US equities tumbled and Treasury yields surged on Tuesday after President Donald Trump threatened to place tariffs on eight European allies who oppose his plan to force a sale of Greenland.
The Dow Jones Industrial Average closed 870 points – or 1.76 per cent – lower. The S&P 500 and Nasdaq closed 2.06 and 2.39 per cent lower, respectively, while the small-cap Russell 2000 also ended the day in the red.
The VIX index – Wall Street's so-called fear gauge – rose 10 per cent to climb above the 20 threshold, indicating a sense of high market volatility.
“Meetings in Davos between Trump and other leaders may add volatility, especially if his plans for a 'Board of Peace' for Gaza falter and provoke renewed threats. Traders are also watching for developments on Iran,” Karl Schamotta, chief market strategist at Corpay, wrote to clients.
European leaders have baulked at Mr Trump's tariff threats. French President Emmanuel Macron, whose country was threatened with an extra 200 per cent tariff on wines and champagne if he does not accept Mr Trump's invitation to join the Board of Peace for Gaza, called the threat “unacceptable”.
Mr Trump was expected to address world leaders and senior executives at the World Economic Forum on Wednesday.
Threats of a revived trade war also sent treasuries surging, with the benchmark 10-year Treasury yield 6.4 basis points higher at 4.295 per cent. The yield on the 30-year Treasury was up 8 basis points at 4.92 per cent.
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US President Donald Trump holds up the signed founding charter at the Board of Peace meeting. EPA -
Ukrainian President Volodymyr Zelenskyy addresses the WEF gathering at Davos. EPA -
Elon Musk on stage at Davos. Bloomberg -
Israel's President Isaac Herzog in discussion at the World Economic Forum's 56th annual meeting in Davos, Switzerland. Bloomberg -
Swiss President Guy Parmelin, centre, welcomes Saudi Minister of Commerce Majid Al Qassabi, centre left, at the opening of the World Trade Organisation's informal ministerial gathering in Davos. EPA -
Gavin Newsom, the Governor of California, speaking at the WEF annual meeting. Bloomberg -
German Chancellor Friedrich Merz speaks during a plenary session in the congress hall. EPA -
Changpeng Zhao, co-founder of Binance Holdings, in Davos. Bloomberg -
US special envoy Steve Witkoff at the WEF annual meeting. Reuters -
US President Donald Trump delivers his address. AFP -
Mr Trump walks from the Marine One helicopter as he arrives in Davos. EPA -
Egyptian President Abdel Fattah El Sisi at a panel discussion. EPA -
Nato Secretary General Mark Rutte at the WEF annual meeting. AFP -
Argentina's President Javier Milei, left, with Switzerland's Federal President Guy Parmelin before a bilateral meeting on the sidelines of WEF. EPA -
Ken Griffin, founder and chief executive of multinational hedge fund Citadel, speaking at Davos. AFP -
European Central Bank President Christine Lagarde in conversation. AFP -
The UAE delegation arrives at the World Economic Forum annual meeting. AFP -
French computer scientist Yann Le Cun and French President Emmanuel Macron at the Business France event in Davos. AFP -
Qatari Prime Minister Mohammed bin Abdul Rahman Al Thani is in attendance. Reuters -
Canadian Prime Minister Mark Carney. Bloomberg -
American businessman Jared Kushner, left, and Steve Witkoff, the US Special Envoy to the Middle East, walk the corridors. EPA -
Apple chief executive Tim Cook. EPA -
Kristalina Georgieva, managing director of the International Monetary Fund, during a TV interview. Bloomberg -
US Treasury Secretary Scott Bessent addresses the media. EPA
Meanwhile, gold passed $4,700 an ounce while silver passed $95 an ounce for the first time, before pulling back slightly to $94.14. The US dollar index fell 0.80 per cent to 98.60.
“Bottom line: As 'Liberation Day 2.0' unfolds, waning confidence in American economic leadership is overshadowing fundamentals in currency markets,” Mr Schamotta wrote.
Traders on Tuesday, meanwhile, did not receive any clues on the legality of Mr Trump's sweeping use of emergency tariffs, with no decision announced by the Supreme Court. The court is due to hold arguments on whether Mr Trump has the legal authority to fire Federal Reserve governor Lisa Cook, in another episode that will be closely monitored by markets.
