To The Moon

Following the Martin Luther King Jr. Day holiday on Monday, US stock and bond markets were closed. On Tuesday, US stock and bond traders returned for their first full trading session, poised to react to a weekend packed with significant news. European stock markets moved lower on Tuesday, and US markets opened down, as investors continued to digest conflicts between President Donald Trump and various European leaders over the sovereignty of Greenland. On Sunday, Trump threatened to impose new 10% tariffs on imports from eight European countries, including Denmark, the UK, and France. This move comes against the backdrop of Trump's demand for US ownership of this Danish overseas territory. The pan-European benchmark Stoxx Europe 600 index, which covers core listed companies across multiple European countries, fell 1% in early Tuesday trading. This index had already dropped 1.19% on Monday, marking its largest single-day decline since last November. Denmark's OMX Copenhagen 20 index, which tracks the 20 most traded stocks on the Copenhagen Stock Exchange, declined by 0.1%. This followed a sharp 2.73% plunge on Monday, its worst single-day performance since last October. US stock index futures also faced downward pressure. Futures for the Dow Jones Industrial Average fell 765 points, a decline of 1.5%; S&P 500 futures dropped 1.7%; and Nasdaq 100 futures were down 2%. In the bond market, US Treasury yields moved higher as investors sold off bonds. With US stock and bond markets closed on Monday for the holiday, Tuesday served as the first full trading day for traders to comprehensively react to the news-heavy weekend and the escalating US-Europe trade tensions. "Recent developments remind the market that the US economy is not immune to the uncertainty stemming from a shift in Trump's policies," said George Vessey, Chief FX and Macro Strategist at Convera, in a Monday report. "Simultaneously, the delayed nomination for Fed Chair and the ongoing investigation into Jerome Powell are heightening concerns about the Fed's independence, adding another layer of caution to the dollar's trajectory." Global investors are attempting to gauge the direction of the evolving US-Europe tensions. "This week is fraught with variables for the markets, both in the US and globally, with most risks tied to the decisions of the US President," noted Ed Yardeni, President of Yardeni Research, in a Monday report. "Investors need to be prepared for various unforeseen scenarios." Despite the nervous investor sentiment, the current stock market declines are relatively moderate compared to the turbulence triggered by Trump's initial announcement of "Liberation Day tariffs" back in April. Investors are closely watching for potential windows of de-escalation, including awaiting a ruling from the US Supreme Court on the legality of Trump's tariffs imposed under emergency powers legislation. The Supreme Court is currently deliberating on whether the President's use of the 1977 International Emergency Economic Powers Act to implement tariffs is legal. This pending decision will directly impact whether Trump's latest threat to impose new tariffs on certain European countries can be enacted. "Markets will exhibit a risk-off trading pattern, but investors are simultaneously betting on two possibilities," said Krishna Guha, Vice Chairman of Evercore ISI, in a Monday report. "Either the Supreme Court strips Trump of the power to levy tariffs in this manner, or Trump will ultimately engage in a 'Taco'." Here, "Taco" is a Wall Street acronym for "Trump Always Caves In." However, as US-Europe tensions intensify, market uncertainty has increased significantly. "The EU is prepared with countermeasures, not only including reciprocal tariffs but also potentially deploying the 'Anti-Coercion Instrument'—a tool with highly punitive implications for US companies operating in Europe," said Sarah Bianchi, Chief International Political and Public Policy Strategist at Evercore ISI, in a report. "Investors should be prepared; the current US-Europe standoff is still in an escalating phase aimed at pressuring for de-escalation. Negative news is likely to intensify further before any turning point emerges." The EU's "Anti-Coercion Instrument," often referred to as a "trade bazooka," is a mechanism designed to deter trade threats from unfriendly foreign governments. In other markets, a flight to safety pushed metal prices significantly higher. Gold futures prices rose 3%, while silver futures surged 7.3%. "Trump's latest tariff statement pushes trade tensions into a new dimension," said Carsten Brzeski, Global Head of Macro at ING, in a Monday report. "In this round of confrontation, the weight of economic logic is diminishing, while the dominant role of political motives is becoming increasingly apparent." He added, "This move also plunges the long-stable transatlantic relationship into a serious crisis. There is a clear risk of further escalation in the US-Europe standoff, which would impose unnecessary negative impacts on both the European and American economies."