Risk appetite faded after U.S. President Donald Trump threatened to impose additional tariffs on imports from eight European countries unless Washington was granted the right to purchase Greenland. The prospect of a widening transatlantic trade dispute weighed heavily on sentiment across Asia and Europe, with investors reassessing growth and policy risks.
Asian equities slipped modestly, led by declines in Japan, while European equity futures pointed to a sharp sell-off at the open. U.S. stock index futures also fell, with thin trading conditions exacerbated by a holiday in American equity and bond markets. S&P 500 and Nasdaq futures posted losses of around 1%, reflecting concerns that tariff escalation could spill over into corporate earnings and investment.
In Europe, futures on the EUROSTOXX 50 and Germany’s DAX dropped more than 1%, while London’s FTSE futures fell less sharply. Japan’s Nikkei retreated, and a broad index of Asia-Pacific shares outside Japan edged lower, underscoring the global reach of the uncertainty.
Under Trump’s proposal, the United States would levy an additional 10% tariff on imports from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain starting February 1, rising to 25% by June if negotiations fail. European Union leaders condemned the move, with France calling it economic “blackmail” and urging consideration of forceful countermeasures.
Brussels has several options at hand, including the revival of suspended tariffs on roughly €93 billion worth of U.S. goods and the possible use of its Anti-Coercion Instrument, which could target U.S. services trade or investment flows. Analysts warn that any retaliation extending beyond goods trade could significantly disrupt global markets.
Strategists at Deutsche Bank highlighted Europe’s substantial exposure to U.S. financial assets, noting that European investors hold around $8 trillion in U.S. bonds and equities. A shift of even part of that capital back to Europe could amplify market volatility. “The weaponisation of capital rather than trade flows would be far more disruptive,” said George Saravelos, the bank’s global head of foreign exchange research.
The timing adds to the unease, with political and business leaders gathering in Switzerland for the World Economic Forum in Davos, including a sizable U.S. delegation led by President Trump. The dispute is expected to dominate discussions in the coming days.
Currency markets reflected the cautious mood. The dollar lost ground against the Japanese yen and Swiss franc, while the euro and sterling recovered from early weakness. With U.S. Treasury cash markets closed, long-dated bond futures fell as investors hedged against the risk of European asset sales.
Safe-haven demand pushed gold and silver to fresh all-time highs, reinforcing their appeal during periods of geopolitical and economic stress. Oil prices, by contrast, were little changed, as concerns about global demand from a potential trade war offset geopolitical risks in the Middle East, including heightened tensions involving Iran.
Elsewhere, Chinese equities dipped after data showed economic growth slowed in the December quarter, though the outcome still exceeded expectations. Strong industrial output, supported by exports, contrasted with weaker retail sales, highlighting persistent softness in domestic demand.
Attention now turns to a busy week of central bank signals and economic data. The Bank of Japan meets on Friday, with markets watching closely for hints of a possible policy tightening later in the spring. In the United States, delayed inflation and consumption figures later this week could refine expectations for when the Federal Reserve may resume cutting interest rates, as earnings season broadens to include major industrial and technology firms.