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European Central Bank Warns US Asset Risk Reevaluation May Trigger Fundamental Shift in Global Finance

European Central Bank Warns US Asset Risk Reevaluation May Trigger Fundamental Shift in Global Finance

The European Central Bank (ECB) has issued a warning that, amid market volatility and uncertainty arising from U.S. trade tariff policies, investors are reassessing the risk of U.S. assets. This could lead to a fundamental change in global financial markets.

ECB Vice President Luis de Guindos highlighted that "uncertainty" has become the new reality dominating the financial markets. The latest Financial Stability Assessment Report from the ECB points out that the market is very sensitive to the continuously evolving tariff policies between the U.S. and its trading partners. For instance, when U.S. President Trump announced comprehensive reciprocal tariffs, global stock markets plummeted, but when he announced a 90-day delay on the tariffs, major indices swiftly rebounded.

During this period of turbulence, some unusual phenomena occurred, such as capital moving away from traditional safe-haven assets like U.S. Treasuries and the dollar, yet the functioning of the eurozone's financial market remained robust. The ECB noted that while this could be related to technical factors, it may also reflect investors' updated views on the risks of U.S. assets, potentially leading to broader shifts in global capital flows.

De Guindos stated in an interview with CNBC on Wednesday (21st) that the markets could face correction risks in the future, with two key issues where investors particularly need to pay attention: "overvaluation of assets" and "high market uncertainty." He explained that while the market optimistically believes that under the current circumstances, economic growth will slow but not enter a recession, and inflation will drop along with monetary policy easing, such expectations may be overly idealistic.

From a broader perspective, the "uncertainty" associated with U.S. trade, fiscal, and regulatory policies has now become the "dominant reality" for the entire financial market and global economy. The current question is: What does this uncertainty and any potential policy trends mean for financial stability in Europe and the eurozone? He analyzed that tariffs are "harmful and unhelpful" to economic growth, but their impact on prices is more complex. In the short term, tariffs will raise import prices and suppress consumer demand, and these two effects could offset each other. However, in the long run, if tariffs and trade barriers lead to disruptions in global supply chains, corporate costs will rise, potentially triggering inflation.

It is worth noting that according to the latest economic forecasts released by the EU this week, the GDP forecast for the EU in 2025 has been downgraded from 1.5% to 1.1%, while the eurozone's forecast has been cut from 1.3% to 0.9%. Overall inflation is expected to continue easing and will fall below the ECB's inflation target of 2% by 2026, reflecting a trend of simultaneous softening of economic growth momentum and pricing pressure.