Bond Markets May Punish Trump's Fed; Gold a Key Hedge

Blue River

Bond

Political

Commodity

Remarks of Officials

Economic

Central Bank

Traders' Opinions

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Summary:

Picton warns Trump's Fed pressure could spark bond market discipline, bolstering precious metals as vital hedges.

The bond market will act swiftly to discipline the United States if President Donald Trump appoints a Federal Reserve chair perceived as too easily influenced, according to David Picton, head of Picton Investments. In this environment of political volatility, he argues that precious metals remain a critical hedging tool for investors.

"There is a relationship between the amount of Truth Social that gets posted and what's happening in the debasement trade—that is, gold, silver and these commodity-based hedges," Picton said, referencing Trump's social media platform.

Market sentiment soured last week as the administration intensified its attacks on current Fed Chair Jerome Powell, causing gold and silver to jump amid a "Sell America" mood. Precious metals climbed again on Monday after Trump escalated threats against European nations over Greenland, asserting the U.S. must control the Danish island.

Fed's Autonomy Under Pressure

Concerns over the Fed's independence have been amplified by recent events. The Justice Department has subpoenaed the central bank regarding Powell's testimony on a renovation project, a move the Fed chair has described as a pretext to punish him for not cutting interest rates more aggressively.

This probe has raised alarms about the White House's willingness to erode the central bank's autonomy. In response, key policymakers like Republican Senator Thom Tillis of North Carolina have vowed that future Fed nominees from Trump will face heightened scrutiny.

Picton, whose firm manages approximately C$16.6 billion ($11.9 billion), believes the Fed will ultimately maintain its independence. However, he described Trump's continuous verbal attacks on Powell as "extremely not helpful."

"If a new Fed chair was imposed that became like the Arthur Burns of the 1970s and sort of bowed to the will of the president, the market would punish that extremely quickly," Picton warned.

A Broader Market Rally on the Horizon?

Looking at the broader economy, Picton sees a significant chance of global growth accelerating this year, driven by widespread stimulus measures. Major economies, including the U.S., Europe, and China, are implementing economic support through both monetary and fiscal policies, such as large-scale infrastructure projects and increased defense spending.

"As that occurs, there should be a broadening of the markets and stocks that participate in a potential rally," Picton noted.

He also sees a shift within the technology sector, where capital discipline is becoming a key theme in artificial intelligence. This trend could help the market distinguish between long-term winners and losers. According to Picton, this could trigger a rotation of capital out of tech and into other market areas, including autos, restaurants, consumer discretionary, and transportation.

The Lingering Risk of a Stock Market Pullback

While these factors are generally positive for equities, Picton cautioned that a stock market pullback remains a possibility. A key trigger could be a spike in bond yields if fixed-income investors begin to push back against excessive government borrowing.

"The bond vigilantes out there may have something to say about this," he said. In preparation, Picton's firm has increased its hedging positions to cushion against a potential correction.

Bullish on Commodities and Silver's Outlook

Picton is particularly bullish on commodities, citing a fundamental imbalance. "The lack of investment in the space, combined with rising demand, was going to lead at some point to a pinch—and we're probably there," he explained.

Silver has been a standout performer, touching $94 an ounce in early trading and building on last year's remarkable 148% rally—its largest annual gain since the late 1970s.

Picton hopes for a price dip to acquire more. "I'd like to get a little bit more, but I think I'm part of a large legion that says that," he commented. He believes the supply and demand fundamentals for silver signal significant upside potential, driven by an inventory shortage.

"The silver story is very compelling because you need silver," Picton concluded. "You need silver in the electricity trade, you need it in solar. You just need it in the economy."

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Adam

Commodity

Gold and silver hit record highs on Monday, driven by a flight to safety after U.S. President Donald ‌Trump warned of extra tariffs on some European countries in a dispute over Greenland.

Spot gold jumped 1.5% to $4,662.85 per ounce by 1121 GMT, after scaling an all-time high of $4,689.39.

U.S. gold futures for February delivery advanced 1.6% to $4,668 per ounce.

Trump threatened several European allies with a series of escalating ‌tariffs on Saturday, unless the U.S. is allowed to buy Greenland, intensifying a dispute over Denmark's vast Arctic island.

