Written by Greenland crisis shows no sign of de-escalating
US President Donald Trump is not letting up on his ambition to take control of Greenland even after his threat of imposing 10% tariffs on eight European countries, including the UK, was met with outrage by his NATO allies. In fact, Trump has only ratcheted up his rhetoric, saying “We have to have it” in fresh remarks made late on Monday.
National security is the number one reason being cited by Trump for wanting to bring the Danish territory under US control, although it’s questionable whether it would be logistically possible for either Russia or China to invade the island. It’s also hard to see why any security concerns couldn’t be addressed by the NATO alliance. Yet, Trump is insisting “They can’t protect us”.
He’s also betting on the Europeans not to push back too much, indicating the tariffs are just another negotiating tactic.
However, it’s unlikely that Denmark, the UK, France and Germany will bow to US demands as easily this time as they did during the trade negotiations. Hence, the risk of a very significant escalation is quite high, especially as Trump has refused to rule out the use of force to seize Greenland.
But all hope is not lost as Trump has agreed to hold meetings with various related parties at the World Economic Forum in Davos tomorrow including Germany’s Merz and NATO Secretary General Mark Rutte.
Dollar takes a tumble, gold and silver shine bright
In the meantime, the US dollar has borne the brunt of the revival of the ‘sell America’ trade, as investors have sought to reduce their exposure to US assets. A renewed tariff war and the possible breakup of NATO are seen as accelerating the push by countries to reduce their reliance on the US, fuelling the de-dollarisation trade.
The greenback is down almost 1% against a basket of currencies today, with the euro surging above $1.17 and the pound approaching $1.35.
Precious metals are having a better time, however, as gold has jumped to yet another all-time high, rising above $4,700 for the first time. Silver is also extending its gains, climbing to new record peaks above $95.
Fed and SCOTUS decisions loom
Adding to the heightened uncertainty is who will be Trump’s pick for the next Fed chair. US Treasury Secretary Scott Bessent told reporters at Davos today that the final list of candidates is down to four and Trump could make an announcement as early as next week.
Moreover, the US Supreme Court could issue its opinion on the tariff case later on Tuesday, potentially upsetting Trump’s latest tariff threats.
Stocks come under pressure as earnings resume
With Wall Street shut yesterday for Martin Luther King Day, US stocks will have the first opportunity to respond to the Greenland row when the markets open today. And it’s not looking good, as Nasdaq futures are currently down over 2% while S&P 500 futures are trading 1.8% lower.
Stocks globally are also in the red, with European shares underperforming, although there’s no sense of any major panic just yet.
Netflix will attempt to bring the spotlight back onto the earnings season when it publishes its results after the market close.
Bond yields jump amid Japan worries
But there’s a danger that the current risk-off mode could worsen with or without fresh tariff or Greenland headlines, as there’s trouble brewing in bond markets. Japanese government bonds have plunged following the announcement yesterday by Prime Minister Sanae Takaichi that she will call a snap general election on February 8.
Takaichi has pledged to cut the sales tax on food for two years, raising fears that should the elections produce a large parliamentary majority for her party, there would be more fiscal giveaways, adding to Japan’s already high debt mountain.
Japanese bond yields have subsequently skyrocketed, with the 30-year yield hitting a new record high of 3.61%. The yen is down too, gaining only against the dollar. The Bank of Japan meets on Friday and is expected to hint at further rate hikes, which may offer some support to the yen.
US Treasuries have also come under pressure, spiking to multi-month highs amid a broader bond selloff and worries about Trump’s latest actions.
By XM.com
