WASHINGTON — Major geopolitical risk events, including trade tensions, can trigger large corrections in stock prices, the International Monetary Fund (IMF) said in a report on Monday.

That in turn can generate market volatility which can threaten financial stability, it said in a chapter from its forthcoming Global Financial Stability Report.

The IMF did not mention specific events, such as the sweeping tariffs US President Donald J. Trump has announced in recent weeks. But it noted that news-based measures of risk, including conflicts, wars, terrorist attacks, military spending and trade restrictions had increased sharply since 2022.

In an accompanying blog, the IMF urged financial institutions to hold enough capital and liquidity to help them deal with potential losses from geopolitical risks, and urged them to use stress tests and other analyses to identify and manage such risks.

In its report, the IMF said its research had shown that big risk events such as wars, diplomatic tensions or terrorism sent stock prices down an average 1 percentage point monthly across all countries, with the average drop for emerging markets 2.5 percentage points (ppts).

International military conflicts, such as Russia’s invasion of Ukraine in 2022, were the most significant risk events, pushing stock returns down an average 5 ppts monthly, twice the level of other geopolitical risk events.

The IMF is due to release the full report at its spring meetings with the World Bank the week of April 21. Mr. Trump’s tariff announcements will likely dominate the meetings.

Last week saw the wildest swings on Wall Street since the coronavirus pandemic of 2020. The benchmark Standard & Poor’s 500 index is down more than 10% since Mr. Trump took office on Jan. 20, while gold has hit record highs.

One US survey of consumers showed inflation fears have hit their highest level since 1981, while financial institutions have been warning of the growing risk of recession.

The IMF also said economic uncertainty increases so-called market tail risks — the chance of extreme, unexpected losses in an investment portfolio — which in turn boost the risk of stock market crashes.

It said heightened geopolitical risks also drive up sovereign risk premiums — the prices for credit derivatives that protect against default — and could spill over to other economies through trade and financial linkages.

In the accompanying blog, the IMF looked at the impact of US-China tariff actions from 2018 to 2024, noting that some larger-scale announcements had driven shares in both countries lower. — Reuters

HARVARD on Monday rejected numerous demands from the Trump administration that it said would cede control of the school to a conservative government that portrays universities as dangerously leftist.

Within hours of Harvard taking its stand, the administration of President Donald J. Trump announced it was freezing $2.3 billion in federal funding to the school.

The funding freeze comes after the Trump administration said last month it was reviewing $9 billion in federal contracts and grants to Harvard as part of a crackdown on what it says is antisemitism that erupted on college campuses during pro-Palestinian protests in the past 18 months.

On Monday, a Department of Education task force on combating antisemitism accused America’s oldest university of having a “troubling entitlement mindset that is endemic in our nation’s most prestigious universities and colleges — that federal investment does not come with the responsibility to uphold civil rights laws.”

The exchange escalates the high-stakes dispute between the Trump administration and some of the world’s richest universities that has raised concerns about speech and academic freedoms.

The administration has frozen hundreds of millions of dollars in federal funding for numerous universities, pressing the institutions to make policy changes and citing what it says is a failure to fight antisemitism on campus.

Deportation proceedings have begun against some detained foreign students who took part in pro-Palestinian demonstrations, while visas for hundreds of other students have been canceled.

Harvard President Alan Garber wrote in a public letter on Monday that demands made by the Department of Education last week would allow the federal government “to control the Harvard community” and threaten the school’s “values as a private institution devoted to the pursuit, production, and dissemination of knowledge.”

“No government — regardless of which party is in power — should dictate what private universities can teach, whom they can admit and hire, and which areas of study and inquiry they can pursue,” Mr. Garber wrote.

The issue of antisemitism on campus erupted before Mr. Trump took office for his second term, following pro-Palestinian student protests last year at several universities following the 2023 Hamas attack inside Israel and the subsequent Israeli attacks on Gaza.

White House spokesman Harrison Fields said in a statement on Monday that Mr. Trump was “working to Make Higher Education Great Again by ending unchecked antisemitism and ensuring federal taxpayer dollars do not fund Harvard’s support of dangerous racial discrimination or racially motivated violence.”

In a letter on Friday, the education department stated that Harvard had “failed to live up to both the intellectual and civil rights conditions that justify federal investment.”

The department demanded that Harvard, work to reduce the influence of faculty, staff and students who are “more committed to activism than scholarship” and have an external panel audit the faculty and students of each department to ensure “viewpoint diversity.”

The letter also stated that Harvard, by this August, must only hire faculty and admit students based on merit and cease all preferences based on race, color or national origin. The university must also screen international students “to prevent admitting students hostile to American values” and report to federal immigration authorities foreign students who violate conduct rules.

Last week, a group of Harvard professors sued to block the Trump administration’s review of nearly $9 billion in federal contracts and grants awarded to the school.

