European Markets are understandably downbeat in early trade today following the shocking events of the weekend which ramped up concerns over a complete breakdown of the NATO coalition.
Trump’s decision to announced tariffs on a raft of European nations as a means to force through the transfer of Greenland is perhaps one of the most egregious cases of blackmail against an ally in living memory.
While many made peace with the unorthodox Venezuela operation given the claims of drug trafficking and population suppression, Trump’s attempts to force the transfer of a fellow Nato member’s land takes things a step further.
Notably the claims of the Trump administration that this is related to security concerns doesn’t quite ring true given the fact that the US has opted to shrink their military operations on the island despite being allowed to expand it. Trump’s hard line on this issue looks to put another nail in the coffin of the US-led Western alliance as we know it, bringing a potential trade war that could escalate into something that serves to damage growth and spark a fresh rise in inflation pressures.
Interestingly, this comes ahead of the Supreme Court ruling into the legality of Trumps tariffs, expected tomorrow. While many believe he would simply reimpose them in a different format, the decision to use tariffs as a means to blackmail allies to give them land presumably doesn’t shine the best light on the President’s policies right now. For markets, the potential news that Trump’s tariffs are not admissible would bring another fresh source of volatility ad uncertainty.
It comes as no surprise to see BAE Systems, Rheinmetall, Leonardo, Thales and other defence names provide the one area of strength in early trade, with Europe increasingly at risk of a withdrawal of US military support. Even in the case of a positive resolution to this crisis, Europe will know that the US military partnership is no longer something that can be relied upon to stand the test of time.
For a continent struggling to deal with debt, the potential ramp-up in defence spending in Europe adds further fuel to the fire for those concerned around fiscal sustainability and potential currency devaluation. However, for those prominent defence stocks in Europe, there could be a new source of demand coming from the likes of Canada and other allies that no longer view the US as a reliable partner.
Gold and silver had understandably enjoyed a bump higher as traders weigh up the potential implications of Trumps actions. His fragrant disregard for the sovereignty of nations does raise the likeliness of a Chinese invasion of Taiwan, and the TSMC pledge to invest $500bn in the US means that Trump clearly plans to ensure they are less reliant on Taiwanese manufacturing in case the Chinese make their move. The need to ramp up defence spending in Europe raises debt concerns once again, further reiterating the case for gold and silver (which also benefits from industrial demand). Meanwhile, we have seen a sharp rise in natural gas prices, as the Europeans face another potential upheaval to their supply chains that have only recently shifted towards US LNG after the Russia-Ukraine conflict.
