GLOBAL MARKETS: Stocks skid in Asia, dollar dips on trade war risk

SYDNEY — U.S. stock futures fell Monday after President Donald Trump threatened to impose additional tariffs on eight European countries until the U.S. is allowed to purchase Greenland. The move pushed the dollar lower against safe-haven currencies such as the yen and Swiss franc.

Gold and silver surged to record highs, while oil prices slipped amid concerns that a full-scale trade war between the U.S. and Europe could harm global economic growth and energy demand.

A U.S. holiday in equity and bond markets resulted in thin trading, which likely contributed to a 0.7% drop in S&P 500 futures and a 1.0% fall in Nasdaq futures.

In European markets, EURO STOXX 50 futures and DAX futures both declined 1.1%. Japan’s Nikkei fell 1.0%, while the broader Asia-Pacific index excluding Japan dipped 0.1%.

Trump Announces New Tariffs

Trump announced plans to impose an additional 10% import levy starting February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain. The tariff rate would increase to 25% from June 1 if no agreement is reached.

European Union leaders criticized the threats as a form of blackmail. France proposed retaliatory measures, including a range of economic counteractions that have not yet been tested.

EU Considers Strong Countermeasures

The EU may respond by reinstating tariffs on €93 billion ($108 billion) worth of U.S. imports. These tariffs were previously suspended for six months starting in early August. The EU could also use its Anti-Coercion Instrument to target U.S. services trade or investment.

Deutsche Bank analysts warned that European countries hold approximately $8 trillion in U.S. bonds and equities, nearly double the holdings of the rest of the world combined. They may consider repatriating some of those assets.

“Given the U.S. net international investment position at record negative levels, the interdependence between European and U.S. financial markets has never been higher,” said George Saravelos, Deutsche Bank’s global head of FX research. “Weaponizing capital rather than trade flows would be the most disruptive factor for markets.”

Davos Leaders Face a Tense Week

The tensions could add strain to the upcoming World Economic Forum in Davos, where global leaders will gather. Trump is expected to lead a large U.S. delegation at the event.

Dollar Loses Safe-Haven Status

China is expected to report 4.4% economic growth in the quarter ending December, down from 4.8% in the previous quarter. Export and manufacturing strength is expected to be offset by weaker domestic demand.

The Bank of Japan meets Friday, and while no rate hike is expected, officials may signal a possible tightening as soon as April. Japanese politics also remain a factor, with Prime Minister Sanae Takaichi expected to dissolve parliament for a February election.

U.S. inflation and consumption data for November are scheduled for Thursday, which will influence expectations for the Federal Reserve’s next rate move. Strong domestic economic data has pushed back expectations for rate cuts, with markets now largely betting no easing will occur before June.

Currency and Commodity Markets

The euro recovered from earlier losses and rose to $1.1613, while the British pound climbed to $1.3387.

The dollar fell 0.2% against the Swiss franc and 0.3% against the yen, reflecting increased demand for safe-haven currencies.

With the U.S. cash Treasury market closed, 10-year futures strengthened, as investors sought safe assets.

Gold rose 1.5% to $4,664 per ounce, while oil prices declined amid renewed concerns of potential U.S. military action against Iran. A U.S. Navy aircraft carrier group is expected to arrive in the Persian Gulf this week.

Brent crude fell 0.5% to $63.84 per barrel, while U.S. crude slipped 0.4% to $59.18 per barrel.

($1 = €0.8611)

-Reporting by Wayne Cole; Editing by Shri Navaratnam and Muralikumar Anantharaman/Reuters