European markets started the week under pressure on Monday, with the Stoxx 50 falling 1.77%. US stock markets are also expected to see sharp losses on Tuesday after the three-day holiday.
Investor caution increased after President Donald Trump said over the weekend that several European countries would face new tariffs. These customs duties are set at 10% from February 1 and increase to 25% from June, unless an agreement is reached for the United States to buy Greenland.
Trump has become firmer in his stance on Greenland, arguing that taking control of the autonomous Danish territory is essential for U.S. national security.
In response, Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland sent military troops to the region. This decision seems largely symbolic, but it seems to have triggered the reaction from Trump, who believes that these countries are playing a very dangerous game.
For now, European governments remain firm in their refusal to sell Greenland and are preparing a coordinated response to the new American customs tariffs which are due to come into force in around ten days.
Simply put, the trade war has resumed in a big way and financial markets are reacting quickly.
A large-scale trade conflict between the United States and Europe would significantly increase the risks of recession. This would have serious consequences for markets, particularly given high valuations in some sectors and weakening investor confidence in popular themes such as AI.
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