Deutsche’s Americas CRO on risk-taking in choppy markets

Risk Live Boston: Risk managers must stay alive to sudden market moves, but volatility can also bring opportunity, says Jonathan Hummel

Wild intraday swings in financial markets have become a common feature of the Trump 2.0 era, since the new US president embarked on his sabre-rattling policy of tariffs in a bid to reset global trade flows.

The surprise 90-day pause in tariffs for dozens of countries on April 9 – just a week after they were announced – is the latest example of the unpredictable political backdrop.

There may be more twist and turns in store for markets.

Speaking at the Risk Live Boston conference on the previous day – Tuesday, April 8 – Jonathan Hummel, chief risk officer for the Americas at Deutsche Bank, cautioned market participants not to overreact to news events and policy changes: “For investors, as well as banks and others, you have to be aware that we’re living in times where things will move very quickly. We don’t want to be too far out on the risk curve in either direction because of that.”

Hummel’s caution was proved right on the evening of Wednesday, April 9, after Trump’s move to pause tariffs for countries that hadn’t reciprocated the US’s action. One notable exception is China, which now faces a painful 125% rate. Within minutes, US equity markets had rebounded strongly, with the Nasdaq climbing 9% and the S&P 500 up 8%.

The previous 48 hours had been a bumpy ride for stocks and bonds. When Hummel took the stage at around 9.30am on the morning of April 8, US stocks were staging a furious relief rally on the back of renewed hopes that the US would negotiate new trade deals with countries including Japan and South Korea. By mid-morning, sentiment had soured and indexes plunged again. The S&P 500 finished the day down 1.6%.

The malaise spread to government bonds. The yield on 10-year US Treasuries widened from 4.15% on Tuesday to more than 4.5% on Wednesday.

Despite these extreme market gyrations, Hummel believed that most large market participants had taken the right approach. After levering up during the post-election rally in stock markets, many investors began to reduce their exposures a month ago, in response to Trump’s increasingly fiery rhetoric on tariffs.

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“A lot of those institutional investors went into this period with lower leverage, less directionality, and a little bit more defensively positioned,” said Hummel.

Banks did the same, running stress tests to gauge potential losses in a worst-case scenario and adjusting their exposures accordingly. “It’s really about making sure that we’re not taking much risk during this period, but we’re [still] there to service our clients,” Hummel said.

Looking ahead, the 90-day pause in tariffs will extend the uncertainty for corporates and investors as countries enter a prolonged period of haggling over trade terms.

Uncertainty hinders companies in making long-term plans or engaging in strategic decision-making, Hummel said. Should they open a factory in the US or invest elsewhere on the basis that tariffs will be negotiated away? “As a corporate CEO, this is a challenging question,” said Hummel. “A lot of them are in wait-and-see mode, as opposed to taking decisive action.”

This is also where Hummel thinks banks can help. As the US adopts a more protectionist stance, bilateral agreements between different companies and countries may become more important.

“That’s going to be the opportunity for us, to bring intellectual capital to our clients and help them think about how they can succeed in those markets where there may be opportunities for them,” he said.

Countries are already signalling their strategic priorities. Germany, for instance has responded to Trump’s trade and geopolitical policies by committing to invest €500 billion ($553.4 billion) in defence and infrastructure. “I assume they’re not going to be the last country to make some of these investments,” Hummel said. “If that is the case, there’ll be lots of opportunity to help clients and countries as they think through how to develop their needs as they go forward.”

The decisions that corporate CEOs make in the coming months could also have major implications for the long-term economic outlook. Recession had become a baseline expectation among many analysts. The latest pause on tariffs has mitigated – but not quashed – that risk. After the Wednesday announcement, Goldman Sachs revised its probability of US recession from 65% to 45%.

Even so, the threat of stagflation is a scenario that risk managers should not ignore. “As a risk manager, you have to look deeply into those different scenarios and say: ‘What if we do live in a period of stagflation? What tools does the government have?’” Hummel said.

Central banks would typically raise rates during a period of economic stagnation to stimulate growth, but doing so at a time of high inflation would only exacerbate the inflationary picture.

“These are all things that we have to consider in some of the downside analysis,” he added.

Forthcoming negotiations on trade deals will play a crucial part in determining whether an economic recession takes hold in the US and further afield.

US Treasury secretary Scott Bessent had previously described the Trump administration’s tariff policy as “a three-legged stool”. The first leg is to collect revenues from tariffs. The second goal is to reshore manufacturing in the US. And the third is to eliminate – or at least greatly reduce – trade deficits.

Hummel said the complexity for investors is to grasp how these three priorities work together. A key part of the calculus is to ask “are these tariffs a negotiating tool?”, he added.

The answer to that question may have been reached on Wednesday evening.

Editing by Alex Krohn