Trump’s Greenland-linked tariff threats weigh on risk

General market commentary

European shares fell sharply on Monday as investors reacted to U.S. President Donald Trump’s threat to impose tariffs on several European countries if they resisted his proposal to buy Greenland. The pan-European Stoxx 600 closed 1.19% lower, with most sectors in the red. France’s CAC 40 dropped 1.78% to 8,112.02, Germany’s DAX fell 1.34% to 24,959.06, and Italy’s FTSE MIB slipped 1.32% to 45,195.89. The UK’s FTSE 100 was down 0.39% at 10,195.35, while Spain’s IBEX 35 fell 0.26% to 17,665.30. European carmakers and luxury goods companies were particularly hard hit, with Volkswagen, BMW, LVMH, Kering, and Hermès all recording notable declines amid fears of escalating trade tensions. U.S. markets remained closed for Martin Luther King Jr. Day.

In contrast, some defence and technology equities managed gains. Rheinmetall rose 1.08%, and Thales added 0.73%, while semiconductor firm ASM International closed 0.81% higher after reporting stronger-than-expected fourth-quarter bookings. Gold also saw a significant rally, with U.S. futures climbing 1.7% to $4,673.30 an ounce. Investors are now closely watching the World Economic Forum in Davos this week, where Trump is scheduled to speak on Wednesday, as markets weigh the potential impact of geopolitical developments on trade and global economic growth.

Latest market and economic update

Asian shares fell Tuesday amid jitters over Trump’s Greenland demands and thin cues after a US holiday. Japan slid on snap-election plans and surging bond yields. China and Hong Kong edged lower despite GDP meeting targets. Australia dropped on BHP weakness, while South Korea outperformed near record highs and Singapore was flat across cautious trading.

U.S. equity index futures fell sharply Monday evening after President Trump threatened up to 25% trade tariffs on several European countries over Greenland, dragging S&P 500 futures down ~1%, Nasdaq 100 ~1.2% and Dow Jones ~0.9%. Caution ahead of key corporate earnings and thin trading after the Martin Luther King Jr. holiday weighed on sentiment.

The dollar fell for a second day in Asian trading, sliding 0.2% to 98.891, its lowest since January 13, amid White House threats over Greenland and concerns about U.S. market exposure. The euro rose 0.1% to $1.1658, supported by potential de-dollarisation flows and investor caution over prolonged geopolitical and tariff uncertainties.

Oil prices were little changed in Asian trade Tuesday as caution over U.S. Greenland demands and mixed Chinese GDP data tempered markets. Brent futures held near $63.96 a barrel and WTI around $59.29. Traders also eyed potential 2026 supply gluts ahead of the International Energy Agency’s monthly report this week.

The IMF raised its 2026 global growth forecast to 3.3%, citing strong labour markets, investment, and AI-driven activity. Risks remain from rapid tech investment, trade disputes, and geopolitics, which could hit markets and household wealth. Regionally, growth is projected at 2.6% in the US, 1.3% in the Eurozone, and 4.5% in China.

Eurozone consumer price inflation eased to 1.9% in December 2025, below the ECB’s 2% target. Core inflation fell to 2.3%, while energy prices dropped sharply. Services and non-energy goods softened, and food, alcohol, and tobacco rose slightly. Inflation cooled in Germany, France, and Spain, but Italy saw a modest increase to 1.2%.

Goldman Sachs says Trump’s proposed tariffs on eight European countries could cut GDP by 0.1%–0.2%, with Germany most affected. Impacts could rise if tariffs reach 25%. Implementation remains uncertain. The EU may retaliate with counter-tariffs or broader measures, while the UK is expected to prioritise diplomacy over immediate retaliation.

France will invoke constitutional Article 49.3 to force through its 2026 budget after securing enough support to survive a no-confidence vote. Prime Minister Lecornu made concessions on pensions, low-income supplements, student meals, and affordable housing, funded by extending a corporate surtax. Mainstream parties seek to avoid snap elections despite hard-left opposition.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

BHP reported record first-half iron ore production of 146.6 million tons but accepted lower prices amid 2026 supply negotiations with China. Costs for its Jansen potash project rose 20% to $8.4 billion. Copper output forecasts were slightly raised, while coking coal guidance remained unchanged. Shares fell 2% amid broader mining sector weakness.

Intercontinental Exchange has developed a platform for trading and on-chain settlement of tokenised shares, offering 24/7 operations, instant settlement, and stablecoin funding, pending regulatory approval. The move reflects growing demand for nonstop U.S. equity trading and blockchain solutions, with exchanges and brokerages extending hours to ease market frictions.

LVMH shares fell over 4% as Morgan Stanley downgraded the shares to “equal-weight,” citing limited upside and downside risks from tariffs and foreign exchange. Despite improved Fashion and Leather Goods sales and recovering US and Chinese demand, 2026 earnings forecasts were cut, with Wines and Spirits margins pressured, while revenue is still expected to rise.

Bayer shares rose over 7% after the U.S. Supreme Court agreed to hear its appeal in a key Roundup lawsuit. The case challenges state-level claims over cancer warnings on glyphosate. Analysts say a favourable ruling, expected by June 2026, could reduce litigation risks and boost Bayer’s valuation, despite tens of thousands of ongoing cases.

European defence shares rose as Trump threatened tariffs on eight EU countries over Greenland. Investors anticipate EU retaliation, including tariffs or the Anti-Coercion Tool. Analysts say the uncertainty may strain NATO and push Europe towards greater strategic independence, supporting higher defence spending, creating a constructive backdrop for European defence equities.

Morgan Stanley says European equities’ exposure to Trump’s Greenland-related tariffs is limited, affecting only 2.2% of MSCI Europe revenues. EU leaders may retaliate with tariffs or the Anti-Coercion Tool. Analysts expect limited downside for European equities, favour defence shares due to strategic autonomy concerns, and note potential Supreme Court action on IEEPA tariffs.

Germany will offer subsidies of €1,500–€6,000 for electric cars with range extenders to support small- and medium-income households. The €3 billion programme aims to boost EV sales, covering around 800,000 vehicles through 2029. Applications can be submitted retroactively for new registrations from January 1, expanding the previously reported scheme.

Global investment in space technology is set to rise in 2026, driven by government defence spending, private sector launch bets, AI integration, and a potential SpaceX IPO. In 2025, funding hit $12.4 billion, led by the US ($7.3 billion), while Europe grew modestly and China invested $2 billion in satellite and launch capabilities.

Upcoming data and events

On Tuesday, key economic data include the UK unemployment rate for November and Germany’s ZEW Economic Sentiment Index for January. In the US, 3-, 6-, and 52-week Treasury bill auctions and API crude oil stock changes are scheduled. Major earnings releases feature Netflix, 3M, US Bancorp, Mercedes-Benz, Fastenal, DR Horton, Porsche, Rio Tinto, and United Airlines.

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