Deutsche Bank Warns: Summer Volatility Risks Rise as Tariffs, Debt, and Policy Shake Confidence

With market liquidity thinning and geopolitical uncertainty intensifying, Deutsche Bank analysts are flagging an elevated risk of financial market turmoil as summer 2025 unfolds. In a recent client note, they pointed to historical patterns where many volatility shocks—particularly in August—have historically hit markets hard.

History Says: Beware Late-Summer Volatility

From the yen carry trade unwind in 2024 to the Greek eurozone exit fears in 2015, August has proven a fertile ground for volatility spikes. This year, the analysts warn, is no different:

• The VIX Index, often seen as Wall Street's “fear gauge,” has historically shown sharp Q3 spikes.

• Liquidity is currently thin, increasing the risk of amplified market reactions to shocks.

• Tariffs and U.S. fiscal imbalances are potent new catalysts.

Key Risk: Tariff Shock on August 1

President Donald Trump's delayed yet looming tariff rollout remains a critical overhang. Letters sent to 14 countries detail punitive duties starting August 1, unless trade deals materialize.

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The risk isn't just global. Domestically, Trump's tax-and-spend package—signed into law last week—is expected to further inflate the U.S. budget deficit, prompting fresh debate around fiscal discipline.

Mounting Fiscal Pressure

Deutsche Bank analysts flagged that while markets have so far been "remarkably resilient," continued fiscal expansion risks pushing yields and inflation expectations higher, potentially triggering bond market stress.

Leverage the U.S. Economic Calendar API to stay ahead of macroeconomic releases, such as CPI, Treasury auctions, and debt ceiling updates, that could further move markets.

Bottom Line

Markets are holding for now, but Deutsche Bank's warning reflects a growing unease beneath the surface. Thin liquidity, geopolitical flashpoints, fiscal stress, and seasonal patterns all suggest that investors should stay alert and positioned for unexpected volatility in the coming weeks.

"It would take a bigger shock that policy can't fix to cause lasting turmoil," Deutsche noted. That threshold might not be far off.