Is the US-China trade war triggering a "systemic change" in the financial markets? European Central Bank warns: investors are reassessing the risks of US assets.

Is the global financial market facing a "systemic change" that could reverse its patterns? The European Central Bank (ECB) pointed out in its latest "Financial Stability Review" report that, influenced by U.S. trade policies and tariffs, investors seem to be beginning to reconsider the risk levels of U.S. assets, which could have profound effects on global capital flows and financial stability.

Tariffs ignite market volatility, and investors show signs of capital transfer.

The European Central Bank pointed out that after the United States implemented a series of tariff policies, market volatility significantly increased. The stock market plummeted after U.S. President Trump announced broad tariffs, and then rebounded after he announced a 90-day delay in the implementation of some tariffs.

The report mentioned: "During this turbulent period, the trading functions of the Eurozone financial markets remained stable, despite some unusual capital flows, including the transfer of funds out of traditional safe-haven assets such as US Treasuries and the dollar." The European Central Bank stated that this capital adjustment may not only be a short-term technical factor but could also indicate that investors are alert to a "systemic change" in the overall market landscape.

Are US assets no longer safe? Global capital flows may shuffle the deck.

The Central Bank pointed out that this wave of changes may indicate that investors are "reassessing the risk of U.S. assets." If the trend continues, it could lead to structural adjustments in global capital flows, further impacting the stability of the global financial system.

Luis de Guindos, Vice President of the European Central Bank, also reminded in an interview with CNBC that the market is currently underestimating risks, and there is still a risk of "correction" in the future. He stated: "The market is very optimistic right now, believing that economic growth will slow but not fall into recession, inflation will decrease, and monetary policy will loosen. However, these expectations may be overly idealistic."

Overvaluation and policy uncertainty intensify market volatility.

The Vice President of the European Central Bank pointed out that the two main sources of market volatility currently are "high valuations" and "policy uncertainty." The European Central Bank had previously warned that there are "high valuations not supported by fundamentals" in the market, and now such risks have partially materialized. He stated bluntly: "Trump's tariff policy is the fuse of this turmoil."

"Uncertainty" has become the new normal in financial markets.

From a more macro perspective, Degindos emphasizes that the uncertainty of the United States' trade, fiscal, and regulatory policies has become a key factor affecting the global financial markets. He stated that such an environment not only makes investors more cautious but may also pose a threat to financial stability in Europe.

Tariffs temporarily raise prices, but may lead to increased inflation in the long term.

When discussing inflation and economic growth, Dakin Doss warns that while trade tariffs may temporarily drive up the prices of imported goods, they also suppress consumer demand, which could offset the inflationary effect. However, in the long run, if tariffs and trade frictions lead to a breakdown of global supply chains, business costs will rise, resulting in more persistent inflationary pressures.

EU lowers economic forecast reflecting weak growth

At the same time, the economic forecast data updated by the EU this week is also not optimistic. The estimated GDP of the EU for 2025 has been revised down from 1.5% to 1.1%, while the Eurozone has been lowered from 1.3% to 0.9%. Inflation is expected to fall below the 2% target set by the European Central Bank in 2026, indicating that growth momentum and price pressures are both easing.

This article asks whether the US-China trade war has triggered a "systemic change" in the financial markets? The European Central Bank warns: Investors are reassessing the risks of US assets. Originally appeared in Chain News ABMedia.