Markets Turn Cautious as Trump’s Europe Tariff Threats Rattle Sentiment

GLOBAL MOOD: cautiously Risk-Off
Drivers: Greenland sovereignty, Tariff threats, EU retaliation

Global markets tilted risk-off as fresh trade and geopolitical tensions dented sentiment, even as the AI-led earnings momentum continues to offer pockets of support.

Asia-Pacific equities slipped after President Donald Trump threatened new tariffs on eight European countries to pressure Denmark over Greenland, reviving fears of transatlantic retaliation just as investors brace for key China data.

European leaders pushed back swiftly, raising the prospect of EU countermeasures and adding to policy uncertainty. While strong US industrial output and resilient manufacturing point to underlying economic strength, weak housing data and renewed concerns over Fed independence kept investors cautious. Overall, political risk is testing markets trading near record highs.

TODAY’S WATCHLIST
- China GDP
- Oct-Dec Earnings:  Bharat Heavy Electricals, Punjab National Bank, Tata Capital

THE BIG STORY
Tensions between the United States and Europe escalated after President Donald Trump threatened punitive tariffs on several European allies in an effort to pressure Denmark into allowing the US to acquire Greenland. The move drew swift pushback from European leaders, who reiterated their support for Greenland’s sovereignty and warned against what they described as economic coercion. France, Germany, Britain and other European nations sent small military contingents to Greenland at Denmark’s request, underscoring growing security concerns in the Arctic.

The European Union is now weighing retaliatory measures, including the possible use of its Anti-Coercion Instrument, a tool never previously deployed. EU ambassadors are set to meet to discuss a coordinated response as leaders warned of a “dangerous downward spiral” in transatlantic relations. Greenland’s government thanked European partners for their backing, calling the moment a test of resolve amid rising geopolitical pressure.

Adding to unease, a draft US charter circulated to dozens of countries proposed a $1 billion cash contribution requirement for extended membership in a US-led international framework, reinforcing perceptions of Washington using financial and trade leverage to reshape global alliances.

Data Spotlight 
The NAHB/Wells Fargo Housing Market Index slipped to 37 in January from 39 in December, missing expectations of 40 and marking a three-month low. Builder confidence deteriorated across all components, with current sales at 41, six-month sales expectations down to 49, and buyer traffic falling to a weak 23, underscoring affordability pressures and subdued demand.

US industrial production rose 0.4% in December, outperforming forecasts. Manufacturing output increased 0.2%, defying expectations of a decline, while utilities surged 2.6%, driven by a sharp jump in natural gas output. Mining output, however, fell 0.7%. Capacity utilisation edged up to 76.3%, still well below its long-run average.

Durable goods manufacturing rose marginally, supported by gains in primary metals, electrical equipment, and aerospace, while autos, wood products, and non-metallic minerals recorded notable declines.

Takeaway:  US data point to a two-speed economy: housing remains under pressure with weak builder confidence, while industrial and manufacturing activity shows pockets of resilience, helping offset softness in interest-rate-sensitive sectors.

WHAT HAPPENED OVERNIGHT

• US stocks end flat, post weekly losses as financials stay under pressure
  • US stocks ended nearly flat on Friday in choppy, low-conviction trade ahead of the long weekend.
  • All three benchmarks posted weekly losses as Q4 earnings season began.
  • Big US banks reported largely solid earnings, offering limited support to markets.
  • Financial stocks remained under pressure amid concerns over President Trump’s proposed 10% cap on credit-card interest rates.
  • The S&P 500 financial sector edged up 0.1% on Friday but logged its worst weekly decline since October.

• US Treasury yields jump on Fed independence concerns
  • The benchmark 10-year US Treasury yield moved sharply higher on Friday following renewed political noise around the Federal Reserve.
  • The benchmark 10-year Treasury yield rose 6.7 basis points to 4.227%, up from 4.16% late on Thursday, marking its highest level in over four months.
  • Investor sentiment was unsettled by reports of a criminal probe involving Fed Chair Jerome Powell and a sharp shift in prediction markets favouring Kevin Warsh as a potential successor.
  • The developments raised fresh concerns over the Fed’s independence, prompting investors to demand higher risk premia for longer-dated US government debt.

