Trump’s Greenland gambit sparks EU trade showdown and global market turmoil
Markets
US President Trump so far doesn’t let a weekend pass by without shaking up markets. After the Maduro kidnapping and the Fed subpoena’s, he now raised the stakes over Greenland. In his pursuit over the strategically import island, he announced 10% tariffs on goods from 8 EU & NATO countries (Germany, France, the UK, the Netherlands and the four Scandinavian countries) taking effect February 1st. Without a deal on the purchase of Greenland, they will be raised to 25% in June. It prompted an immediate response by the EU, with European parliament halting last year’s trade deal approval, the EU readying retaliatory tariffs against €93bn worth of US goods and French President Macron arguing in favour using the EU’s Anti-Coercion Instrument (ACI). That legal tool entered into force at the end of 2023 but hasn’t been used yet. It allows the EU to deter, respond to and ultimately counter economic pressure applied by non-EU countries. Developments over the weekend are prelude to high-level talks between the US President and EC president von der Leyen and other EU leaders in the side-lines of the World Economic Forum in Davos which Trump visits on Wednesday and on Thursday. Apart from the Greenland crisis, these were also intended to be used to discuss support to Ukraine.
European equity futures lose more than 1% this morning in a risk-off move that sends Gold and Silver prices higher again. German Bund futures and US Treasury futures spiked higher, but especially in the US cede ground again. Be aware that there will be no cash trading in the US today because of Martin Luther King Holiday, squeezing overall volumes. EUR/USD moved from the 1.1580 area towards 1.1630 in the current Sell America move. Today’s empty eco calendar means that the Greenland narrative will remain the dominant one. Erring on the side of caution going into the Wednesday/Thursday meetings seems to be the way to go.
Recall that US Treasuries sold off last Friday, with the belly of the curve underperforming. US yields ended 2.2 bps (2-yr) to 5.4 bps (7-yr) higher in a move triggered by Trump’s suggestion that he prefers to keep White House economic adviser Kevin Hassett in his seat rather than nominating him as the next Fed chair. Hassett was widely regarded as the most dovish pick amongst five remaining contenders and together with Kevin Warsh considered to be leading the race. From a technical point of view, the US 10-yr yield closed above key resistance at 4.2%, suggesting technical clearance for a move towards 4.5%/4.6%. The return of the US risk premium narrative adds the fundamental touch to the technical break.
News and views
China this morning published Q4 2025 GDP growth data. Economic growth in 2025 exactly reached the 5% growth target. Added value in the primary industry rose by 3.9%. In the secondary industry by 4.5% and the tertiary industry by 5.4%. However, Y/Y growth throughout the year eased from 5.4% in Q1 to 4.5% in Q4 with the quarterly growth at 1.2% in the final quarter of last year. Activity data for the final month of last year also showed an ongoing dichotomy illustrating lackluster domestic growth contrasting with the surging (export-driven) production sector. Retail sales last year increased by an uninspiring cumulative 3.7% over the 12-months to December. Industrial production gained 5.9% (5.2% Y/Y in December). At the same, fixed asset investments declined by -3.8% YTD Y/Y, property investments even declining 17.2% YTD, illustrating ongoing stress in this part of the economy. The unemployment rate was unchanged at 5.1% on December. A further weakening momentum in domestic demand suggests more (selective) measures to support domestic activity this year, including further monetary easing. Despite mediocre growth data and (selective) credit support measures published last week, the yuan extends its gradual rise with USD/CNY currently trading at 6.9635, the best level since May 2023.
Asking prices for UK Houses rose by 2.8% M/M and 0.5%% Y/Y in the four weeks to January 10 according to UK property website Rightmove. Admittedly, the rebound comes after two monthly declines of 1.8% M/M in December and November. Still the rise was the largest monthly increase since June 2015. While Rightmove assessed that this marks a positive start of the year, it also advocated some caution as asking house prices are now only back at the level where they were before the summer. The rise also occurs in a context where the number of homes for sale was at the highest level for this time of the year in 12 years.
Author
KBC Market Research Desk
KBC Bank
