That’s how the chancellor’s luck runs these days. You arrange to open the day’s trading on the stock exchange to hail a “new golden age” for the City and bask in the sight of the FTSE 100 index above 10,000, and what happens? You have to skip off to the prime minister’s statement on Greenland.
In the event, Rachel Reeves needn’t have worried about the poor optics of overseeing a terrible day for share prices. Donald Trump’s weekend threat of tariffs on eight European countries, including the UK, did not cause an explosion in the London stock market. The Footsie closed down 0.4%, which doesn’t register on the doomsday radar, although European stocks did worse. There was even a £7.7bn bid for the insurer Beazley at a fat premium.
Why the relative calm? Well, markets have learned to live with Trumpian tariff adventures. They know the attention-grabbing initial threats do not always translate into action, at least not at the advertised level. With hindsight, Trump’s “liberation day” last April, which did shake markets, created one of the best buying opportunities in years and 2025 as a whole was a bumper year for stock markets almost everywhere.
“More than a year into Trump’s second term, market participants have become increasingly desensitised to his rhetoric and sceptical that it will feed through into action,” says Jonas Goltermann, the deputy chief markets economist at the thinktank Capital Economics. Quite: markets expect Trump’s 1 February deadline for the first 10% tariff to be postponed. In any case, the next step is the US supreme court’s ruling on the legality of Trump’s existing tariff policy.
But two other points are worth noting in the market’s reaction. First, investors’ complacency obviously guarantees a bigger reaction if it is misplaced. The risk of a UK or eurozone recession – highly likely if extra tariffs were to be imposed for an extended period, say economists – is almost the least of it. If the breakup of Nato is also on the cards, that is one of those long-term geopolitical shifts that markets tend to be terrible at pricing – or, rather, they take their time to do so because the consequences are genuinely unclear.
But the Deutsche Bank currency strategist George Saravelos also raised the more immediate – and alarming – spectre of tit-for-tit measures going beyond tariffs on goods and into capital markets. “Europe owns Greenland, it also owns a lot of Treasuries [US debt],” he wrote, suggesting that European funds may be less willing to own US assets “in an environment where the geoeconomic stability of the western alliance is being disrupted existentially”.
Those holdings are indeed large: European countries own $8tn of US bonds and equities, almost twice as much as the rest of the world combined, he calculates. It is indeed one card Europe holds: the US is running large external deficits that need to be funded without, Trump hopes, creating a slide in the dollar or a rise in US borrowing costs.
In practice, we’re miles away from a coordinated European decision to hold fewer US treasuries, assuming it could even be agreed. European funds probably don’t want to be told to sell into a market where the aim is lower prices. On the other hand, France’s president, Emmanuel Macron, is talking about activating the EU’s “anti-coercion instrument” to restrict access to the single market for US companies, so one can see which direction the wind is blowing.
“It is a weaponisation of capital rather than trade flows that would by far be the most disruptive to markets,” Saravelos says. Yes, that would be the big short-term market escalation. It is remarkable that it’s even being discussed – but not as remarkable, of course, as the idea of annexing a fellow Nato member’s territory.
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