EMEA Morning Briefing : Markets Weighed as Trump Eyes Greenland

MARKET WRAPS

Watch For:

Eurozone current account; Germany ZEW indicator of economic sentiment; U.K. unemployment; no major corporate trading updates expected

Opening Call:

European stock futures were lower after Asia stocks broadly fell. U.S. Treasury yields rose, the dollar weakened. Gold rose and oil edged higher.

Equities:

European equity futures fell as U.S. President Trump's tariff threats continued to dominate market headlines. Some analysts warn that the economic implications could go beyond Europe simply rethinking the "buy American" trade.

"The deeper fault line here is not trade flows. It is capital," wrote Stephen Innes, managing partner at SPI Asset Management. "Europe is not just a trading partner of the United States; it is its largest financier. European institutions sit on a mountain of U.S. bonds and equities, a structural reality that has quietly funded America's external deficits for years."

"If Europe chooses to move beyond rhetoric and puts capital market measures on the table, even implicitly, the shock would dwarf anything tariffs could achieve," Innes said. "Weaponizing capital flows would strike at the plumbing of global markets."

Forex:

The U.S. dollar weakened, with the main risk for the dollar and Treasurys from President Trump's threats of tariffs on some European countries over Greenland likely to be a 'Sell America' mindset resuming, Danske Bank analysts said.

This would mean investors selling U.S. assets due to concerns over the U.S. political and economic outlook, and would send the dollar lower while lifting long-dated Treasury yields, they said.

There isn't a high likelihood of this happening "but it's definitely a risk," rates analyst Kirstine Kundby-Nielsen said.

This risk has caused the dollar to fall slightly, but worsening trade tensions would cause it to drop further, fixed-income and currency analyst Kristoffer Kjaer Lomholt said.

Bonds:

The U.S. term premium--or the extra compensation investors demand for holding longer-duration bonds--looks too low, said Pictet Asset Management's Christopher Preece and Arun Sai in a note.

The risk is that a U.S. policy mistake causes a selloff in longer dated Treasurys, driving yields higher, said investment manager Preece and senior strategist Sai.

Our base case is for U.S 10-year Treasury yields to stay below 5%, but higher yields remain a significant tail risk," they said.

U.S. Treasurys will remain a core part of global portfolios, but with U.S. foreign policy in flux it makes sense to hedge this exposure, they added.

Energy:

Oil rose after Brent and WTI crude oil fell moderately overnight.

Meanwhile, Iran's crude-oil production is expected to stay stable at around 3.2 million barrels a day this year, with limited short-term disruption to upstream operations, said Rystad Energy, citing its own analysis.

However, greater risk, for now, isn't physical supply loss but geopolitical risk premium as tensions rise and uncertainty persists, Rystad Energy added.

Metals:

Citi Research remains tactically bullish on precious metals in the short term, strategist Kenny Hu said in a note.

Key drivers of the bull market, such as geopolitical risks and worries over the Fed's independence, are still intact, Hu said.

"Lingering uncertainty amid further delay in tariff decisions could also keep the U.S. metal stockpiles from massively flowing back to [the rest of the world] for now, extending the ongoing global physical market tightness," Hu added.

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Base metals were little changed, with upside momentum likely exhausted for now, and multiple topping signals emerging in copper and aluminum, said Sucden Financial analysts in a note.

Still, they don't expect downside pressure to accelerate materially in the near term.

"Instead, price action is likely to transition into a more subdued, rangebound phase, as markets digest recent moves and await a clearer directional catalyst," Sucden said.

TODAY'S TOP HEADLINES

What a Break With Europe Means for the American Economy

President Trump's bid to annex Greenland and unleash tariffs on several European countries has plunged the trans-Atlantic alliance into crisis. If a trade war breaks out, the U.S. economy could feel the pain-from South Carolina to Silicon Valley.

European leaders, many of whom are gathering in Davos, Switzerland, this week for the World Economic Forum's annual meeting, are considering the bloc's options to retaliate, including imposing tariffs on more than $100 billion of American goods, and making it harder for American multinationals to bid on European contracts. A trade war would be devastating for Europe, which already suffers from stagnant growth.

Trump Wants Greenland. Markets Don't Know What to Make of That.

Here's what should happen when you blow up the world order and tax your closest allies: volatility and higher inflation, with pullbacks in corporate investment, stock prices and growth.

Over the weekend, President Trump threatened tariffs on the U.K., France, Germany and several other European countries that object to his demand that Denmark hand over Greenland to the U.S.

China's CTG Duty Free to Buy LVMH's DFS Greater China Stores

Shares of China Tourism Group Duty Free rose after the company said it plans to acquire LVMH's DFS travel retail business in Hong Kong and Macau.

The stock rose 5.7% to 92.40 Hong Kong dollars, equivalent to $11.85, early Tuesday, while the Hang Seng Index fell 0.2%.

BHP Upgrades Copper Output Guidance

BHP Group upgraded its annual copper-production guidance amid record-high prices for the industrial metal, but announced another cost overrun on its giant potash project in Canada.

BHP, the world's biggest miner by market value, said Tuesday that it now expects to produce between 1.9 million and 2.0 million metric tons of copper in its fiscal year through June, compared with a prior estimate of between 1.8 million and 2.0 million tons.

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Expected Major Events for Tuesday

07:00/GER: Dec PPI

07:00/UK: Dec UK monthly unemployment figures

07:30/SWI: Dec PPI

07:30/SWI: Dec Import Price Index

08:00/SPN: Nov Trade Balance

09:00/EU: Nov Euro area balance of payments

09:30/UK: Dec Monthly Insolvency statistics

10:00/ITA: Nov Balance of Payments

10:00/EU: Nov Construction output

10:00/LUX: Dec Unemployment

10:05/GER: Jan ZEW Indicator of Economic Sentiment

11:00/POR: Dec PPI

11:00/UK: Dec Aluminium Production report

15:59/GRE: Nov Balance of Payments

17:59/POR: Nov ICSG Copper Report

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

01-20-26 0017ET