Europe says "red line crossed" as Trump "no longer feels obligation to think purely of peace"

EU mid-market update: Europe says "red line crossed" as Trump "no longer feels obligation to think purely of peace", threatening up to 25% tariff on EU nations unless Greenland handed over.

Notes/observations

- Risk-off tone in Europe as renewed US-EU trade tensions and Greenland-related geopolitics hit sentiment. Broad sell off with tariff-exposed cyclicals and global growth plays sold. Eurozone core rates bid: German 10Y bund yield ~1.3bp lower to ~2.79%, with investors bracing for a headline-heavy week and watching PMIs and final Eurozone CPI; CAC and FTSE MIB among the weakest. Defense is a relative winner.

- Trump tariff threat: 10% tariffs from Feb 1st, potentially rising to 25% from Jun 1st, aimed at Denmark, Norway, Sweden, France, Germany, UK, Netherlands, Finland, framed around pressure to secure a deal to purchase Greenland.

- Europe response is hardening: The eight countries issued a joint solidarity statement with Denmark/Greenland; France pushes for the EU anti-coercion instrument (ACI); Germany signals a “red line” and strong response. Reports suggest the EU may revive ~€93B of potential counter-levies.

- Tariffs hit growth estimates: ING flags that +25% tariffs could shave roughly ~0.2pp off European GDP, while Goldman puts the drag for the targeted countries at ~0.1-0.2pp (10% tariff) and ~0.25-0.5pp (25% tariff), on top of last year’s tariff-related drag.

- Power in a US-EU rupture seem still mispriced as jets when the real "nuclear options" are paperwork pipes - compliance, data rules, insurance, and permitting that force companies to pick a side before politicians do. America's signature weapon is the dollar compliance stack, where ambiguity and enforcement risk make banks, insurers, auditors, cloud and payment rails over-comply, while LNG is mostly a forward-looking lever via approvals and timelines (not a same-day switch) even as the EU leaned on US cargoes for 59.9% of its LNG imports in Q3 2025. Europe's underappreciated counter is to weaponise optionality too - Anti-Coercion legal rails, procurement and services access, digital sovereignty, and even maritime and FX plumbing (P&I insurance covers about 90% of global tonnage, hedging changes can move markets), all aimed at the US weak spot: a balance sheet financed at the margin by foreign "next bids" with a net international investment position around -$27.6T by end-Q3 2025.

- Yen is calm as Japan rates story dominates with JGB curve steepening, 10Y yields at multi-decade highs. BOJ hike odds rising (OIS probabilities higher for Apr/Jun). This morning, PM Takaichi confirmed dissolving parliament on Jan 23rd and called a snap election for Feb 8th, with food tax relief floated as a potential policy lever. USD/JPY hovers around ~158.

- CHF higher as a safe haven and DXY softer given fresh tariff threats from US on EU over weekend.

- Oil pressured by risk-off + no new US–Iran escalation.

- Upcoming events: Davos/WEF (Jan 19th -23rd): large US delegation; Trump speech Wed flagged as a key macro/trade/energy signal. For UK, Labour market data on Tuesday and CPI Wednesday. Near-term flashpoints include major earnings (Netflix, Intel, J&J, Rio Tinto), a possible Trump Fed Chair pick and Russia-sanctions vote, and a dense January calendar from Trump’s Davos speech and the Lisa Cook Fed case (Jan 21) through BOJ (Jan 23), ASML (Jan 28), the US funding deadline (Jan 30), and the end of Fed official Miran’s term (Jan 31).

- OpenAI published statement framing 2026 as the year of "practical adoption" - keep WAU and DAU at record highs, monetize only where it feels native, and close the usage gap between capability and everyday workflows. The operating model is intentionally asset-light: partner rather than own, keep provider and hardware optionality, and commit capex in demand-linked tranches so growth can be met without over-buying the future.

- Asia closed mixed with KOSPI outperforming +1.3%. EU indices -1.4% to -0.5%. US futures -0.9% to -1.6%. Gold +1.6%, DXY -0.2%; Commodity: Brent -1.1%, WTI -1.0%; Crypto: BTC -2.3%, ETH -3.6%.

Asia

- China Q4 GDP Q/Q: 1.2% v 1.1%e; Y/Y: 4.5% v 4.5%e.

- China Dec Retail Sales Y/Y: 0.9% v 1.0%e.

- China Dec Industrial Production Y/Y: 5.2% v 5.0%e.

