Global Stocks Retreat on Tariff Shock, Safe-Haven Flows

Key Moments

Risk-Off Mood Hits Global Equities

Global stock markets retreated on Monday and the U.S. dollar weakened against traditional safe-haven currencies, as investors reacted to U.S. President Donald Trump’s latest tariff threats on European countries opposing his proposed acquisition of Greenland.

Gold and silver prices surged to unprecedented levels, while oil prices declined as market participants assessed the potential fallout from a renewed trade confrontation between the United States and Europe on global growth and energy consumption.

With U.S. cash equity markets closed for Martin Luther King Jr. Day, futures trading still signaled a negative tone. Futures on both the S&P 500 and Nasdaq were down more than 1%.

Equity Market Performance

European shares came under pressure, with the STOXX 600 index down 1.3%. Leading blue-chip benchmarks in Frankfurt, Paris and London fell in a range of 0.5% to 1.5%.

In Asia, Japan’s Nikkei index lost 0.7%, while MSCI’s broadest index of Asia-Pacific equities excluding Japan was largely unchanged.

Escalating Tariff Threats and European Response

President Trump stated he would introduce additional tariffs of 10% from February 1 on imports from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain. These levies would rise to 25% on June 1 if no agreement over Greenland is achieved.

Key European Union member states condemned the move as an act of blackmail. France proposed countering with a set of new economic measures that have not previously been used. The article noted that both the EU and Britain had concluded trade agreements with the United States last year.

“There is obviously a response (in financial markets) to the new tariff threats,” said George Lagarias, chief economist at Forvis Mazars.

“It’s highly likely that the White House will use the threat of tariffs consistently, even when deals have previously been agreed.”

Potential EU countermeasures include reinstating a package of tariffs on 93 billion euros ($108 billion) of U.S. imports that was put on hold for six months in early August. Additional steps under an Anti-Coercion Instrument could target U.S. services trade or investment flows.

The renewed confrontation is expected to overshadow discussions at the World Economic Forum in Davos, where global leaders are gathering in Switzerland. The U.S. delegation is being led by Trump.

Currency Markets: Dollar Loses Ground to Havens

In foreign exchange trading, the euro rebounded from a seven-week low, gaining 0.3% to trade at $1.1631.

“The move in EUR/USD has been relatively contained, as investors remain mindful that further escalation could ultimately weigh on the USD as well – with the ‘Sell America’ narrative still lurking in the background,” said Kristoffer Kjær Lomholt, co-head of fixed income and foreign exchange research at Danske Bank.

“With a relatively quiet data calendar this week, price action in the cross is likely to be driven primarily by developments on the tariff front.”

Sterling recovered to $1.3408, while currencies regarded as safe havens advanced. The dollar slipped 0.4% against the Swiss franc to 0.7982 francs and eased 0.1% versus the yen to 157.94.

Investors appeared largely unmoved by Japanese political developments following Prime Minister Sanae Takaichi’s decision to dissolve parliament on Friday ahead of a snap general election scheduled for February 8, aimed at reinforcing her coalition’s fragile majority.

“The Bank of Japan’s response will be critical, given PM Takaichi’s expressed preference for cooperation and softened central bank independence,” said Scotiabank chief FX strategist Shaun Osborne.

The Bank of Japan is set to meet on Friday and is widely expected to keep its policy rate at 0.75% after a rate increase in December.

The dollar index, which tracks the greenback against six major counterparts, was marginally lower on Monday.

Rates and Futures

With the U.S. cash Treasury market closed for the holiday, activity was confined to derivatives. Thirty-year U.S. Treasury bond futures dropped 16 ticks.

China Growth Data Mixed

Away from the tariff headlines, Chinese blue-chip stocks were little changed after new data indicated that annual economic growth slowed to 4.5% in the December quarter, although this outcome still exceeded expectations.

Industrial production also surpassed forecasts, supported by firm export activity. However, weaker-than-anticipated retail sales highlighted persistent softness in domestic consumption.

Precious Metals Surge to Records

Gold attracted strong safe-haven flows, climbing as high as $4,689 per ounce, while silver advanced to $94.08. Both precious metals reached new record highs.

Oil Prices Edge Lower on Trade Concerns

Oil prices slipped slightly amid worries that an escalation in the U.S.-Europe trade dispute could dampen global demand.

Brent crude was down 0.8% at $63.64 a barrel, while U.S. crude dipped 0.7% to $59.03.

The article also reported the prevailing exchange rate of $1 = 0.8611 euros.