A fundamental regime shift in global financial markets could be underway, according to the European Central Bank (ECB). The warning comes amid rising uncertainty and investor reassessment of U.S. assets, especially after recent trade disruptions.
In its Financial Stability Review published Wednesday, the ECB highlighted that market behavior is shifting significantly. U.S. tariffs and growing geopolitical tensions have sparked volatility and prompted global investors to question traditional safe havens.
Stocks dipped sharply after President Donald Trump announced sweeping tariffs. However, markets bounced back when he later paused the new duties for 90 days. This turbulence, the ECB noted, has shaken long-held assumptions about the reliability of U.S. financial assets.
“Market functioning in the euro area held up well,” the ECB said. “Still, some investors moved away from assets like U.S. Treasuries and the U.S. dollar.” These shifts, the bank added, might be linked to more than just technical trading factors.
“They may reflect broader concerns about a fundamental regime shift,” the report noted. “Investors could be reassessing the riskiness of U.S. assets, possibly triggering changes in global capital flows.”
Such changes could deeply impact the global financial system, the ECB warned. If investors pull back from U.S. markets, it could realign investment patterns globally.
ECB Vice President Luis de Guindos echoed these concerns during an interview on Wednesday. He emphasized that uncertainty and elevated asset valuations are key risks at the moment. “Uncertainty is now the name of the game,” de Guindos said.
He added that investors appear overly optimistic. Many believe global growth will stay positive, inflation will fall, and monetary policy will adjust accordingly. However, trade disputes, fiscal policy changes, and regulatory shifts from the U.S. could derail this outlook.
“These factors drive volatility,” de Guindos explained. “Valuations remain high while uncertainty grows—this combination increases risk.”
The ECB has repeatedly warned about inflated market valuations not backed by solid fundamentals. It said this risk has now partially materialized, citing Trump’s reciprocal tariffs as a key trigger.
The potential fundamental regime shift marks a turning point in how global markets perceive U.S. stability.
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