing preference for non-US exposure,' explains the chief executive. 'Some of this is tactical, but some of it is strategic. Global investors are realising they need alternatives in case sentiment toward the US turns quickly.'
Fixed-income markets are sending mixed signals. While Treasuries have regained some ground, questions remain about their longer-term resilience if the Fed's credibility continues to be undermined.
Gilts, by contrast, remain relatively attractive, particularly for sterling-based investors looking for positive real returns without currency volatility.
'As we approach August 1st, the big question is not whether there will be a tariff shock; it's whether markets are positioned to absorb it,' says Nigel Green. 'At the moment, it feels like they aren't.'
Investors should not underestimate how swiftly conditions could change.
Even if Trump does announce another postponement, the tone and delivery of that decision could still rattle markets if it's seen as confrontational or conditional. And if he chooses to escalate, the fallout could be fast and global.
'The stakes are higher than the current mood suggests,' said Green.
'Volatility is likely returning. This is not a reason to panic, but it's a reason to re-evaluate. Diversification across regions and asset classes isn't optional—it's urgent.'
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