The Paris stock exchange ended this first session of the week with a marked drop of 1.78%, closing at 8,112 points, as investors contended with yet another intervention from Donald Trump. Over the weekend, the U.S. president threatened European countries – including France – with additional tariffs if they refused to approve the transfer of Greenland to Washington.


Trump Stirs (Again) the Specter of a Trade War

"Donald Trump is taking another step in using trade as a tool of geopolitical coercion," notes Michaël Nizard, Head of Multi-Asset & Overlay at Edmond de Rothschild AM. The announcement of 10% tariffs, set to rise to 25% by summer, directly targets several European economic pillars, from France to Germany, as well as the UK and Nordic countries.

In response to what he calls "economic coercion," Emmanuel Macron has called for the activation of the European anti-coercion instrument, adopted in 2023 but never used. The goal is both to restrict access to the single market for certain U.S. companies and to send a strong political signal that the EU will no longer yield to trade pressure. An extraordinary summit of EU members is expected on Thursday.

The episode acts as a brutal wake-up call: long seen as a stabilizing factor, trade is now turning into a potential political weapon.
These new tensions immediately sent shares of export-exposed companies tumbling, such as LVMH (-4.3%) and Kering (-4.1%). The luxury sector is paying the price for this new geopolitical flare-up, which could result in lasting surtaxes on products from the Old Continent.

STMicro is no exception (-4.81%), while the auto sector also suffered heavy losses, with BMW down 3.7% (also hit by a rating downgrade from "buy" to "hold" by Berenberg), Mercedes (-2.3%), Renault (-2.1%), and Stellantis (-1.9%). The EuroStoxx 50 fell 1.7%, with the DAX down 1.3% and London limiting losses to -0.4%.

Meanwhile, markets are also awaiting a Supreme Court decision on the legality of the tariffs announced by the Trump administration last April. "All of this creates a perfect cocktail for renewed stock market volatility at the start of the week," says Christopher Dembik, investment strategy advisor at Pictet AM.


Political Uncertainty and Macro Data: Markets in the Dark

It must be said that the European climate is also marked by the fragility of current governments. In France, the budget deadlock is raising fears of renewed pressure on sovereign rates, as the Lecornu government struggles to bring the deficit back toward 5% of GDP. The Prime Minister has just announced that he will ultimately invoke article 49.3 to pass the budget, contrary to past promises.

While this U-turn from the Matignon office might reassure markets by finally providing France with a budget, it could also trigger fresh political upheaval, less than two months before municipal elections. La France Insoumise immediately responded by promising a motion of no confidence.

But French politics is not the only source of market vigilance: in the UK, the Reform UK party now leads Labour and the Conservatives by a wide margin in polls, with high-profile defections from the Conservative camp. "The party reached 30% voting intentions in January 2026, compared to 14% in the July 2024 general election," note analysts at Nomura.

Thus, the combined support for Labour and the Conservatives has plummeted below 40% (down from around 57% in 2024). According to Electoral Calculus , if elections were held tomorrow, Reform UK would win 277 out of 650 seats (compared to just 5 seats won in 2024).

In any case, markets are expecting one final 25 basis point cut from the Bank of England in April 2026, bringing the terminal rate to 3.50%.


A Flood of Quarterly Results Due Starting Tomorrow

 On the data front, the eurozone's annual inflation rate stood at 1.9% in December 2025, down from 2.1% in November, according to Eurostat, which revised down its estimate for the final month of last year (previously 2% in the preliminary estimate).

The week will also be busy with key indicators: tomorrow brings UK employment figures and the German ZEW economic sentiment index (expected to rise sharply to 57.0). Wednesday will see the release of UK CPI inflation for December, forecast to edge up to 3.3%, while Friday will feature flash PMI indices for the eurozone, Germany, and France, providing a snapshot of early-year activity.

Finally, earnings season continues with results from Netflix, Rio Tinto, 3M, and Mercedes (Tuesday); J&J (Wednesday); GE Aero, Intel, Procter & Gamble (Thursday); and Schlumberger and Ericsson (Friday).

"After years of U.S. and tech dominance, 2026 is shaping up as the year of diversification. Institutional investors are historically optimistic but are pivoting massively toward emerging markets and Asia ex-Japan, reducing their exposure to what is seen as an overly concentrated U.S. market," Goldman Sachs analysts noted this morning.

In the bond market, the 10-year Bund yield is steady around 2.83%, while the French OAT of the same maturity stands at 3.49% (-3 bps).
In London, Brent crude is trading at 64 USD per barrel (-0.25%). Gold is hitting new highs at 4,670 USD an ounce (+1.6%). Finally, the euro is up 0.4% against the greenback, at 1.163 USD.