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Stocks, bonds, and the dollar fell after President Donald Trump threatened tariffs on several European countries ahead of high-level meetings in Davos, according to Bloomberg. The move mattered because the latest tariff warnings collided with an escalating dispute over Trump’s ambitions to take over Greenland.
The renewed tension pushed investors toward havens, lifting gold to record highs while risk assets slid. A gauge of equity volatility jumped to its highest level since November as traders reassessed geopolitical and trade risks.
US shares dropped broadly as the tariff headlines spread through markets. The S&P 500 fell 1.2% as of 11:03 a.m. New York time, while the Nasdaq 100 fell 1.2% and the Dow Jones Industrial Average lost 1.1%.
European equities also weakened. The Stoxx Europe 600 fell 0.8%, and the MSCI World Index dropped 0.9% as losses spread beyond the US.
Megacap technology led declines. Bloomberg’s Magnificent 7 Total Return Index slid 1.9%, while the Russell 2000 Index fell 0.6%, extending a stretch of relative small-cap resilience.
“This is ‘sell America’ again within a much broader global risk off,” said Krishna Guha at Evercore, according to Bloomberg. He added that global investors may seek to reduce or hedge exposure to what he called a volatile and unreliable US.
As Trump headed to the World Economic Forum, he intensified disputes with European leaders. Bloomberg reported that Trump pressured the UK over plans involving the sovereignty of Diego Garcia, threatened eight European countries with tariffs tied to Greenland demands, and pushed France to join what he called his Board of Peace.
European leaders responded with warnings about sovereignty. France’s President Emmanuel Macron said Europe needs more sovereignty to avoid “vassalization and blood politics,” Bloomberg reported.
Policy officials tried to cool the temperature. Treasury Secretary Scott Bessent urged calm and compared the Greenland uproar to what he called the “hysteria” after Trump announced sweeping tariffs in April, Bloomberg said.
Market participants framed the tariff threats as leverage, but they flagged rising risks. “Tariff fears are back in focus and are now intertwined in geopolitical matters,” said Paul Stanley at Granite Bay Wealth Management, according to Bloomberg.
US Treasuries weakened as yields climbed. The 10-year Treasury yield rose six basis points to 4.28%, while the 30-year yield added seven basis points to 4.91% and the 2-year held near 3.59%.
Overseas bond moves added pressure. Germany’s 10-year yield rose two basis points to 2.86%, and Britain’s 10-year yield climbed five basis points to 4.46%, Bloomberg reported.
The dollar extended losses. The Bloomberg Dollar Spot Index fell 0.3%, while the euro rose 0.7% to $1.1732, the pound gained 0.3% to $1.3460, and the yen strengthened 0.1% to 157.89 per dollar.
Investors also tracked the debate around Europe’s large holdings of US assets. Gennadiy Goldberg at TD Securities said attempts to diversify in the near term can pressure Treasuries, according to Bloomberg, even if options remain limited.
Cryptocurrencies fell sharply during the risk-off move. Bitcoin dropped 2.5% to $90,618.34 and briefly fell below $90,000, while Ether slid 5.7% to $3,027.22.
Gold strengthened as investors sought protection. Spot gold rose 1.4% to $4,735.28 an ounce, pushing through $4,700 to a record high, Bloomberg reported.
Oil rose even as risk assets fell. West Texas Intermediate crude gained 1.3% to $60.21 a barrel.
Looking ahead, traders will monitor Trump’s expected arrival in Davos on Wednesday, as well as potential updates on the next Federal Reserve Chair. Markets also face a waiting period after the US Supreme Court did not rule Tuesday on Trump’s tariffs, suggesting at least another month before a challenge resolves.
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