🙏👉🫲🫴#MarketRebound Happy Monday, trader!
How was your weekend? I ran a half-marathon under constant rain and had to go fast to avoid freezing. The fate of the mostly frozen island of Greenland is sending markets into a shiver. We kick off with that and continue with a fresh mini-series about why some market reactions can seem wrong.
Markets rattle on Trump’s Greenland-related tariff threats
The story
Cold winds – US President Donald Trump threatened 10% tariffs on a select number of European countries, which sent token troops to Greenland. The Commander-in-Chief intensified his demands to make the frozen strategic island American, angering not only mainstream leaders in the old continent but also far-right parties which tend back him. These tensions sent Gold to new highs, weighed heavily on Global Stocks – especially in Europe – but also hit the Greenback
Why it matters
Cold shoulder – The market reaction to the growing US-EU rift and the potential for the unraveling of NATO, in addition to the US-EU trade deal, continues to favor safe havens other than the Greenback. That’s called de-dollarization. If this trend continues, it could spell trouble for markets, including the risk of higher interest rates in America to combat imported inflation.
What’s next
Cooling down? – Just last week, Trump threatened 25% tariffs on countries trading with Iran that would have included China. However, the news faded out very quickly. As the president heads to Davos, Switzerland, a new deal could be hammered out, reversing the recent market moves.
On the other hand, an escalation could lead Brussels not only toward retaliatory tariffs but also to the sale of part of the bloc’s massive $8 trillion pile of American debt. That would not only exacerbate the de-dollarization, but also send US Treasury yields higher, making US housing affordability unbearable.
I expect further escalation before a solution is found.
The EU has a goods surplus with the US but a deficit on services: