The substantial market fluctuations triggered by President Donald Trump's tariff-related remarks have significantly subsided. Investors are now diverting their attention elsewhere and are increasingly skeptical about the likelihood of a full-scale trade war. Despite this apparent calm, there are lingering concerns among some that markets might be growing overly complacent.
Hong Kong's Hang Seng index has seen a 14% increase in the tech sector this year, notwithstanding being one of the few trading partners on which Trump has raised tariffs. Similarly, there is a notable reduction in the volatility of the Canadian dollar and Mexican peso, which have both strengthened since the beginning of the year. Additionally, European auto stocks, despite being susceptible to tariffs, reached a seven-month high this week.
Although affected to some extent, European auto stocks experienced a minor setback after recent developments, remaining almost 10% higher in 2025, with less pronounced fluctuations than before.
State Street has monitored media coverage and its impact on currency and equity movements to assess each market's sensitivity to trade war news.
Marija Veitmane, head of equity research at State Street Global Markets, notes, "A few months ago, tariffs were crucial. Now the media is still discussing tariffs, but the market is less attentive," she said.
Furthermore, Monica Defend, head of the Amundi Investment Institute, highlights the uncertainty surrounding the extent, timing, and targets of Trump's trade policies as a reason for the market's uncertainty.
Moreover, the market narrative has shifted from the previous U.S. exceptionalism viewpoint to one anticipating benefits from Trump's deregulation and tax cuts.
Despite warnings that tariffs could still materialize, market participants exhibit a growing desensitization due to the lack of substantial tariff implementations compared to the initial threats.
Analysts caution that the market is underestimating potential tariff risks, as seen in the Canadian dollar's recovery following Trump's tariff postponement announcement and subsequent rebound, suggesting market complacency.
As a result, Paul Mackel, HSBC's global head of FX research, suggests that the broad dollar might not reflect Trump's policies adequately, implying a complacent stance in the market.
Despite the current calm, there remains a looming possibility of tariffs coming into effect, as reiterated by Jack Janasiewicz, a portfolio manager at Natixis Investment Managers.
The discourse echoes the cautious sentiment in the market that remains watchful for any sudden shifts that could lead to potential downturns.