Europe close: Stocks fall on fears of trade war over Greenland

19th Jan 2026 15:49

(Sharecast News) - European share markets slumped on Monday as the prospect of a renewed trade war weighed heavily on investor sentiment after US president Donald Trump threatened escalating tariffs linked to his push to annex Greenland.

As Dan Coatsworth, investment adviser at AJ Bell, put it, "financial markets have been subjected to a barrage of heavy-hitting decisions by Trump during his second term, with endless twists and turns," adding that a "new tougher stance on tariffs towards parts of Europe in Trump's quest to own Greenland turns up the heat to max."

The pan-European Stoxx 600 fell 1.23% to 606.80, with losses broad-based across major national markets.

Germany's DAX slid 1.33% to 24,960.33, France's CAC 40 dropped 1.78% to 8,112.02, and the UK's FTSE 100 declined 0.39% to 10,195.35.

Patrick Munnelly, market strategy partner at TickMill, said London's market was unsettled by Trump's comments, noting that "the statement shook global markets, unsettling investors and casting doubt on recent trade agreements," with the FTSE 100 down and the more domestically focused FTSE 250 suffering its steepest one-day fall since late November.

Markets were rattled after Trump said he would impose an additional 10% tariff from 1 February on eight European allies that opposed his attempt to take over the semi-autonomous Danish territory, rising to 25% from 1 June if no agreement was reached.

The proposed measures would target Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland.

Coatsworth warned that "there is a big difference between 10% and 25% tariffs as the latter stands to make European goods far less attractive," adding that such a move "doesn't bode well for European GDP growth."

European leaders were reported to be preparing a response that could include retaliatory tariffs on up to €93bn of US imports, alongside possible use of the EU's Anti-Coercion Instrument, which would restrict US firms' access to parts of the bloc's market.

Political tensions also spilled into the UK, where prime minister Keir Starmer criticised Trump's tariff threats as "completely wrong" but ruled out immediate retaliatory levies, warning that a trade war would hurt businesses, workers and households.

Munnelly noted that Starmer had "called for calm negotiations to ease the growing tensions," even as major European nations condemned the move as "economic blackmail."

Starmer reiterated that Greenland's future was for Greenlanders and Denmark to decide, while stressing that the UK-US relationship "matters profoundly".

Eurozone inflation eases more than expected in December

Some brighter economic news offered limited relief.

Data from Eurostat showed eurozone inflation eased more than expected in December, with annual consumer price inflation slowing to 1.9% from 2.1% in November and October.

The reading, below both consensus expectations and the European Central Bank's 2% target, marked the lowest level since May 2025 and the first sub-target print in seven months.

However, Coatsworth cautioned that "the key area to watch is inflation, as higher tariffs could bring an end to interest rate cuts in the near-term," warning that Trump's latest tariff threat had "all the right ingredients to stop looser monetary policy in its tracks."

In the UK, domestic indicators remained mixed.

The S&P Global consumer sentiment index slipped to 44.6 in January from 44.7, marking a fourth consecutive monthly decline and a nine-month low, as labour market expectations and savings levels weakened.

At the same time, housing data from Rightmove showed a sharp rebound in the property market, with average asking prices jumping a record 2.8% in January to £368,031, while year-on-year prices rose 0.5%, supported by lower borrowing costs and strong post-Christmas buyer interest.

Globally, the International Monetary Fund struck a cautiously optimistic tone, forecasting world growth of 3.3% in 2026, easing slightly to 3.2% in 2027, despite warning that trade tensions, geopolitical risks and any reassessment of AI-driven productivity gains could trigger market volatility.

Coatsworth said investors had so far "shown restraint over the past year at not going into full-blown panic mode," but added that "a 1% to 1.5% decline every day over a series of weeks adds up to trouble, and that's what investors are keen to avoid happening."

Carmakers and luxury plays bear the brunt of tariff threats

On the equity front, European carmakers and luxury stocks bore the brunt of the sell-off on tariff fears.

Volkswagen fell 2.76%, Porsche lost 2.68% and BMW dropped 3.43%, while LVMH slid 4.33%, Kering fell 4.1%, Hermes declined 3.52% and Moncler eased 1.96%.

Munnelly said losses were "particularly hard-hit" in sectors such as luxury, while safe-haven assets attracted demand as "precious metal miners experienced a 2.5% surge as investors sought refuge in gold and silver, both of which reached record highs."

Coatsworth added that "gold has hit a new record high of $4,689 per ounce as investors hide in an asset with supposed haven qualities."

Defence stocks bucked the broader trend amid heightened geopolitical tensions, with Saab up 2.19%, Thales 1.07%, Hensoldt 0.65%, Renk 0.67% and Dassault Aviation rising 3.98%.

Coatsworth said defence names "continue to be in vogue as investors take the view [that] heightened geopolitical tensions create a stronger earnings backdrop for military and security specialists."

In technology, ASM International ended slightly higher, up 0.41%, after reporting stronger-than-expected preliminary fourth-quarter bookings of around €800m and revenues of €698m, while fellow chipmaker ASML fell 4.01%.

Reporting by Josh White for Sharecast.com.