European equities opened the week under pressure after U.S. President Donald Trump revived tariff threats tied to his long-running push for U.S. control of Greenland. The renewed rhetoric unsettled investors and reopened concerns that trade tensions between Washington and Europe could escalate again.
By mid-morning in London, the pan-European STOXX 600 had fallen 1%, reflecting a broad-based retreat from risk. Major national benchmarks also declined, with France’s CAC 40 down 1.4%, Germany’s DAX off 1.2%, and the UK’s FTSE 100 lower by 0.5%. The selloff comes at a sensitive time, as markets brace for a heavy earnings calendar and closely watch discussions at the World Economic Forum in Davos for policy signals.
Trump said the U.S. would impose an additional 10% tariff from February 1 on goods from eight European countries, including France, Germany, Denmark and the UK. He added that the levy would rise to 25% on June 1 if negotiations fail, reviving fears that trade policy is again being used as a geopolitical bargaining tool rather than an economic one.
Investors Brace for Renewed Trade Uncertainty
European officials responded swiftly, signalling resistance and discussing possible countermeasures. For investors, the episode highlighted how fragile confidence remains around transatlantic trade relations, even after previous agreements were thought to have reduced uncertainty.
Economists noted a shift in tone compared with earlier phases of trade disputes. ING analysts said the logic behind higher tariffs now appears “more political and less economic,” a dynamic that makes outcomes harder to predict. Markets typically struggle in such environments, as policy risk becomes more binary and less data-driven.
Trading conditions also amplified the reaction. With U.S. markets closed for the Martin Luther King Jr. Day holiday, liquidity was thinner, potentially exaggerating price swings across European exchanges.
Sectors Hit, Volatility Rises
The impact was most pronounced in sectors exposed to global trade and consumer sentiment. Luxury, automobile and technology stocks fell 3.1%, 2.4% and 2.2%, respectively, pushing both the luxury and auto indices to their lowest levels in nearly three months. At the same time, a key gauge of euro-zone equity volatility jumped 3.39 points, reaching its highest reading since November.
Not all stocks moved lower. Bayer shares surged 7.1%, hitting their strongest level since October 2023 after the U.S. Supreme Court agreed to hear the company’s bid to curb lawsuits linked to its Roundup weedkiller.
Key market takeaways for investors:
- STOXX 600 down 1% amid renewed tariff threats
- Proposed tariffs: 10% from Feb. 1, rising to 25% in June
- Luxury and auto stocks at three-month lows
- Volatility spikes as policy risk returns
The session underscored a familiar message for European markets: even in a year dominated by earnings and monetary policy, geopolitical trade risks remain a powerful and disruptive force.