Monday market report: European stocks drop and gold glitters amid Greenland escalation
Susannah Streeter, chief investment strategist, Wealth Club: ‘’President Trump has doubled down on his ambitions to take control of Greenland, causing unease to spread across financial markets. The Footsie has retreated and European indices have opened lower, after the weekend move by the US to impose fresh onerous duties on Denmark and its allies. The FTSE 100 has shown more resilience than the domestically focused FTSE 250, which opened deeper into the red as investors assessed the potential impact of fresh tariffs on the UK economy. The defensive nature of the FTSE 100, stuffed with multinationals focused on defence, mining and consumer staples has been beneficial amid heightened uncertainty.
Trump has described tariffs as the most beautiful word in the dictionary, but these latest moves mark an ugly turn of events, given they drive a wedge through the transatlantic alliance. Investors are nervous about a deeper trade war breaking out but there will still be hopes that there is room for negotiation. Memories of the 2025 TACO trade are still strong, with ‘Trump always chickening out’ of the most punishing of tariffs threats, but its clear that threatening to seize a territory from a fellow NATO country is a dramatic turn of events.
So, gold has hit fresh record highs on its glittering run upwards. The precious metal is holding even more allure as a safe haven as worries spread about the repercussions of the US aggressive trade and geopolitical policies. Silver has also risen sharply, with investors piling into the asset, pushing its winning streak to record levels, up almost 4% to above $93 an ounce. It too is seen as a safer haven among investors wanting to shelter assets, but also gain exposure to demand for the industrial use of the metal.
European leaders are standing firm in their opposition, with Keir Starmer set to address the nation. France’s Emmanuel Macron is set to request the activation of the EU’s anti-coercion tool, which could see US goods banned from the single market, which has a 15% share of global trade.
Even without this measure enacted, given the chaotic nature of doing business with the United States, many companies will be looking to diversify their income streams and find new customers in less problematic nations. The slow shift away from the US amid intense uncertainly is likely to gather steam. It’s a strategy China has been pursuing, and its exports rose more than expected last year enabling it to hit 5% growth targets as new trading relationships were forged. It’s likely to heighten calls for the UK to forge closer trade ties with the EU to offset the damage wreaked by US tariffs. The dollar has fallen back against a basket of currencies, as investor confidence in the currency slips again.
US markets are shut for the Martin Luther King holiday, but futures markets indicate equities are set for falls once trading resumes. Investors will also be keeping a close eye on the direction of US Treasury yields. Investors have been demanding higher compensation to hold US debt amid concerns about the future independence of the Federal Reserve, given the criminal probe launched against the current Fed chair, Jerome Powell. Rumours that his successor could be Kevin Warsh, who is believed to want lower interest rates, a policy Trump has favoured. But these fresh tariffs on European goods are likely to raise inflationary pressures. Higher prices for US businesses and consumers are on the way for vast swathes of products – from cars and olive oil to chemicals, aircraft and medical products. So there are likely to be renewed concerns about the effectiveness of US monetary policy ahead in keeping a lid on hot inflation, which could see Treasury yields creep up even further, increasing the cost of servicing the mountain of US debt.’’