- China Dec YTD Fixed Urban Assets Y/Y: -3.8% v -3.1%e.

- China Dec Surveyed Jobless Rate: 5.1% v 5.2%e.

- China Dec YTD Property Investment Y/Y: -17.2% v -16.5%e.

- China Dec New Home Prices M/M: -0.37%No est v -0.39% prior.

- Japan Nov Final Industrial Production M/M: -2.7% v -2.6% prelim; Y/Y: -2.2% v -2.1% prelim.

- Japan Nov Tertiary Index M/M: -0.2% v 0.0%e.

- Japan Nov Core Machine Orders M/M: -11.0% v -5.2%e v; Y/Y: -6.4% v 3.7%e.

Global conflict/tensions

- Trump posted on social media that he would impose 10% tariff on 8 European nations, effective Feb 1st, that would continue until a deal was reached to sell Greenland to the US. Tariff would rise to 25% on June 1st.

- EU Joint Statement by Denmark, Finland, France, Germany, Netherlands, Norway, Sweden and Britain stressed its full solidarity with the Kingdom of Denmark and the people of Greenland.

- EU said to be preparing €93B tariffs in retaliation for Trump’s Greenland threat.

- US Treasury Sec Bessent insisted that the US must acquire the Danish territory and accused Europe of being unable to protect the land in the face of Russian or Chinese aggression.

Europe

- UK Jan Rightmove House Prices M/M: 2.8% v -1.8% prior; Y/Y: +0.5% v -0.6% prior.

Trade

- EU and LATAM Mercosur officials (finally) signed official Free Trade Agreement; Followed 25 years of negotiations; Still faced ratification hurdles.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.23% at 606.84, FTSE -0.51% at 10,182.65, DAX -1.20% at 24,972.24, CAC-40 -1.48% at 8,136.42, IBEX-35 -0.91% at 17,517.15, FTSE MIB -1.70% at 45,020.50, SMI -1.00% at 13,274.30, S&P 500 Futures -1.18%].

Market focal points/key themes: European indices open lower across the board and remained under pressure through the early part of the session; all sectors start the day in the red; Trump tariff threats over Greenland spark equity retreat; less negative sectors include telecom and technology; among sectors leading the way lower are consumer discretionary and financials; apparel subsector under pressure after analyst downgrades on LVMH and Adidas; reportedly Chinalco supports Rio Tinto’s bid for Glencore; reportedly Telefonica looking to acquire Vodafone Spain; US closed for holiday.

Equities

- Consumer discretionary: LVMH [MC.FR] -4.5% (analyst downgrade; Trump's new tariffs on France over Greenland issue), WH Smith [SMWH.UK] +9.5% (new Chairman).

- Healthcare: Bayer [BAYN.DE] +6.5% (US Supreme Court said to hear case in bid to limit Roundup suits), Genmab [GMAB.DK] -6.5% (study did not reach statistical significance).

- Industrials: Volkswagen [VOW3.DE] -2.5% (Trump's new tariffs on Germany over Greenland issue), Rheinmetall [RHM.DE] +3.0% (US-EU tensions).

Speakers

- UK PM Starmer emergency press conference stressed that the world had become more turbulent in recent weeks; determined to keep relations strong and constructive. On Greenland, right approach was through calm discussion; any decision belonged to Denmark alone.

- ECB's Radev (Bulgaria): Current interest rate levels were appropriate; price risks are balanced.

- German Fin Min Klingbeil stated that there would be a strong response to US tariffs; ‘Red line’ had been reached due to Trump provocation; Europe should look at how to use available tools.

- France Fin Min Lescure stressed that blackmail between friends was unacceptable; must be prepared to use anti-coercion mechanism. To organize a G7 meeting in coming days.

- Norway govt official noted that PM Store spoke with Trump and stressed the need to de-escalate. Norway stood firm that Greenland remains part of Denmark.

- Germany BDI Industry Association: Trump's escalation puts transatlantic relations under enormous pressure, completely necessarily.

- Japan PM Takaichi confirmed she would dissolve Parliament on Fri, Jan 23rd in order to hold snap elections and hopefully put an end to the country’s excessively tight fiscal policy. She set Feb 8th as the election date as she sought to seek ruling coalition majority. She stressed that could accelerate implementation of policy with a fresh mandate. Says a general sales tax reduction is under consideration. Would be mindful of FX and interest rate moves in considering revenues to fund consumption tax cut. Would not rely on bond issuance for funding.

