Stocks Tumble as Greenland Fallout Fuels Gold: Markets Wrap
(Bloomberg) — Stocks slumped and gold hit a fresh record as US-Europe trade tensions flared over President Donald Trump’s push to take control of Greenland.
European stock indexes and US futures fell more than 1%, with the Stoxx 600 on track for its worst day in two months. German automakers led losses as BMW AG dropped 4%. The dollar weakened, while the Swiss franc outperformed. Gold topped $4,660 an ounce. US markets are shut today for a public holiday.
Trump’s threat to impose tariffs on countries opposing his bid to assert authority over Greenland risks reigniting the tariff-fueled volatility that rattled markets during the early months of his second term. The selloff deepened as Monday’s session wore on after European officials signaled they were unlikely to back down and were preparing countermeasures.
“Markets are sensitive to the dynamic developments regarding new tariffs as a basis for negotiating security issues,” said Guillermo Hernandez Sampere, head of trading at MPPM. “Rising uncertainty, as seen last year, will weigh on all markets.”
The standoff is coming at a time when risk appetite has been supported by resilient corporate earnings and sustained investment in artificial intelligence. The outlook will hinge in part on how the European Union calibrates its response, with the 27-member block in talks to impose retaliatory tariffs on €93 billion of US goods, according to people familiar with the matter.
“The key element to watch in the coming days is whether the message translates into formal measures or remains purely rhetorical, which would make a clear difference in the market reaction,” said Francisco Simón, European head of strategy at Santander Asset Management.
Treasury futures were little changed. French and German yields fell at the short end and rose on longer-dated debt as traders bet a sustained trade war could open room for European interest-rate cuts while governments still need to issue more debt to support growth.
The tensions are also heightening the significance of a pending US Supreme Court ruling on some of Trump’s earlier tariffs, with a decision possible as soon as Tuesday.
“It is not about whether the US can roughly maintain its tariff levels,” wrote Krishna Guha, head of central bank strategy at Evercore ISI. It is “rather about whether Trump has to use regular order to impose tariffs, reducing uncertainty and his ability to weaponize tariffs for geopolitical purposes.”
Trump’s threats raise the possibility of European governments trimming their holdings of US assets, supporting the euro, according to George Saravelos, Deutsche Bank’s global head of FX research. Europe is the US’s largest lender with its countries owning $8 trillion of US bonds and equities, almost twice as much as the rest of the world combined.
What Bloomberg Strategists Say:
“The overall response across global markets is one of moving to price in broad geopolitical risk — which traders had ignored going into the weekend — rather than European asset-specific risk. That much is evident from the pattern so far: an overwhelming flight away from risk assets hitting both equities and the crypto complex, and a flight into real assets.”
— Ven Ram, macro strategist. For full analysis, click here.
While Trump’s threats have reignited the ‘Sell America’ trade, some traders expect the swings to be short-lived.
“My working assumption is that an ‘off ramp’ from these threats will soon be found, said Michael Brown, senior research strategist at Pepperstone. “With the fundamental bull case for risk still a resilient one, and providing that any European retaliation remains largely rhetorical, I would view equity dips as buying opportunities for now.”
Traders are also watching Japan, where Prime Minister Sanae Takaichi set Feb. 8 for an early election. Takaichi said she will campaign on a temporary sales tax cut on food as she seeks a national mandate for her vision of responsible expansionary fiscal policy while boosting economic growth.
Earlier on Monday, the yield on 30-year Japanese debt climbed 11 basis points to 3.58%, while rates on 10- and 20-year notes rose to their highest levels since 1999.
Corporate News:
Nvidia Corp. supplier Micron Technology Inc. said an ongoing memory chip shortage has accelerated over the past quarter and reiterated that the crunch will last beyond this year due to a surge in demand for high-end semiconductors required for AI infrastructure. Apple Inc. retook the top spot in China after iPhone shipments jumped 28% during the holiday quarter despite a worsening shortage of vital memory chips, according to Counterpoint Research. Tesla Inc. Chief Executive Officer Elon Musk said the electric carmaker will resume work on the Dojo3 project after making progress on the design of its AI5 chip. Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 1.3% as of 11:31 a.m. London time S&P 500 futures fell 1.1% Nasdaq 100 futures fell 1.5% Futures on the Dow Jones Industrial Average fell 0.9% The MSCI Asia Pacific Index was little changed The MSCI Emerging Markets Index was little changed Currencies
The Bloomberg Dollar Spot Index fell 0.1% The euro rose 0.2% to $1.1622 The Japanese yen was little changed at 158.07 per dollar The offshore yuan rose 0.2% to 6.9551 per dollar The British pound rose 0.2% to $1.3403 Cryptocurrencies
Bitcoin fell 2.4% to $93,049.56 Ether fell 3.5% to $3,222.68 Bonds
The yield on 10-year Treasuries was little changed at 4.22% Germany’s 10-year yield was little changed at 2.84% Britain’s 10-year yield was little changed at 4.41% Commodities
Brent crude fell 0.7% to $63.66 a barrel Spot gold rose 1.5% to $4,666.04 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Macarena Muñoz and Julien Ponthus.
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