A prospective shift in investor capital away from the United States is being brought about by a historic global trade war, a proposed $1.2 trillion European fiscal bazooka, and China’s rise to prominence in the innovation race. China pledged to make more steps to mitigate the effects of a worsening U.S. trade conflict and unleashed more stimulus on Wednesday. The largest fiscal policy change since Germany’s reunification was agreed upon by the country’s probable next government just hours before.
In reaction, 30-year rates jumped by a quarter of a percentage point on Wednesday, and the selloff continued into the second day on Thursday, sending German bonds plunging in the most spectacular selloff in decades. The trade war sparked by U.S. tariffs that went into effect this week is harming sentiment both inside and outside of the largest economy in the world, and U.S. economic data indicates a deterioration.
The last three years have seen investors place bets on “U.S. exceptionalism,” since the nation has outperformed other nations in a number of categories, including artificial intelligence, stock prices, and economic development. Tim Graf, head of macro strategy for EMEA at State Street Global Markets, stated, “The world now sees the U.S. model is changing, and saying – we need to adapt to that, the U.S. is no longer as reliable as a trade partner, we have to take care of our own needs on defense.” A remarkable divergence in global stock markets has been fueled by the shift in mood.
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