"When institutional and policy risks resurface, markets tend to react swiftly by reallocating toward safe-haven assets, with gold once again emerging as the ‍preferred choice," said Linh Tran, senior market analyst at XS.com.

Stock markets and the dollar fell as Trump's latest tariff threats raised investors' appetite for safe-haven gold, the Japanese yen and Swiss franc, in a ⁠broad risk-averse move across markets.

Safe‑haven buying sends gold, silver to record highs after Trump EU tariffs warning_1

Gold vs Dollar over past month

Gold tends to do well during times of geopolitical and ‍economic uncertainty, as well as low-interest-rate environments. It gained more than 64% in 2025, and is up ‌more than ‌8% since the start of this year.

Meanwhile, Federal Reserve Vice Chair for Supervision Michelle Bowman said on Friday a fragile job market that could weaken quickly means the U.S. central bank should stand ready to cut interest rates again if needed.

Markets expect the Fed to ⁠leave rates on hold ⁠at its January 27-28 meeting, but are pricing in at least two 25-basis-point rate cuts this year.

Elsewhere, spot silver climbed 3.7% to $93.24, after hitting a record high of $94.08. The white metal has risen over 30% so far ‍this year.

JP Morgan analysts said that they have a stronger preference for gold relative to silver. Any disruptive correction in the latter could have some near-term contagion into bullion, but still presents a buying opportunity in gold, which continues to have a cleaner, ‍bullish structural story, they said.

In other precious metals, spot platinum added 1.2% to $2,355.96 per ounce, while palladium rose 0.7% to $1,811.55.

Source: reuters

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Henry Thompson

Political

Economic

Remarks of Officials

Daily News

A UK policy commission is expected to recommend a significant softening of the country's 2030 electric vehicle (EV) sales goals. The move is intended to stimulate investment in the UK's domestic car and battery manufacturing sectors.

The recommendation will come from the Policy Commission on Gigafactories in a report scheduled for Wednesday, according to Lord John Hutton, who established the commission in mid-2025. The commission's primary goal is to outline a strategy for expanding the UK's battery production capacity, a crucial step for achieving net-zero targets and securing green jobs.

A Proposed Shift in EV Mandates

Under current UK policy, 80% of all new cars sold in 2030 must be zero-emission vehicles. This mandate is set to increase to 100% by 2035, effectively ending the sale of new gasoline and diesel passenger cars.

While the 2035 deadline is not expected to change, the commission will propose a major revision to the interim target. It will recommend lowering the 2030 goal from 80% to a more modest range of 50-60%. The report also suggests reducing the fines imposed on carmakers for non-compliance.

The commission believes that these adjustments will create a more favorable environment for investment in the UK's battery supply chain.

"There is growing consensus in industry that there's a need for a course redirection here," Lord Hutton, a former Labour Defence Secretary, told the Financial Times. "It's not scrap everything, but recalibrate."

He added, "Regulatory interventions have to be evidence based, not ideologically based."

Industry Headwinds and European Parallels

The call for a policy adjustment comes as automakers across the UK and Europe navigate a challenging landscape. Key pressures include U.S. tariffs, Chinese restrictions on rare earth exports, weakening demand, and stiff competition from more affordable vehicles manufactured in China.

This move mirrors recent developments in the European Union. Late last year, following intense lobbying from Germany, Italy, and the auto industry, the European Commission proposed easing its de facto ban on the sale of new combustion-engine cars from 2035.

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Winkelmann

Political

Economic

Libya will on Sunday sign a strategic partnership with international firms to expand and develop the Misurata Free Zone, attracting an estimated US$2.7 billion (RM10.95 billion) in investment, Prime Minister Abdulhamid Dbeibah said on X.

The agreements, which would be signed with Qatari, Italian and Swiss companies, would help the project generate operating revenues estimated at around US$500 million annually.

"This project not only enhances Libya's position among the region's largest ports in terms of size and capacity, but it also relies on direct foreign investment within a comprehensive international partnership," Dbeibah said.

Dbeibah said this partnership also reflects the government's commitment "to attracting productive external financing to stimulate the economy, modernise infrastructure, and transform state assets into platforms for sustainable returns."