- IMF updated its World Economic Outlook (WEO) which raised 2026 Global GDP growth forecast from 3.1% to 3.3% while maintaining 2027 Global GDP growth forecast at 3.2%.

Currencies/fixed income

- FX price action was tepid despite the ramp up on US-EU trade tensions over Greenland. Safe-haven demand was evident in fixed income and precious metal.

- EUR/USD steady at 1.1620 area as US-EU trade tensions ramped over US plan to acquire Greenland.

- USD/JPY hovering around the 158 handle as Japanese fiscal concerns continued to percolate. Japan PM Takaichi confirmed she would dissolve Parliament on Fri, Jan 23rd in order to hold snap elections on Feb 8th.

- 10-year German Bund yield last at 2.82%, France 10-year Oat at 3.52% and 10-year Gilt yield at 4.41% 10-year Treasury yield: 4.22%; 10-year JGB: 2.25%.

Economic data

- (AT) Austria Dec Final CPI M/M: 0.3% v 0.4% prelim; Y/Y: 3.8% v 3.8% prelim.

- (ES) Spain Nov Home Sales Y/Y: +7.8% v -2.5% prior.

- (CZ) Czech Dec PPI Industrial M/M: -0.2% v 0.0%e; Y/Y: -2.1% v -1.9%e.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 456.2B v 459.8B prior; Domestic Sight Deposits: 439.9B v 435.8B prior.

- IMF World Economic Outlook (WEO): Previously saw 2026 Global GDP growth at 3.3%.

- (EU) Euro Zone Dec Final CPI Y/Y: 1.9% v 2.0% advance; CPI Core Y/Y: 2.3% v 2.3% advance.

- (CY) Cyprus Dec CPI Harmonized M/M: -0.4% v -1.1% prior; Y/Y: 0.1% v 0.1% prior.

Fixed income issuance

- (SK) Slovakia Debt Agency (Ardal) sold total €539.0M in 2028, 2031, 2037 and 2043 Bonds.

Looking ahead

- (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rates unchanged at 6.50%.

- (IL) Israel Central Bank (BOI) Jan Minutes- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €5.0B in 6-month and 12-month bills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell 3-month and 6-month Bills.

- 06:00 (RO) Romania to sell RON700M in 6.7% 2032 Bond.

- 06:00 (IL) Israel to sell combined ILS3,0B in 2028, 2031, 2033, 2035 and 2052 bonds (6 tranches).

- 06:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 9th: No est v $752.5B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- (RO) Romania Central Bank (NBR) Interest Rate Decision.

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance.

- 08:30 (CA) Canada Dec CPI M/M: -0.3%e v +0.1% prior; Y/Y: 2.2%e v 2.2% prior; CPI Core-Median Y/Y: 2.7%e v 2.8% prior; CPI Core-Trim Y/Y: 2.7%e v 2.8% prior; Consumer Price Index: 165.1e v 165.4 prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €6.6-8.2B in 3-month, 6-month and 12-month bills.

- 10:30 (CA) Canada Q4 BoC Overall Business Outlook Survey: No est v -2.3 prior; Future Sales Outlook: No est v -2 prior.

- 16:00 (KR) South Korea Dec PPI Y/Y: No est v 1.9% prior.

- 16:30 (NZ) New Zealand Dec Performance Services Index: No est v 46.9 prior.

- 18:00 (HU) Hungary Jan Consumer Confidence: No est v -22 prior.

- 18:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 84.5 prior.

- 20:00 (CN) China PBOC Monthly Loan Prime Rate (LPR) Setting: Expected to leave both 1-year and 5-year LPR unchanged at 3.00% and 3.50% respectively.

- 21:30 (HK) Hong Kong to sell 3-month and 6-month bills.

- 22:00 (TH) Thailand Central Bank to sell THB65B in 3-mointh bills.

- 22:35 (JP) Japan to sell 20-Year JGB Bonds.

- 23:00 (MY) Malaysia Dec CPI Y/Y: 1.4%e v 1.4% prior.

- 23:00 (MY) Malaysia Dec Trade Balance (MYR): 13.7Be v 6.1B prior; Exports Y/Y: 2.5%e v 7.0% prior; Imports Y/Y: 8.4%e v 15.8% prior.

- 23:00 (SG) MAS to sell 4-Week 12-week and 36-week Bills.