LONDON — Global markets slipped Tuesday after President Donald Trump threatened escalating tariffs on eight European allies unless the U.S. is allowed to buy Greenland, and as Japanese bond yields jumped. Traders moved into havens and trimmed risk as they weighed whether the standoff turns into a broader trade fight, Jan. 20, 2026.
European shares posted their biggest daily drop in two months after Trump said an additional 10 percent tariff would begin Feb. 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, rising to 25 percent June 1 if no deal is reached. The pan-European STOXX 600 fell 1.2 percent and luxury, auto and technology stocks led declines as investors waited for U.S. trading to resume after Monday’s holiday, according to Reuters.
In global markets, the tariff threat also weighed on the dollar while the euro, sterling and the Swiss franc rose. The moves echoed last year’s “Sell America” chatter, Reuters’ analysis said.
Global markets watch the tariff calendar and Davos
For global markets, the next test is whether the warning becomes policy or a negotiating tactic. “We doubt that (the tariffs) will be implemented as advertised,” said Andrew Kenningham, chief Europe economist at Capital Economics.
In Japan, global markets were hit by a second jolt: long-dated government bond yields set records after weak demand at a 20-year auction. The 10-year yield rose 15 basis points in two sessions and 30-year yields climbed 29 basis points in two days. “The bottom line is no one wants to buy or catch the falling knife at this point,” Nomura’s Naka Matsuzawa said in remarks compiled by Reuters.
Ultra-long maturities have been especially sensitive ahead of Japan’s snap election. Japan’s 40-year government bond yield climbed above 4 percent for the first time since that bond’s 2007 introduction, the Financial Times reported.
Citigroup strategists cut Europe (excluding the U.K.) to neutral — their first downgrade in more than a year — and upgraded Japan to overweight, saying the tariff flare-up hurts the near-term case for European equities. “The latest step-up in transatlantic tensions and tariff uncertainty dents the near-term investment case for European equities,” strategists led by Beata Manthey wrote, as quoted by The Business Times.
The flare-up has deep roots. Trump floated the idea of a Greenland purchase in 2019 and later called off a Denmark visit after Copenhagen rejected the proposal, Reuters reported at the time. Japan’s bond repricing has also been building since the Bank of Japan began unwinding its ultra-loose stance; in 2024 it ended negative rates and scrapped yield curve control, Reuters wrote. And Citi’s regional calls have swung before: in early 2023 it cut U.S. stocks to underweight while favoring European equities, according to Reuters.
For now, global markets are watching Feb. 1’s proposed tariff start date, June 1’s scheduled escalation and Japan’s Feb. 8 election, while hoping the World Economic Forum in Davos offers signs the shock cools rather than spreads.
