U.S. President Donald Trump's tariff threats related to Greenland have unsettled global markets as trading resumed on Tuesday. Stock futures, Treasury bonds, and the dollar faced pressure, while safe-haven assets like gold and silver reached new all-time highs.
The VIX volatility index, often called the fear gauge, climbed to its highest level this year. Transatlantic tensions have been increasing.
European equities dropped more than 1% on Tuesday morning. Nasdaq and S&P 500 futures also declined before the market opened. The dollar weakened even as the yield on the 10-year U.S. Treasury note rose to 4.265%, a four-month high.
Gold surpassed $4,700 per ounce for the first time on Tuesday. Market activity so far resembles a 'sell America' trade rather than a broad risk-off mood. Movements have been contained, with markets cautious after last year's tariff disruptions.
President Trump showed no signs of softening his demands on Tuesday. In a Truth Social post, he stated that Greenland remains "imperative for National and World Security" and that "there can be no going back." He previously linked his interest in acquiring the Arctic island to not winning the Nobel Peace Prize last year, which he blamed on Norway.
The World Economic Forum in Davos enters its second day, drawing increased attention. President Trump is scheduled to speak on Wednesday. He recently told journalists that the U.S. would discuss his proposed acquisition of Greenland at the event.
U.S. Treasury Secretary Scott Bessent, attending the forum in Switzerland, told reporters he was "confident that the [European] leaders will not escalate." He downplayed the likelihood of a prolonged trade war or a European sell-off of U.S. Treasuries.
European investors hold $8 trillion in U.S. equities and bonds. Some analysts dismissed immediate risks of a sell-off without further escalation, while others noted strong appetite for diversifying portfolios away from the U.S.
Elsewhere, long-dated Japanese government bond yields hit record highs. Expectations that a February 8 snap election will lead to looser fiscal policy and strain public finances drove the move. Demand was low at an auction of 20-year JGBs on Tuesday, with yields reaching 3.35% as markets priced in fiscal and political risks.
Japanese government bond yields reached all-time highs on January 20. Markets are weighing expectations of looser fiscal policy ahead of the February election called by Prime Minister Sanae Takaichi. Yields are now significantly higher than on October 20 last year, the eve of Takaichi's election as prime minister.
Events to watch include French President Emmanuel Macron's visit to the World Economic Forum in Davos and U.S. corporate earnings from Netflix.