European markets drop, gold rises as Greenland tariff threat looms
European markets opened lower on Monday as threats from US President Donald Trump reignited a trade war with traditional allies across the Atlantic.
At around 10am CET, France’s CAC 40 had slipped 1.28%, Germany’s DAX was down 1.02%, and the UK’s FTSE 100 dropped 0.27%. Spain’s IBEX 35 fell 0.59% and Italy’s FTSE MIB slid 1.43%. Meanwhile, the wider STOXX 600 fell 0.87%.
European leaders will meet this week to decide how best to respond to threats from US President Donald Trump to acquire Greenland, a semi-autonomous Danish territory.
Washington announced on Saturday that eight European countries would face a 10% tariff on their US exports from 1 February unless they support the US’ proposal to purchase Greenland. This rate will rise to 25% in June if no deal is reached.
Specifically, the threat targets Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland.
Standing firm in their support for Greenland’s right to self-determination and Denmark’s sovereignty, EU member states are weighing their options. One possibility is the use of retaliatory tariffs on €93bn of US goods, a measure that was floated then abandoned last year during an earlier trade stand-off with Washington. Another proposal includes the activation of an anti-coercion tool, which enables the EU to impose punitive economic measures on a country seeking to force a policy change.
Shares in European carmakers saw a significant drop on Monday morning, with the STOXX Europe 600 Automobiles & Parts Index falling more than 2% and hitting a 52-week low. BMW shares were down 4.10% at just after 10am CET, while Volvo and Volkswagen were down 2.21% and 3.43% respectively.
Europe’s luxury goods sector also opened lower, with the STOXX Europe Luxury 10 dropping almost 3%.
On the other hand, safe haven assets such as gold and silver hit new highs as investors moved away from riskier assets such as crypto. Bullion neared $4,700 an ounce on Monday, climbing over 1.66%, and silver prices crossed the $94 threshold.
Defence stocks also rallied in Europe, with the STOXX Europe aerospace and defence index up 0.49%. Thales rose 2.41%, Rheinmetall was up 2.89%, Leonardo shares jumped 3.05%, and BAE systems rose 1.77%.
Markets in Asia also saw a downturn. Japan’s Nikkei 225 fell 0.65%, Hong Kong’s Hang Seng dropped 1.05%, and Australia’s S&P/ASX 200 slipped 0.33%. Korea’s Kospi and China’s SSE Composite Index both bucked the trend, closing higher.
US markets are closed today for the Martin Luther King public holiday, but S&P futures slid around 1.18%.
As of around 10am CET, the dollar had fallen 0.21% against the euro.
With last summer’s trade deal between the US and the EU hanging in the balance, investors will be focused on further announcements from the two trading powers.
“The flare-up over Greenland and the threat of renewed tariffs are very unwelcome for European industry. This comes at a time when industrial sentiment has finally started to rise, with businesses seemingly having learnt to live with last year’s tariff volatility,” said analysts from ING.
“These developments will focus European minds on the need to generate domestic demand and potentially even push through sluggish reforms such as the Savings and Investment Union, to allow Europe’s capital markets to better compete with those of the US,” they added.
Markets will also be tracking announcements coming from the World Economic Forum in Davos, Switzerland, which starts this week. Trump will address the Forum on Wednesday.