Trump’s unpredictable policies and withdrawal from agreements are creating uncertainty in the market, affecting business sentiment and growth prospects. Commerzbank’s FX analyst, Antje Praefcke, points out that this uncertainty may impact consumer behaviour.
If consumers reduce spending due to fears of job loss and inflation, it could harm economic growth, particularly in the housing market. An increase in interest rates, difficulties in payments, or a declining stock market may further weaken consumer confidence.
Economic risks from trade tensions
A downturn amid trade tensions could lead to prolonged economic difficulties. Confidence often takes time to restore, raising concerns about the sustainability of growth and the US’s economic edge.
Trump’s shifting approach to international agreements and governance more broadly has introduced layers of concern into the broader market structure. From a trading standpoint, this creates conditions that are both reactive and difficult to navigate. According to Praefcke, these shifts are not just theoretical—they filter down into households, possibly dampening the appetite for consumer spending. This is especially pointed when inflation expectations rise, as shoppers begin holding back, either out of caution or necessity.
From our angle, it’s not merely about personal consumption—housing is particularly sensitive here. If market participants expect rates to climb or affordability to worsen, property-related assets may struggle to find stable ground. Those already exposed to this corner of the market should be alert to liquidity tightening or mortgage strain creeping into company fundamentals.
Equity markets rattled by political uncertainty alongside trade barriers tend to show spillovers in commodities and safe-haven assets. We usually see a standard rotation play out, and it seems likely again—risk-off moves driving capital into less volatile positions. What matters for us is that recovery in sentiment may lag well behind any calm in headlines. That patience will be tested if data doesn’t immediately turn supportive.
Shifts in market positioning
Moreover, concerns about whether the US can maintain its role as a top performer globally are now seeping into rate expectations. This feeds into pricing in credit futures and longer-term yield curves. It will be important in the weeks ahead to watch how funds behave—whether exposure remains heavy in dollar-denominated assets, and whether hedging ramps up abruptly.
One way we are approaching this is by working back from volatility. Options markets are already reflecting the shot clock on policy changes. Risk premiums are likely to stay elevated if market participants continue struggling to quantify forward guidance—or if there’s no guidance at all.
Directionally, the pricing behaviour in early trades—particularly those related to interest-sensitive names—will give clues on how deep the concerns are bedding in. If labour market metrics start to soften in tandem, those pieces tend to fall into place fast. We’d then expect forward pricing to lean more defensive, with premiums rising on near-term contracts.
Right now, it seems prudent to treat this uncertain data environment not just as a nuisance, but as a potential foothold for measured, directional trades. Awareness of policy surprises needs to be built into positioning, especially as developments continue to hit sentiment before they show up in economic figures. Trading desks must stay responsive, particularly when moves aren’t directly driven by data points we can model.
