World markets jolted, euro softens, as Trump vows tariffs on Europe over Greenland
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Major European Union states decried the tariff threats over Greenland as blackmail on Jan 18.
PHOTO: REUTERS
LONDON - Global markets are facing volatility after President Donald Trump vowed to slap tariffs on eight European nations
Mr Trump said he would impose an additional 10 per cent import tariff from Feb 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, which will rise to 25 per cent on June 1 if no deal is reached.
Major European Union states decried the tariff threats over Greenland as blackmail on Jan 18. France proposed responding with a range of previously untested economic countermeasures.
As early trade kicked off in Asia-Pacific, the euro fell 0.2 per cent to around US$1.1572 (S$1.50), its lowest since November. Sterling also dipped, while the yen firmed against the dollar.
“Hopes that the tariff situation has calmed down for this year have been dashed for now - and we find ourselves in the same situation as last spring,” said Berenberg chief economist Holger Schmieding.
Mr Trump’s sweeping “Liberation Day” tariffs
While that lull might be over, market moves on Jan 19 could be dampened by the experience that investor sentiment had been more resilient than expected in 2025 and global economic growth stayed on track.
US markets are closed on Jan 19 for Martin Luther King Jr Day, which means a delayed reaction on Wall Street.
The implications for the dollar were less clear. It remains a safe haven, but could also feel the impact of Washington being at the centre of geopolitical ruptures, as it did last April.
Bitcoin, a liquid proxy for risk that is open to trade at the weekend, was steady, last trading at US$95,330.
Capital Economics said countries most exposed to increased US tariffs were the UK and Germany, estimating that a 10 per cent tariff could reduce GDP in those economies by around 0.1 per cent, while a 25 per cent tariff could knock 0.2–0.3 per cent off output.
European stocks are near record highs. Germany’s DAX and London’s FTSE index are up more than 3 per cent in January, outperforming the S&P 500, which is up 1.3 per cent.
European defence shares will likely continue to benefit from geopolitical tensions. Defence stocks have jumped almost 15 per cent in January, as the US seizure of Venezuela’s Nicolas Maduro fuelled concerns about Greenland.
Denmark’s closely managed crown will also likely be in focus. It has weakened, but rate differentials are a major factor and it remains close to the central rate at which it is pegged to the euro, and not far from six-year lows.
“The US-EU trade war is back on,” said Ms Tina Fordham, geopolitical strategist and founder of Fordham Global Foresight.
Mr Trump’s latest move came as top officials from the EU and South American bloc Mercosur signed a free trade agreement
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, on Jan 15.
PHOTO: REUTERS
Hot spots everywhere
The dispute over Greenland is just one hot spot.
Mr Trump has also weighed intervening in unrest in Iran, while a threat to indict Federal Reserve Chair Jerome Powell has reignited concerns about the US central bank’s independence.
Against this backdrop, safe-haven gold remained near record highs.
Given Mr Trump’s recent Fed attacks, an escalation with Europe could pile pressure on the dollar if it adds to worries that US policy credibility is becoming critically impaired, said Peel Hunt chief economist Kallum Pickering.
“(This) could be amplified by a desire, especially among Europeans, to repatriate capital and shun US assets, which may also pose downside risks to lofty US tech valuations,” he added.
The World Economic Forum’s annual risk perception survey, released before its annual meeting in Davos next week, which will be attended by Mr Trump, identified economic confrontation between nations
A source close to French President Emmanuel Macron said he was pushing for activation of the “Anti-Coercion Instrument”, which could limit access to public tenders, investments or banking activity or restrict trade in services, in which the US has a surplus with the bloc, including digital services.
“With the US net international investment position at record negative extremes, the mutual inter-dependence of European-US financial markets has never been higher,” said Deutsche Bank’s global head of FX research George Saravelos in a note.
“It is a weaponisation of capital rather than trade flows that would by far be the most disruptive to markets.” REUTERS
