US stocks were poised for hefty losses on Tuesday after President Trump reignited trade-war tensions with Europe over Greenland, as a Japan-led global bond sell-off reverberated through markets.
Dow Jones Industrial Average futures (YM=F) tumbled 1.4%, pointing to a drop of over 700 points when markets reopen from Monday’s holiday shutdown. S&P 500 futures (ES=F) sank 1.6%, while Nasdaq 100 futures (NQ=F) plunged 1.9% on the heels of a losing week for Wall Street stocks.
Investors are facing a rocky return to trading as the risk of full-on US-EU trade war rattles nerves just as earnings season gets going.
Trump threatened on Monday to put a 200% import tariff on France’s wines after its leader Emmanuel Macron turned down the US president’s invitation to join his “Board of Peace”, which carries a $1 billion membership fee.
At the weekend, Trump said eight NATO countries would face extra import duties of 10% unless the US got a deal on a purchase of the Danish territory. On Monday, he doubled down on his pursuit of Greenland even as the EU discussed $108 billion in retaliatory tariffs. It could also deploy an “anti-coercion instrument” with a potential fallout of some $8 trillion for US assets.
On Tuesday, European Commission leader Ursula von der Leyen warned that the EU’s response would be “unflinching, united, and proportional“, keeping tensions high but omitting to give details.
Treasury yields jumped to their highest levels in four months, with the 30-year (^TYX) rising to 4.93% as a sell-off in Japanese bonds added to pressure on US debt from risk of trade war. Meanwhile, the dollar (DX-Y.NYB) fell to a two-week low as the “Sell America” trade returned, and haven seekers drove gold (GC=F) and silver (SI=F) to yet more record highs.
Focus is now turning to the World Economic Forum in Davos, where Trump is reportedly set to hold a meeting with other countries over the Greenland crisis. He is scheduled to give his key address on Wednesday.
Looking ahead, the Supreme Court may rule as soon as this week on whether Trump’s use of emergency powers to impose sweeping tariffs is constitutional.
Investors are also bracing for a busy earnings slate, with results from Netflix (NFLX) due after market close on Tuesday. The week’s highlights include Intel (INTC), and Johnson & Johnson (JNJ). Corporate guidance will be closely watched in view of analyst expectations for the S&P 500 (^GSPC) to deliver earnings growth of roughly 12% to 15% this year. Wall Street strategists see room for an equal downside if “Sell America” sentiment lingers.
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