Libyan economy heavily relies on oil, accounting for more than 95% of its economic output.

Misurata is a port city some 200 kilometres (124 miles) in the east of the capital Tripoli.

Dbeibah said the project would create 8,400 direct jobs and around 60,000 indirect roles.

It also would increase the terminal's capacity to four million containers annually, Dbeibah added.

The port extends over a vast area of 190 hectares, according to the Free Zone website.

Libya has been plagued by instability since a Nato-backed uprising in 2011, leading to a split in 2014 between eastern and western factions, each governed by rival administrations.

Source: Theedgemarkets

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Stocks

MARKET WRAPS

European stocks fell Monday losing ground to Friday's higher close as investors face the prospect of fresh trans-Atlantic trade tensions.

The region's leading indexes including the FTSE 100, the CAC 40 and the DAX posted declines at the opening bell. Gold and silver rose, raising Europe's mining stocks but bank and luxury shares slipped.

The region's car manufacturers too weren't spared, but European defense stocks surged amid heightened tensions between the U.S. and Europe.

Trump used the weekend to threaten new 10% tariffs beginning next month on Denmark, Norway, Sweden, France, Germany, the U.K. the Netherlands and Finland as part of a pressure campaign to force European powers to acquiesce to his demands for Greenland.

He added those tariffs would rise to 25% on June 1 until a deal was reached for the purchase of the arctic island, leading European officials to consider the use of their so-called trade bazooka against the U.S.

If enacted, Trump's tariffs would have a modest economic impact , but they'd pose far more serious political and geopolitical consequences to the NATO alliance, according to Capital Economics, which adds the U.K. and Germany would be the hardest hit economically.

The threat of additional tariffs prompted strong statements from Germany's engineering and machinery industry group and the country's b usiness lobby .

Though the threat of tariffs marked a dramatic escalation, Pepperstone is of the view the move is another Trump gambit to extract concessions, adding that investors ought to expect near-term choppiness followed by a relief rally when another "TACO" moment arrives.

Jefferies, however, argues it doesn't think Trump will reverse his policy regarding the tariffs.

All of this as world leaders meet this week in Davos.

Economic Insight

The hit to GDP by Trump's Greenland-related tariffs could be as much as half a percentage point , Goldman Sachs said.

A 10% tariff would lower GDP by 0.1-0.2 points in the affected countries, rising to 0.25-0.5 points for a 25% tariff.

U.S. Markets:

U.S. markets are closed Monday as the country honors Martin Luther King Jr.

Forex:

The euro recovered after briefly reaching a seven-week low against the dollar overnight.

So far the market reaction is relatively modest, Danske Bank said, adding this might be partly because the Supreme Court is soon expected to strike down Trump's tariffs.

The Swiss franc rose against the euro as Trump's threat to impose 10% tariffs against several European nations drove investors to safe-haven assets.

The dollar , meanwhile, fell against a basket of currencies and Commerzbank said the dollar's status as the world's reserve currency was at risk.

Cryptocurrencies began lower at the start of the week as tariff threats over Greenland weighed on sentiment already affected by rising tensions between crypto firms, banks and regulators, according to IG.

Bonds:

Eurozone government bond yields declined in early trade.

"We open the week with a flurry of geopolitical headlines and renewed trade tensions which should challenge the strongly positive risk sentiment we've seen in markets over recent weeks," ING said.

Yields on U.K. government bonds edged lower amid demand for safe-haven assets. Investors also await U.K. labor market data and inflation data this week.

Treasurys are attractive to buy in phases of weakness due to potential further interest-rate cuts under the Federal Reserve's next Chair, Citi said, adding that Kevin Warsh now looked to be the front-runner for the next Fed Chair.

"While the lack of action in the rates markets points potentially more to paralysis than analysis, the past does not offer a lot of hope for the next two weeks," Natixis said , adding that since the first week of December, U.S. Treasury yields have been remarkably range-bound.

Energy:

Oil prices fell , weighing on Europe's energy stocks , thanks to a broader risk-off tone across markets

"Structurally, crude remains under pressure from expectations that supply will outpace demand this year, although pockets of tightness persist, including shortages from Kazakhstan due to Black Sea disruptions," MUFG said.

