TL/DR: Stock markets stage recovery from losses posted earlier in the week as Trump rows back on threats to Greenland, pauses tariffs due to be imposed on 8 European nations on 1 Feb; however lots of questions remain about what any deal will look like.
Stocks bounced and gold pulled back as US President Trump removed the threat of tariffs on several European nations after touting a deal on Greenland. Risk is firmly back after Trump’s about-turn. First, he ruled out the use of force, then later said he had decided not to impose tariffs after agreeing “the framework of a future deal with respect to Greenland" following talks with Nato Secretary General Mark Rutte. From the market point of view, it’s the classic TACO trade.
Sounds great, but there are a lot of known unknowns. The EU-US trade deal agreed last summer remains on hold. Issues of sovereignty remain undiscussed, and Denmark is cautious. Nato leader Rutte said the issue of sovereignty had not come up...Nato is an organisation is a military alliance - Rutte is hardly the diplomatic or political voice of the EU, Denmark or any other sovereign European nation. There remains a lot of uncertainty.
So, lots of work to do. EU leaders are still set to hold talks today in Brussels. I guess it’s the ‘art of the framework of a future deal’, but actually it now puts the ball in the Europeans’ court. Is there really a deal in the offing? Will it provide for what Trump wants, or what Denmark will tolerate? The trade war is on pause, not over. From the political point of view, it’s classic Trumpian diplomacy. And Trump’s speech left little doubt that the world order is changed. There are, I have no doubt, plenty more unknown unknowns to come this year.
The pivot has left markets buoyant as the very real threat of a trade war has receded. The S&P 500 swung over 100pts and ended the day firmly higher and above its 50-day SMA around 6,832. The S&P 500 gained 1.16% to 6,875.62, touching an intraday high at 6,911, slap on the 20-day SMA, where we can see near-term resistance. The Dow Jones Industrial Average rose 1.2% to 49,077 and the Nasdaq Composite added 1.2% to 23,224. US Treasuries rallied and gold pulled back from its all-time high. The Vix closed below 17 after its recent spike above 20. Tech was mixed though with Nvidia +3%, Alphabet +2%, Meta +1.5% and Tesla +3% against Microsoft -2%, Broadcom -1% and Oracle -3%.
European stock markets are similarly firmer this morning, with the CAC and DAX both +1% higher, while the FTSE 100, which had pulled back a lot less than those peers, added about 0.75%, with defence and miners a bit of a drag. Gilt yields ticked lower with the broader move in the sovereign space in relation to the Greenland issue, helped along as UK government borrowing was less than expected in December. The 10yr gilt yield dipped to around 4.24% after touching 4.3% yesterday. GBPUSD sits on the 200-day moving average a whisker above 1.340.
Meanwhile, Fed independence... Supreme Court Justice Brett Kavanaugh warned a Trump administration lawyer that the idea that President Trump can fire Federal Reserve Governor Lisa Cook without judicial review “would weaken, if not shatter, the independence of the Federal Reserve.” The Supreme Court sounded pretty sceptical of the administration’s attempt to fire her without due process.
US growth is under priced: The Atlanta Fed's GDPNow tracking model increased its estimate for Q4 2025 real GDP growth from 5.3% to 5.4%. So, 2026 themes are forming – geopolitical uncertainty, concomitant trade uncertainty, Fed independence questions, and remarkable US growth. Today we get more on this with weekly unemployment claims and core PCE inflation data.
