A look at the day ahead in European and global markets

By Wayne Cole, Chief Correspondent, Treasury

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You couldn't make this stuff up. A U.S. president threatens to pile an extra tax on American consumers in order to force a European country to sell him a territory it can't legally sell. Oh, and the tariffs themselves might well be illegal, assuming the Supreme Court finally gets around to making a ruling.

Danish soldiers take pictures next to the statue of Hans Egede, at Nuuk's old harbour, Greenland, January 18, 2026. REUTERS/Marko Djurica

Linking the tariffs directly to sovereignty, and all that entails for nation states, makes it harder for either side to TACO on this one, and throws into doubt all the trade deals already agreed. The EU has already paused ratification of the U.S.-EU agreement, and the U.S.-UK deal has to be in doubt.

At least Trump is using tariffs rather than an actual military invasion against a fellow NATO member, risking the end of the alliance, the loss of U.S. bases and air access in Europe, intelligence sharing, billions in defence sales etc etc.

The market reaction has been moderate risk-off, with S&P futures down almost 1% and EU stock futures 1.1%. Gold and silver scaled fresh peaks, while the dollar lost ground to the safe harbour Swiss franc and yen.

It's even down on the euro as analysts note European investors own $8 trillion in U.S. stocks and bonds. Starting a trade war with your biggest creditor is a bold play, Cotton.

It should also make for a fraught few days at Davos as leaders from around the world gather at the World Economic Forum, including a large U.S. group led by Trump himself.

All this tension is a boon for China, which just struck a trade deal of its own with Canada. The strength of exports helped its Q4 GDP slightly pip forecasts at 4.5% on the year, though disappointing retail sales for December underlined the weakness of domestic demand.

And, if demography is destiny, the latest population numbers should alarm Beijing. China ended 2025 with 3.4 million fewer people, roughly the population of Uruguay.

Across in Japan, Prime Minister Sanae Takaichi holds a media conference at 0900 GMT to likely flag a snap election in February, capitalising on her strong approval ratings - though voters seem to like her more than the LDP.

This has sparked talk of a cut in the consumption tax rate, at least for food, which would not be great for the budget. Still, it should be noted that strong nominal GDP growth means the budget is actually in better repair than for decades, and might even be in surplus this fiscal year.

Graphics are produced by Reuters.

Graphics are produced by Reuters.