Gas

European natural-gas prices fell on profit-taking and prospects of additional LNG supply.

Metals:

Precious metals surged to fresh records, driven by investor demand for safe-haven assets. In early trading, gold futures in New York rose 1.7%, silver climbed 5.1%

"Combined with ongoing Iran risks, concerns about Fed independence, and investor aversion to the dollar and U.S. government bonds amid rising fiscal debt worries, the underlying demand for hard assets remains firm, " Saxo Bank said.

Geopolitical tensions have added to an already bullish outlook for gold and silver in 2026, HDFC Securities said.

EMEA HEADLINES

Bayer Shares Rise After U.S Supreme Court Agrees to Review Roundup Case

Shares in Bayer rose on Monday after the U.S. Supreme Court said it would take an appeal from the German conglomerate, agreeing to hear its challenge to litigation that claims its flagship weedkiller Roundup causes cancer.

In European morning trading, shares were 7% higher at 44.42 euros.

U.K. House Prices See Record January Jump as Post-Budget Uncertainty Fades

U.K. asking prices for residential property rose at a record pace in January, according to data from property website Rightmove, suggesting market sentiment is rebounding following the volatility sparked by the U.K. government's budget.

Average asking prices increased 2.8% on month to 368,031 pounds ($492,425), the online real-estate platform said. The gain represents the largest January increase in the 25-year history of Rightmove's House Price Index and the sharpest on-month jump for any month since June 2015.

Train Collision in Spain Kills at Least 39

A collision between two high-speed trains in southern Spain on Sunday has killed at least 39 people and injured dozens, according to the country's transport minister.

The crash occurred at around 7:45 p.m. local time when the final cars of a train heading to Madrid derailed and went onto an adjacent track, where they were struck by a train heading in the opposite direction, Spanish Transport Minister Óscar Puente said.

Syrian President Forces Major Concessions From U.S.-Backed SDF in Cease-Fire Deal

Syria's president forced major concessions from the U.S.-backed Kurdish-led militia that has dominated the northeast of his country, after launching a lightning offensive to seize strategic assets from the group and announcing a cease-fire.

President Ahmed al-Sharaa signed a deal with the Syrian Democratic Forces that called for the integration of individual militia members into the Syrian army and interior ministry.

GLOBAL NEWS

Trump's Realpolitik Takes Over Davos

DAVOS, Switzerland-President Trump video-conferenced into the World Economic Forum a year ago demanding lower interest rates from the global elites gathered and threatening tariffs against those making products anywhere but America.

This year, he is heading in person to the Alpine summit with an entourage of U.S. officials against a backdrop of a world in flux, in large part because of his own unconventional actions at home and abroad. Suddenly, an event once dismissed as a talking shop for executives who think they can solve the world's problems has become a must-attend gathering that people are eager to attend.

IMF Sees Stronger Growth, But Sounds Warning On Higher Tariffs And AI Correction

The global economy is set to grow more rapidly than previously expected this year, but could falter if trade barriers rise again and geopolitical conflicts intensify, the International Monetary Fund said Monday.

In its quarterly report on the economic outlook, the Fund also warned that placing the Federal Reserve's independence in question would likely lead to a rise in U.S. inflation and the need for higher interest rates, while a decline in equity prices triggered by concerns about the profitability of new technologies could weaken growth.

China Reports Robust Economic Growth, Thanks to Resilient Exports

A surge in exports powered China's growth last year, defying expectations that a trade war with the U.S. would hobble the world's second-biggest economy.

China's gross domestic product expanded 5% last year when adjusted for deflation, according to data released Monday by the country's National Bureau of Statistics. That met Beijing's official growth target and is in line with the 5% real GDP growth notched in 2024.

Fed Independence Is at Stake in Supreme Court's Cook Hearing This Week. What to Know.

The Supreme Court will hear arguments on Wednesday in a case that could reshape how much control a president has over the Federal Reserve.

