After their biggest one-day selloff in three months on Tuesday, Wall Street stock futures, the dollar and Treasuries stabilised somewhat on Wednesday, but the simmering tension was clear in gold's renewed climb to record highs just shy of $4,900 per ounce early in the session.

Despite delays in his flight to Switzerland, Trump's set-piece speech is still scheduled to start just before Wall Street reopens. The president is expected to focus on his election year 'affordability' push - something a new spike in Treasury yields over Transatlantic trade tensions could hurt.

But everyone's main focus will be what Trump signals on the Greenland row and whether recent turbulence will leave lasting damage or give way to another ‘TACO’ trade.

Meantime, Trump's political pressure on the Federal Reserve comes back into focus in Washington later in the day as the Supreme Court begins hearing arguments in Fed Governor Lisa Cook's legal challenge to Trump's attempt to fire her. Embattled Fed Chair Jerome Powell is due to attend those hearings, a move Treasury Secretary Scott Bessent said was a mistake.

Elsewhere, bond markets around the world calmed somewhat as the blistering surge in Japanese debt yields on election concerns abated on Wednesday. U.S. Treasuries staged a similar recovery. Japan’s bond market may prove more intransigent in the long term, however, as some voices noted investors’ alarm at Prime Minister Sanae Takaichi’s plan to cut a consumption tax rate long regarded as untouchable.

The dollar index rose for the first time this week after a 0.5% overnight drop, while the euro and safe-haven Swiss franc both weakened slightly. The yen strengthened modestly ahead of Friday’s Bank of Japan policy meeting, where no rate hike is expected at this time, though policymakers may signal a rise as soon as April.

In earnings news, Netflix stock fell more than 4% overnight after the streaming giant's earnings outlook and new all-cash offer for Warner Brothers Discovery jarred investors that fretted about the impact it will have on the company’s margins and stock buybacks.   

The White House may shrug off any fallout from the simmering transatlantic trade war on U.S. stocks or even the dollar, but a surge in U.S. Treasury yields could prove especially toxic for Donald Trump's administration in a mid-term election year.

Whether that would be enough to make the U.S. president back down - as some believe a Treasury yield spike did after the "Liberation Day" tariff salvo last April- is an open question, one that raises the stakes for investors in U.S. debt and for the administration itself.

Financial turbulence surrounding the initial Trump tariff sweep last spring subsided quickly. But global investors may have grown complacent in assuming that deals eventually get done, helped by the unwillingness of European allies to ruffle U.S. relations.

Tariff threats from Washington over U.S. demands to take over Denmark-ruled Greenland mean European leaders are fast realizing that capitulation on trade last year merely emboldened Trump to use the trade weapon again for more serious territorial and military objectives.

Already Europe has suspended trade talks that underpinned the original trade truce from last year and has retabled more than $100 billion of frozen counter tariffs on U.S. goods if Trump goes ahead with his latest increase in import levies next month.

Washington's "endless accumulation" of new tariffs is "fundamentally unacceptable," French President Emmanuel Macron said in Davos, having already called for use of the European Union's draconian "Anti-Coercion Instrument" on trade retaliation. "We do prefer rule of law to brutality."

If European countries are now much less likely to buckle on tariffs again, markets will have to price in a potential escalation, with an endgame of tit-for-tat retaliation and possibly investment curbs or financial embargoes that call into question Europe's gigantic holdings of U.S. stocks and bonds.

Graphics are produced by Reuters.