Financial markets remained relatively calm on Monday after US President Donald Trump threatened tariffs on eight European countries, including the UK. The FTSE 100 closed down just 0.4%, while European indices suffered slightly bigger losses. Analysts said traders have grown accustomed to Trump’s rhetoric, which has often failed to translate into full-scale action.
Rachel Reeves, the chancellor, opened trading at the London Stock Exchange to hail a “new golden age” for the City, but was soon called away to the prime minister’s statement on Greenland. The day’s market performance did little to unsettle investors, with a £7.7bn bid for insurer Beazley at a healthy premium providing further reassurance.
Jonas Goltermann of Capital Economics said market participants had become “increasingly desensitised” to Trump’s threats, expecting a 1 February tariff deadline to be postponed. However, complacency could amplify any future shock. Economists warn that sustained tariffs could tip the UK or eurozone into recession, and a breakdown of Nato would represent a seismic geopolitical shift that markets are ill-equipped to price.
More immediately, Deutsche Bank’s George Saravelos highlighted the risk of retaliation beyond goods. Europe holds around $8tn of US bonds and equities, almost twice the rest of the world combined. He suggested European funds might become less willing to hold US assets “in an environment where the geoeconomic stability of the western alliance is being disrupted existentially”.
While a coordinated sell-off of US Treasuries is unlikely, French President Emmanuel Macron has discussed activating the EU’s “anti-coercion instrument” to restrict US companies’ access to the single market. “It is a weaponisation of capital rather than trade flows that would by far be the most disruptive to markets,” Saravelos said. The very discussion of such measures underscores the fragility of transatlantic relations.