The dispute, Trump v. Cook, stems from President Donald Trump's attempt to remove Federal Reserve Governor Lisa Cook for alleged mortgage fraud. Lower courts have blocked the move, and the Trump administration is asking the Supreme Court to allow the firing to proceed, even as Cook's legal challenge continues.

Pentagon Places 1,500 Soldiers on Alert for Possible Minnesota Deployment, Officials Say

About 1,500 active-duty soldiers have been placed on alert for a potential deployment to Minnesota in response to widespread protests over immigration enforcement in the state, according to four defense officials.

The Pentagon has ordered the soldiers from the U.S. Army's 11th Airborne Division to prepare to deploy, meaning they are ready to quickly move to Minnesota if the order is given, three of the officials said. The move is "precautionary" in case the unit is needed, one of the defense officials said.

China's Population Falls for Fourth Straight Year

Source: morningstar

Risk Warnings and Disclaimers

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Adam

Economic

Key takeaways

Geopolitical escalation drives risk-off: Trump’s tariff threats against key NATO allies over Greenland have sharply intensified US–EU tensions, prompting EU retaliation plans and triggering a broad risk-off move across global equities, particularly in Asia and US index futures.

US dollar weak, safe havens surge: Despite risk aversion, the US dollar failed to benefit as the “debasement trade” narrative took hold. Capital rotated into precious metals, with gold and silver surging to fresh record highs.

Technical damage to equities, bullish momentum with metals: US Nasdaq 100 and European indices (DAX) show near-term technical breakdowns or mean-reversion risks, while gold and silver maintain bullish acceleration, reinforcing their role as primary geopolitical hedges.

“Tarriff Man” is backed with a vengeance. After the “capture” of Venezuela at the start of the new year via the forceful removal of Venezuela’s leadership and the seizure of oil assets to be placed under US control, Trump has set sight on Greenland next, the resource-rich Arctic territory under Denmark’s autonomous control.

Trump has escalated his confrontational foreign policy stance by deploying tariff threats against long-standing US allies within NATO, leveraging trade pressure in a dispute over sovereignty and control of Greenland.

Trump has threatened eight opposing NATO members over the weekend, including France, Germany, and the UK, with a 10% tariff from 1 February, rising to 25% in June, unless they agree to facilitate a US purchase of Greenland.

EU is in discussion of additional retaliation measures against US

In retaliation, the EU looks set to void the US-EU trade truce deal agreed last year, as France plans to push the EU to activate its most powerful trade retaliation tool, the anti-coercion instrument, to be used for the first time against the US.

All in all, EU officials have aimed to introduce more retaliatory measures, such as new taxes on tech companies or targeted curbs on investments in the EU, beyond the earlier suspended tariffs on 93 billion euros of US products, to counter the US’s pressure on Greenland.

To add fuel to the fire, key US White House officials have continued to back Trump, with the US Treasury Secretary Bessent reiterated that the US will not back down on taking over Greenland, citing that the EU is too weak to ensure its security.

The first reaction is a risk-off sentiment in today’s Asia session at the start of a brand-new trading week, where major Asia Pacific stock markets traded lower, including Japan’s Nikkei 225, and Hong Kong’s Hang Seng Index slipped by 0.6% and 1% in line with the intraday losses of 1% to 1.3% seen on the S&P 500 and Nasdaq 100 E-mini futures at the time of writing.

The US dollar does not benefit from this current episode of risk-off as the “debasement trade” narrative takes hold due to the latest US foreign policy towards its European allies, as traders shifted demand towards safe-haven precious metals. The US Dollar Index dropped by -0.2% intraday, while gold and silver rocketed by 1.6% and 3.5% respectively to hit fresh record highs.

Here are five intraday (hourly) technical setups on key cross-assets (Nasdaq 100, Hang Seng Index, Germany DAX, Gold & Silver) to watch as the trading session unfolds today in the aftermath of the US trade tariffs threat towards the EU.

Nasdaq 100 bearish breakdown below 20-day and 50-day moving averages

Impact on US-EU tensions: Risk-off, US dollar subdued, heightened demand for Gold and Silver_1

Fig. 1: US Nasdaq 100 CFD index minor trend of 19 Jan 2026

The price actions of the US Nasdaq 100 CFD index (a proxy of the Nasdaq 100 E-mini futures) have tumbled below its 20-day and 50-day moving averages, as well as the ascending channel support from the 21 November 2025 low.