The Trump administration is reportedly considering forcing fellow Ivy League school Columbia into a consent decree that would legally bind the school to follow federal guidelines in how it combats antisemitism. Some Columbia professors, like those at Harvard, have sued the federal government in response. The government has suspended $400 million in federal funding and grants to Columbia.

Harvard’s Mr. Garber said the federal government’s demands that it “audit” the viewpoints of its students, faculty and staff to ferret out left-wing thinkers generally opposed to the Trump administration clearly violated the university’s First Amendment rights to freedom of speech.

“The University will not surrender its independence or relinquish its constitutional rights,” Mr. Garber wrote.

He added that while Harvard is taking steps to address antisemitism on campus, “these ends will not be achieved by assertions of power, unmoored from the law, to control teaching and learning at Harvard and to dictate how we operate.”

Harvard agreed in January to provide additional protections for Jewish students under a settlement resolving two lawsuits accusing the Ivy League school of becoming a hotbed of antisemitism.

To ease any funding crunch created by any cutoff in federal funding, Harvard is working to borrow $750 million from Wall Street. — Reuters

BERLIN — With global trade deeply uncertain and a tariff war causing havoc on financial markets, Germany’s next government is hoping to unleash domestic consumption to revive stalled growth in an economy that has been driven for decades by exports.

Conservative chancellor-in-waiting Friedrich Merz, in a newly forged coalition with the center left Social Democrats (SPD), has announced policies such as tax cuts and raising the minimum wage.

He hopes these measures will increase purchasing power and support domestic demand. However, economists, retail groups and consumer behavior experts question whether they will be enough to persuade Germans — already among the world’s biggest savers — to break open their piggy banks and spend.

“I doubt that we will really see a sharp consumption revival this year,” Carsten Brzeski, global head of macro told Reuters.

Germany’s attempts to wean itself off its exports dependency predate the trade turmoil unleashed by the Trump administration, as it has long struggled to deal with declining competitiveness.

Since 2023, domestic consumption has been stagnant however, with the household savings rate reaching 20% last year due to political uncertainty, above the EU average of 15%.

To avoid a third year of contraction in 2025, economists agree that boosting consumption in Europe’s biggest economy is crucial.

“Looking at it in a very simple way you can say, okay, there is a fall in demand for our export goods, so we have to strive for more domestic demand, which is investment and consumption,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank AG, told Reuters.

Merz’s coalition has agreed to lower income taxes for middle and lower income households, which could help consumption, the German retail association HDE told Reuters. “However, we do not expect a significant upturn.”

The government will make overtime pay tax-free and offer tax benefits for those working beyond retirement age. The minimum wage is expected to rise to 15 euros ($17.10) per hour and the value-added tax (VAT) on food in restaurants will be lowered to 7% from a current 19%.

Deutsche Bank, however, said these “miscellaneous fiscal gifts” will provide only limited relief in the near term.

Since unveiling the measures, Mr. Merz’s coalition has started bickering about the contents of the agreement, with Mr. Merz warning that tax cuts would only happen if there was enough money in the budget.

Moreover, the measures would likely take time to change household habits, Salomon Fiedler, an economist at Berenberg, told Reuters.

“German consumers seem to need a more psychological kickstarter: a policy or political breakthrough,” Mr. Brzeski said.

Despite a borrowing bonanza announced by Mr. Merz after the election, consumer sentiment was broadly unchanged afterwards, with a cooling labour market also making households hold back.

SUSTAINABILITY TRENDS
Adding to their reluctance to spend, German consumers are increasingly conscious of their environmental impact.

In the heart of Berlin is Kleiderei, a labyrinth of aisles with clothing from virtually every decade and style imaginable that customers can borrow for a monthly fee, like “a clothing library.”

“Our model is about slowing down consumption and creating a real community,” Kleiderei director Lena Schroeder told Reuters, having now five physical stores in Germany. “When customers visit our stores, they can touch and feel the clothes, making more conscious decisions about what they borrow.”

Kleiderei only includes pre-owned clothes in its collection of 60,000 pieces, repairing them to maintain quality.

As fast fashion brands like Shein and Temu rise, social media influencers advocate more environmentally responsible consumption.

“These advertisements on TV or radio always want people to buy more… but we actually don’t need it,” said Lisa Monaco, founder of the blog Nachhaltig4Future. “We already have an excess of everything – it’s not good for anyone.”

The 34-year-old, who started her sustainability platform in 2020 during the pandemic, provides tips ranging from zero waste to-go kits to sustainable cleaning products.

“Influencers have become the new gatekeepers of consumer attention, especially for younger generations,” Barbara Engels, senior economist at the IW institute told Reuters. “Luxury is out, values are in.”

Such a trend may continue. Close to 60% of the Germans reported consuming sustainably in some way, while 71% said they would like to do more, a 2023 study from the Development Engagement Lab showed.

“The project ‘making German consumers spend again’ will not be an easy one and requires patience and stamina,” said Mr. Brzeski. — Reuters