Source: Jinshi Data

Looking at the entire market last week, you may not notice the heavy blows suffered by U.S. assets in the Trump trade war. The S&P 500 rose more than 5%, U.S. Treasury bonds are still in the position in February, and passive investors invested a lot of money, and Bitcoin closed higher last week.

This obscures a fundamental shift that has emerged between investors, traders and analysts. Before this, U.S. assets have been the envy of global risk-obsessed people, but now there are serious questions about whether it is wise to own them. All in all, Trump's attempt to rewrite global trade terms has the potential to endanger the US's privileged position in the financial system, and this concern is spreading.

Three reasons everything is different are:

First, the United States is still imposing a 10% tariff across the board, and additional tariffs on steel, cars and aluminum. These taxes still have to be paid and will still hit corporate profits. The risk of a U.S. recession has not subsided.

Secondly, events that have occurred over the past few weeks will have irreversible (and mostly unquantifiable) consequences. Not all global asset allocators believe that US Treasury should be risk-free assets they choose indefinitely (the current bond market turmoil may be related to hedge funds, or may be more of the reasons).

Third, the US president seems to be happy with all this. Trump said on Friday: "Our tariffs are doing well. It's exciting for the United States and the world! The bond market is doing well. (Previously) the bond market is a little volatile, but I quickly solved the problem. When people understand what we do, I think the value of the dollar will rise sharply. It doesn't matter this week, the dollar will rise and will rise more strongly than ever. Many people think the bond market prompted me to make a decision to suspend tariffs, but that's not the case."

Even by Wall Street's long-standing standards, last week's deal was cruel. Last Monday, a fake social media post triggered the biggest intraday rebound in U.S. stocks since 2020, and everything was then knocked back to its original form. A day later, the S&P 500 fell to the brink of a bear market. U.S. Treasury bonds have also begun to fall: 30-year U.S. Treasury yields soared to their highest point since 2022. By last Wednesday, Trump's statement on par with the suspension of tariffs ignited the biggest single-day rebound in U.S. stocks since 2008, with trading volume reaching a record 30 billion shares, but U.S. bonds continued to be sold.

To be sure, measuring demand for U.S. assets is not an accurate science, and prices do not always reflect the flow of cash. Bank of America cited EPFR Global data showing that funds buying U.S. Treasury bonds flowed in a record $18.8 billion in the week ended Wednesday. But according to EPFR, US-focused foreign registered funds saw a $6.5 billion outflow, the second largest outflow since at least 2020.

Boston Manulife Investment"The confidence outside the U.S. is already damaged in the quality and leadership of U.S. stocks, fixed income and monetary assets. The question is, is this a temporary blow or a long-term shift? We still think it is the former. But that doesn't erase the fact that there are large asset owners looking for alternatives and diversifications to safe-haven assets."

This may be the driving force behind the weakness of the dollar. Safe-haven assets such as the yen, Swiss franc and gold have been rising, while the euro has risen to its strongest levels in three years. Options traders turned bearish on the dollar for the first time in five years.

Al-Hussainy, interest rate strategist at Threadneedle, Colombia, believes that the synchronous sale of currency and bonds is a typical feature of emerging markets. “After Brexit, I spent many years teasing my colleagues in the UK because the bond market there, the bond market is actually more like emerging markets,” he said. "Last week was the first time they could make fun of me." U.S. economists fear that the U.S. economy will slow sharply despite Trump's turnaround. In addition, despite Trump's decision to postpone major tariffs on many trading partners last week, Wall Street economists remained predicted a sharp slowdown in U.S. economic growth and warned that the risk of a recession is still high.

Morgan Stanley, BNP Paribas, Royal Bank of Canada Capital Markets, Barclays and UBS Group released their latest GDP forecasts last Thursday and Friday, forecasting the U.S. growth rate in 2025 between -0.1% and 0.6% to 0.5% to 1.5% in 2026. They predict unemployment will climb to nearly 5% next year and expect inflation to rise in the coming quarters.

"Will these tariffs and this uncertainty last for a long time? If so, then we will predict a recession in the U.S.,” Douglas Porter, chief economist at BMO Financial Group, wrote in a note last Friday. "At this point, we are still inclined to predict GDP growth will be below 1% in a series of quarters." Bloomberg Economics estimates that the actual average tariff on U.S. imports fell slightly from 26.85% to 26.25% due to last Wednesday's statement.

Barclays economists said in a note last Friday: "We believe the current situation still means there is huge stagflation pressure in the United States. In short, we maintain our outlook on economic activity, including forecasts that the United States will experience a recession."

Bloomberg economists Maeva Cousin and Eleonora Mavroeidi believe that Trump's big turn on tariffs last week may not actually mitigate the blow to the United States," he said.The positive impact on the European economy is minimal, and small open economies in Asia will feel the greatest benefit if they can remain in place after the 90-day moratorium.

The risks are still disturbingly high even for those who do not predict the economic downturn in the next 12 months. Goldman Sachs economists set the probability of a recession at 45%, compared with 65% before Trump announced the suspension. Michael Feroli, chief U.S. economist at JPMorgan Chase, said in a note last Wednesday that the bank will revisit its forecasts, indicating that it is "a closer to the prospect of a recession" and that "there is a greater possibility that actual activity will shrink later this year."

Last Friday, New York Fed Chairman John Williams said he now expects "real GDP growth will slow down significantly from last year, possibly just below 1%. Williams said the unemployment rate will climb to between 4.5% and 5% next year from 4.2% in March, and inflation will rise to 3.5% or 4% from 2.5% in February. These figures suggest that his predictions are consistent with the latest consensus among Wall Street forecasting agencies.

UBS chief U.S. economist Jonathan Pingle said in a note last Friday: "We believe that the seriousness and scale of what is happening seems to be underestimated. U.S. goods imports in 2024 were $3.2 trillion, which is greater than the size of France's economy and only smaller than the size of the UK. Even after last week's statement, the United States seems willing to raise taxes on this amount - the size of large developed market economies - eight times."