These latest observations suggest that the earlier medium-term uptrend phase of the US Nasdaq 100 CFD index has been damaged and the likely control shifted back to the bears at least in the near-term (see Fig. 1).

Watch the 25,550 key short-term pivotal resistance (also the gapped down formed at the start of today’s Asian session and the 20-day moving average) to maintain the short-term bearish bias to expose the next intermediate supports at 25,133, and 24,870 (close to 76.4% Fibonacci retracement of the prior minor up move from 18 December 2025 low to 13 January 2026 high).

On the other hand, a clearance and an hourly close above 25,550 invalidates the bearish tone for a retest on the stubborn range resistance of 25,760/25,830 in place since 8 December 2025.

Minor mean reversion decline in progress for the Hang Seng Index

Fig. 2: Hong Kong 33 CFD index minor trend of 19 Jan 2026

The medium-term uptrend of the Hong Kong 33 CFD index (a proxy of Hong Kong’s Hang Seng Index futures) remains intact as price actions continue to oscillate above its 20-day and 50-day moving averages.

Right now, the recent three bearish reactions from its recent minor range resistance of 27,175 from 13 January to 16 January 2026 have skewed the bias for a potential minor mean reversion decline scenario to seek a retracement back to retest the area around the 20-day and 50-day moving averages (see Fig. 2).

Watch the 26,870 key short-term pivotal resistance to expose the next intermediate supports at 26,330, 26,220 (also the 20-day moving average), and even 26,045 (also the 50-day moving average).

On the flip side, a clearance and an hourly close above 26,870 negates the bearish tone for a retest on the 27,175 minor range resistance in the first step.

Germany's DAX broke below last week’s low, on track towards 20-day MA

Fig. 3: Germany 30 CFD index minor trend of 19 Jan 2026

The Germany 30 CFD index (a proxy of the DAX futures) gapped down and broke last week’s minor range support of 25,260.

The odds are now skewed towards a minor mean reversion decline towards its 20-day moving average and the medium-term ascending trendline in place from the 21 November 2025 low.

Overall, the medium-term uptrend remains intact with potential intraday weakness in the first step before a renewed bullish move materializes.

Watch the 25,260 key short-term pivotal resistance for a potential intraday drop to expose the next intermediate supports at 24,860 and 24,760/24,670 (also the 20-day moving average) (see Fig. 3).

However, clearance and an hourly close above 25,260 invalidates the bearish tone to seek a retest on the current all-time high area of 25,505, and above it sets sight on the next immediate resistance at 25,800 (Fibonacci extension).

Gold (XAU/USD) bullish acceleration mode

Fig. 4: Gold (XAU/USD) minor trend of 19 Jan 2026

The current price actions of Gold (XAU/USD) gapped up at the opening of today’s Asian session with a parallel bullish breakout above its former descending trendline resistance seen on its hourly RSI momentum indicator.

These observations suggest a potential minor bullish acceleration phase for Gold (XAU/USD). Watch the US$4,595 key short-term pivotal support; a clearance above US$4,684/4,687 near-term resistance opens scope for the next intermediate resistances to come in at US$4,720 and US$4,774/4,780 (see Fig. 4).

On the other hand, a break with an hourly close below US$4,595 negates the bearish tone for a minor corrective decline towards its 20-day moving average, exposing the next intermediate supports at US$4,560/4,550 and US$4,512.

Silver (XAG/USD) relentless uptrend remains intact

Fig. 5: Silver (XAG/USD) minor trend of 19 Jan 2026

Watch the US$86.26 key short-term pivotal support on Silver (XAG/USD) to maintain a potential direct intraday rise scenario for the next intermediate resistances to come in at US$94.60/95.81 and US$98.74/99.47 (also the upper boundary of a minor ascending channel) (see Fig. 5).

On the flip side, failure to hold at US$86.26 and an hourly close below it negates the bullish tone for a minor corrective decline towards the medium-term pivotal support area of US$81.70/78.84 (also the 20-day moving average).

Source: marketpulse

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Warren Takunda

Economic

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.