Around 8:15 a.m., the futures contract on the CAC 40 index – February expiry – was down a further 61.5 points at 8 067 points, signaling a continuation of the sharp downward trend that began the previous day.

The Paris market dropped 1.8% on Monday, closing the session at 8 112 points, after President Donald Trump threatened to impose tariffs on imports from countries opposing his plan to annex Greenland. This reignited fears of large-scale trade tensions, the economic consequences of which could prove devastating.

A barometer of investor anxiety, the VSTOXX volatility index for the Euro STOXX 50 surged 23% in just one day.

In this gloomy context, Citi strategists announced last night that they had decided to downgrade their weighting of European equities in their portfolios to "neutral", arguing that the prospect of new tariffs undermines the scenario of a fragile recovery in activity that had been taking shape across the Old Continent this year.

The American president sparked another potential source of concern last night by threatening to impose a 200% tax on French wines and champagnes, in response to Emmanuel Macron's refusal to participate in the "Peace Council" promoted by Washington for the reconstruction of Gaza.

Investors are therefore expected to continue shunning equities due to heightened fears that Brussels may in turn adopt protectionist measures against the United States.

In a note published yesterday, Edmond de Rothschild AM's teams warned that this difficult geopolitical sequence could also entail a "significant" potential economic cost, estimated at between 0.2% and 0.5% of growth, depending on the severity of the tariff threat.

"Foreign trade figures highlight the extent of transatlantic interdependence: nearly  870 billion euros in annual goods trade between the European Union and the United States," notes Michaël Nizard, head of multi-asset strategy at the Paris-based management company.

"Europe posts a large surplus in goods – about  530 billion euros in exports versus  335 billion in imports – while the United States clearly dominates in services," he adds.

"Taken together, goods and services trade remains broadly balanced, but is so substantial that any escalation in tariffs would have immediate effects on industrial supply chains, inflation, and investment," the analyst warns.

In this risk-averse climate, which has also weighed on Asian stock markets, investors continue to flock to safe havens like gold, which is up 2.4% at 4 719.2 points, reaching new all-time highs.

The yellow metal is now just 6% away from the  5 000-per-ounce mark, a target that appears increasingly plausible in the medium term.

"Precious metals should remain the clearest expression of the defensive mood dominating markets right now, as long as a clearer path to negotiations fails to emerge," explains Ahmad Assiri, strategist at Pepperstone.

European government bonds are playing a slightly lesser role as safe havens in this troubled geopolitical environment, as there has been no massive shift in favor of German Bunds. The ten-year Bund yield has slipped only one basis point to 2.83%, while French OATs have eased by 2.5 points to 3.41%.

Risk aversion is not weighing further on the euro, which, paradoxically, has strengthened amid US-European tensions over Greenland, climbing back toward 1.1670 against the dollar.

Wall Street, like its European counterparts, is expected to fall sharply on Tuesday after its extended Martin Luther King Day weekend, as investors lose their appetite for risk amid fears of a trade conflict with Europe—a prospect that should curb any further attempts at the upward momentum seen in recent weeks.

At this point in the day, futures on the main New York indices are down between 1.2% and 1.5%.

Fears that trade tensions will persist may thus overshadow the quarterly corporate earnings season, which picks up pace today with 3M's results due at midday, followed by Netflix's in the evening.

The issue of trade tensions is also likely to push aside today's economic statistics, such as the ZEW index measuring German investor and analyst sentiment, which is typically scrutinized for any signs of economic recovery across the Rhine.