The major US stock indices are hitting new lows in the European session as risk aversion continues to dominate the price action. As a reminder, the global risk sentiment was hit at the beginning of the trading week following Trump’s escalation over the weekend where he threatened to impose 10% tariffs starting on February 1 on the UK, France, Germany and a few other European countries unless the U.S. is permitted to buy Greenland. He also added that the tariffs will rise to 25% from June 1 in case of no deal.
The threat of tariffs led to lower growth expectations and weighed on global stock markets. Growth expectations are the main driver of stock markets and when something leads to negative expectations, we generally get selling pressure until those expectations are corrected. The overcrowded long positioning isn’t helping either as the risk of a big selloff remains high in case things escalate further.
Everyone is now waiting for Trump to trigger the famous TACO (“Trump Always Chickens Out”) trade. The US President will deliver a speech today at the World Economic Forum in Davos. He already mentioned that he will talk about Greenland with other leaders, so we could get some new developments before the weekend.
Trump Schedule:
- 13:10 GMT/08:10 ET – Greets WEF leadership
- 13:30 GMT/08:30 ET – Trump’s speech
- 14:45 GMT/09:45 ET – Meetings with leaders
- 16:25 GMT/11:25 ET – Meetings with business leaders
Traders will be on the lookout for headlines or Truth Social posts about Greenland. If Trump decides to de-escalate, expect to see a strong relief rally not only in US stock markets but also in other global markets. Such a positive news would also likely trigger a selloff in precious metals and provide support to oil prices. On the other hand, if things go south, we will likely see strong risk-off flows across the board, potentially revisiting October 2025 lows.
This article was written by Giuseppe Dellamotta at investinglive.com.
