Deutsche Bank (DB) analysts warn that overseas investors have mounted a buyers’ strike on U.S. assets, halting inflows even as markets recovered last week. Head of FX strategy George Saravelos notes a “sharp stop” in purchases over the past two months, with no sign of a rebound in the latest fund-flow data.
By scrutinizing real-time flows into some 400 U.S.-focused exchange-traded funds domiciled overseas and broader weekly fund statistics, Saravelos concludes that foreign capital into both equities and bonds has slowed dramatically, with bonds seeing outright selling. “Our broad takeaway is a rapid slowing in U.S. capital inflows and, at worst, active disinvestment,” he writes.
Market Overview:- Deutsche Bank identifies a halt in foreign purchases of U.S. stocks and bonds.
- ETF flows show active selling of U.S. bonds and stagnation in equity inflows.
- Survey of 400 overseas U.S.-focused ETFs provides near real-time capital flow insights.
- Dollar at risk as a twin-deficit currency amid capital outflow concerns.
- Share of U.S. assets in European holdings quadrupled since 2010, now receding.
- Saravelos shifts from dollar bull to bear, forecasting $1.30/EUR and ¥115 by 2027.
- Extended disinvestment could pressure Treasury funding and U.S. deficit financing.
- Fed policy may face tighter scrutiny if the dollar weakens further.
- Investors will watch for any policy shifts that might restore foreign confidence.
- Short-term foreign outflows could create attractive valuations in U.S. equities and bonds, eventually drawing global investors back as yields rise and assets become relatively cheap compared to global alternatives.
- The U.S. remains the world’s largest and most liquid capital market, with a proven history of attracting capital during periods of global uncertainty; temporary disinvestment may reverse if macro conditions stabilize or trade tensions ease.
- Periods of foreign selling have historically been followed by renewed inflows once risk premiums adjust and policy clarity returns, especially if the U.S. economy remains resilient relative to other developed markets.
- The dollar’s reserve currency status and the depth of U.S. capital markets provide a natural backstop, making a prolonged buyers’ strike less likely than in smaller, less liquid economies.
- Should the Fed or Treasury implement market-friendly measures-such as more accommodative policy or fiscal discipline-confidence in U.S. assets could be restored, supporting both the dollar and Treasury demand.
- Deutsche Bank’s analysis shows a sharp and persistent halt in foreign purchases of U.S. stocks and bonds, with outright selling in bonds-raising the risk of sustained capital outflows and higher funding costs for the U.S. government.
- Simultaneous weakness in the dollar, Treasuries, and equities suggests a broader loss of confidence in U.S. markets, potentially undermining the country’s ability to finance its twin deficits and maintain economic stability.
- Ongoing tariff escalation and policy uncertainty could cement a structural shift away from U.S. assets, especially as overseas investors diversify toward Europe and other markets with less political and fiscal risk.
- Extended foreign disinvestment may force the Fed to tighten policy or the Treasury to offer higher yields, increasing borrowing costs for the government, corporations, and consumers alike.
- If confidence in the U.S. as a safe haven erodes further, volatility could spike and the risk of a disorderly correction in both bond and equity markets would rise, with global repercussions.
The rare simultaneous sell-off in U.S. equities and Treasuries following tariff announcements has amplified concerns about global investor retreat. As foreign allocations unwind, funding costs for the U.S. could rise, complicating fiscal and monetary policy decisions.
Looking forward, the pace and persistence of foreign disinvestment will be critical indicators of the dollar’s trajectory and the stability of U.S. capital markets. Deutsche Bank’s flow analytics may offer an early warning system for policy makers and investors alike.