• US Dollar edges higher as Fed succession worries ease
  • The US dollar index strengthened after President Donald Trump praised economic adviser Kevin Hassett and signalled; he may keep him in his current role.
  • The remarks reduced speculation that Hassett could be named as the next Federal Reserve chair, easing near-term uncertainty around Fed leadership.
  • The dollar index rose 0.06% to 99.41, staying close to Thursday’s six-week high of 99.49.

• Crude oil prices rises as short covering offsets geopolitical jitters
  • Brent crude prices settled higher as investors covered short positions ahead of the long Martin Luther King Jr. Day weekend in the US.
  • Lingering concerns over a potential US military strike against Iran continued to support prices.
  • Brent crude rose 0.6% to settle at $64.13 per barrel, while US WTI crude gained 0.4% to close at $59.44 per barrel

Day’s Ledger

Economic Data

• China GDP Data
  
• Japan Industrial Production Data

Corporate Actions

• Oct-Dec Earnings:  Bharat Heavy Electricals, Hindustan Zinc, LTIMindtree, Punjab National Bank, Tata Capital, Havells India, Oberoi Realty, CEAT, Indian Railway Finance Corporation,
  
• Arman Financial Services to consider fund raising
  
• Celebrity Fashions to consider fund raising
  
• Sumeet Industries to consider fund raising 

Tickers to Watch

• CG POWER AND INDUSTRIAL SOLUTIONS bags ₹9.0 billion order from Tallgrass Integrated Logistics Solutions, USA, to supply power transformers for a data centre project.
• HDFC BANK Oct-Dec standalone profit grows 11.5% YoY to ₹186.5 billion from ₹167.4 billion.
• ICICI BANK Oct-Dec standalone profit falls 4% YoY to ₹113.2 billion; board approves reappointment of Sandeep Bakhshi as MD & CEO till October 2028.
• IDBI BANK Oct-Dec standalone profit rises 1.4% YoY to ₹19.4 billion from ₹19.1 billion.
• L&T FINANCE Oct-Dec consolidated profit climbs 17.9% YoY to ₹7.4 billion from ₹6.3 billion.
• RAIL VIKAS NIGAM emerges lowest bidder for South Eastern Railway order worth ₹900 million for IP-based video surveillance systems in LHB coaches.
• RELIANCE INDUSTRIES Oct-Dec consolidated profit rises 1.6% YoY to ₹222.9 billion from ₹219.3 billion.
• TECH MAHINDRA Oct-Dec consolidated profit jumps 14.1% YoY to ₹11.2 billion from ₹9.8 billion.
• UCO BANK Oct-Dec profit increases 15.8% YoY to ₹7.4 billion from ₹6.4 billion.
• VEDANTA subsidiary ESL Steel receives demand notices worth ₹12.6 billion from Odisha government over alleged mining lease shortfall.
• WIPRO Oct-Dec consolidated profit declines 7% YoY to ₹31.2 billion from ₹33.5 billion.
• YES BANK Oct-Dec standalone profit surges 55.4% YoY to ₹9.5 billion from ₹6.1 billion.

Must Read

• EU scrambles to avert Trump Greenland tariffs, prepares retaliation
• US needs Greenland because of European 'weakness,' Bessent says
• Why India Has a Private Investment Problem
• Janet Yellen Says Trump’s Moves Against Powell Are Backfiring
• Hassett Says Trump May Be Right to Keep Him Out as Fed Chair
  
• Sun Pharma looks to rise in US with $10 bn Organon buy
• Retail giant Lulu plans to partner with local e-commerce players in Q1 2026
• To be viksit, we have to cook cleaner
• Six reforms that can complete India’s trade liberalisation story
• India really needs to spice things up

See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

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