TACO or just plain LOCO? Will Trump chicken out over Greenland? I’m not so sure. Is it crazy? It looks that way from any European capital for sure – when will fault lines over such issues crystalise into more permanent division?
The threat of tariffs shows US President Trump is prepared to escalate things in order to acquire Greenland – how Europe responds will determine the future of the island and perhaps the Western alliance.
Gold surged to a record high and stocks wobbled as fresh worries about Greenland surfaced over the weekend, with the US threatened several European countries with tariffs in response to them pushing back against White House demands for the island.
The threat by Trump risks reigniting a trade war with Europe, with the EU looking at retaliatory tariffs. Quite apart from blowing up Nato, it could upset the EU-US trade deal reached in August.
Near term clearly uncertainty is elevated, which means more volatility. Trump said he would impose a 10% tariff on eight European countries, including the UK, France and Germany, on 1 February, rising to 25% in June if no agreement is struck to allow the US to acquire Greenland. EU leaders will hold an emergency meeting on the tariff threat in the coming days.
Spot gold rallied 2% to $4,690 whilst silver jumped above $94, also hitting a fresh record high, before trimming gains. European stock markets sold off in response to the trade war worry, with the DAX and CAC down 1-1.3% in early trade. But gains for miners meant the FTSE 100 did fall too much, with Fresnillo and Endeavour leading the gold and silver plays. Defence stocks also caught some bid – they remain the big play on a fractured Nato alliance.
Diageo – tariff exposed – fell 2%. Likewise, German carmakers BMW, Mercedes and Porsche slumped 3-4% on the tariff fear, while French luxury stocks Kering, LVMH and Hermes were also hit hard. US stock markets are closed today.
In FX land, short-term more tariffs would hit GDP in the UK and Europe, which ought to be currency-negative. Longer term you think the more this kind of stuff goes on – plus the Fed independence question – the more negative it is for the US dollar.
The US president heads to Davos for the annual World Economic Forum this week – a last chance to do a deal on Greenland perhaps? The Supreme Court is set to hear oral arguments in the case of Fed governor Lisa Cook, whilst we still await its judgment on tariffs.
On the economic front, Chinese GDP growth slowed to 4.5% in the fourth quarter. Later this week, the Bank of Japan meets but is not expected to hike. Netflix and Intel headline the earnings calendar on Wall Street. UK jobs and inflation data will be pivotal for the Bank of England decision next month.
