Two months after Donald Trump's re-inauguration, a picture of economic uncertainty is emerging: trade conflicts, uncoordinated deregulation and an aggressive foreign policy are shaking the confidence of consumers and companies alike. The US dollar has fallen significantly in value in just a few weeks, the US stock markets are lagging behind internationally and investors are increasingly withdrawing from the USA.

A look at the surveys shows that consumers in the USA have already given an unflattering verdict 8 weeks after Trump's inauguration. In the last 70 years, there have only been 13 months in which US consumers have been more pessimistic than they are today. Companies are also holding back on investments, as the erratic trade policy makes it difficult to make reliable planning decisions. Export-oriented sectors in particular are facing increasing challenges, as protectionist measures are having a negative impact on trade flows.

The ongoing trade conflict with China and Europe could dampen US economic growth by up to 0.7 percentage points - with negative consequences for corporate profits and the labor market.

Another powder keg is Trump's planned measure to persuade foreign creditors to 'voluntarily' swap their US government bonds, which are held as currency reserves, for interest-free US government bonds with a term of 100 years. At current yields, this would result in a 98.9% price loss - and therefore almost a total default. This could not only severely damage the creditworthiness of the USA, but also further weaken the dollar. The US currency has already lost around six percent against the euro in recent weeks.

At the same time, inflationary pressure is increasing, further weakening the purchasing power of Americans and placing an additional burden on consumption. Wage growth is unable to keep pace with price increases, meaning that disposable income is falling in real terms.

Abraham Lincoln once said: "You can fool all the people for a time and some of the people for all the time, but you can't fool all the people for all the time." Applied to current economic policy, this means that a strategy that simultaneously offends consumers, investors and creditors is not sustainable in the long term. The market seems to have already recognized this.

While the USA is struggling with these challenges, Europe is increasingly stabilizing. Investments in infrastructure and defense, particularly in Germany, are giving the economy a boost. Structural reforms in individual EU countries are also improving competitiveness. The combination of a weaker dollar and a more resilient European economy historically suggests that European and emerging market equities will outperform in the coming years. Gold could also continue to shine. The precious metal traditionally benefits from geopolitical uncertainty and a weakening dollar. If Trump's policies continue to fuel mistrust in the US economy, a continuation of the rally is not unlikely.

Capital market outlook