More shine could come off U.S. markets as President Donald Trump threatens the E.U. over Greenland, strategists say.<\/p>\n
U.S. stock futures ES00 YM00 NQ00 indicated a selloff could await investors when they return from a holiday on Tuesday. That\u2019s as the Stoxx Europe 600 index XX:SXXP was down 1.2%, led by export-sensitive stocks. Meanwhile, investors piled into gold GC00 and silver SI00.<\/p>\n
Shares of German automakers Mercedes-Benz XE:MBG and Volkswagen XE:VOW were both down more than 2%, and Daimler Truck Holding\u2019s XE:DTG stock was declining roughly 3%. French luxury giant LVMH Mo\u00ebt Hennessy Louis Vuitton FR:MC and German sportswear maker adidas XE:ADS were down roughly 4% each.<\/p>\n
Defense stocks, however, which have persistently risen since Russia invaded Ukraine in 2022, climbed. Saab shares SE:SAAB.B had risen over 4%. Shares Rheinmetall XE:RHM were 3%, and BAE Systems UK:BA and Thales FR:HO were up over 1% each.<\/p>\n
With geopolitical stresses since the start of the year \u2014 Greenland headlines added to the U.S. incursion into Venezuela and the continued war in Ukraine \u2014 Europe\u2019s defense stocks have attracted investors. Saab shares, for example, are up 36% in January, after a 248% jump in the last 12 months, according to FactSet.<\/p>\n
Morgan Stanley analysts told clients Monday that they remain overweight the European defense sector, as the latest tariff threats demonstrate the continent\u2019s need to beef up its security and strategic autonomy. They said fresh tariff potential is \u201cidiosyncratic rather than broad-based,\u201d with just around 2.2% of MSCI Europe revenues directly exposed.<\/p>\n
\u201cWe see limited tactical downside to EU equities and anticipate continued diversification flows thereafter,\u201d said a team led by Marina Zavolock, chief European equity strategist. Their chart showed how money flowed into Europe last year \u2014 a trend that has continued in early 2026.<\/p>\n The euro EURUSD, meanwhile, was trading up 0.4% against the dollar DXY, which fell hard at the start of 2025 and has yet to recover.<\/p>\n Stepping up his campaign for a U.S. takeover of Greenland, Trump posted on social media Saturday that, starting Feb. 1, import tariffs of 10% would be imposed on several European countries. Those tariffs would increase to 25% on June 1 until the U.S. gets its deal.<\/p>\n The E.U. is reportedly considering the revival of a $93 billion package of tariffs on U.S. goods. Other reports indicated that France wanted the activation of the so-called Anti Coercion Instrument (ACI), referred to by some as the \u201ctrade bazooka.\u201d That allows for a collective E.U. response to fight economic pressure by a third-party country to influence policies of the E.U. or its member states.<\/p>\n<\/p><\/div>\n Europe stocks overall outperformed the U.S. last year, with the SPDR Portfolio Europe ETF SPEU gaining 34% versus 18% for the SPDR S&P 500 ETF Trust SPY. The Stoxx 600 is up 2.4% so far this year, versus 1.3% for the S&P 500 SPX, with both indexes marking new highs.<\/p>\n \u201cIn the wake of last year\u2019s rethink about the buy America trade, diversification remains a solid theme for market investors this year,\u201d said Jane Foley, senior FX strategist at Rabobank. She wrote that she doesn\u2019t think the dollar will fall much further, given that position adjusting drove an early slump last year. Enough rebalancing has been seen since then to put a floor under more big drops, she noted.<\/p>\n Others, such as George Saravelos, head of FX research at Deutsche Bank, said U.S. dollar exposure remains elevated across Europe and developments in the coming days could \u201cfurther encourage dollar rebalancing.\u201d<\/p>\n \u201cEuropean countries own $8 trillion of US bonds and equities, almost twice as much as the rest of the world combined. In an environment where the geoeconomic stability of the western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part,\u201d Saravelos told clients in a note on Sunday.<\/p>\n He said it\u2019s also \u201creasonable to assume the EU thinks it holds some leverage given the upcoming midterm elections. The administration is focused on bringing inflation and treasury yields down and Europe may be able to influence both.\u201d<\/p>\n Saravelos said they would be watching if a cohesive European response emerges in the next few days, and if the E.U. decides to activate the anti-coercion instrument, putting measures that impact capital markets on the table.<\/p>\n \u201cWith the U.S. net international investment position at record negative extremes, the mutual interdependence of European-US financial markets has never been higher. It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets,\u201d he said.<\/p>\n<\/p><\/div>\n<\/div>\n<\/div>