Wall Street futures skid, dollar falls on US tariff threats

By Wayne Cole

SYDNEY, Jan 19 (Reuters) – U.S. stock futures fell on Monday after President Donald Trump threatened to impose additional tariffs on eight European nations unless the U.S. is allowed to buy Greenland.

The holiday made for thin trading in U.S. equity and bond markets and likely contributed to a 0.9% drop in S&P 500 futures and a 1.1% drop in Nasdaq futures. Nikkei futures also showed a soft start for Asian stocks.

Trump has said he will impose an additional 10% import tariff on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the UK from February 1, rising to 25% on June 1 if no deal is reached.

Major European Union states rejected the tariff threats on Greenland as blackmail, and France proposed a response with a range of previously unanticipated economic countermeasures.

The EU’s options include a package of its own tariffs on 93 billion euros of US imports that were suspended for six months in early August and measures under the anti-corruption instrument that could affect US services trade or investment.

Analysts at Deutsche Bank noted that European countries hold $8 trillion in U.S. bonds and equities, nearly twice as much as the rest of the world, and could consider bringing some of that money back home.

“While the US net international investment position is at a record negative peak, the interdependence of European-US financial markets has never been higher,” said George Saravelos, global head of FX research at Deutsche.

“It is the arms of capital rather than trade flows that will be most disruptive to markets.”

It should also make for a promising day, including a large American contingent led by Trump himself for a few days in Davos as world leaders gather at the World Economic Forum.

The dollar is not a safe place

China is expected to report on Monday that its economy grew 4.4% in December, slowing from 4.8% in the previous quarter, as stronger domestic demand for exports and manufacturing offset weakness.

The Bank of Japan meets on Friday and, with no rate hikes expected this time, policymakers could flag tightening as early as April.

An added complication in domestic politics is that Japanese Prime Minister Sane Takaichi is expected to dissolve parliament soon to hold elections in February.

Delayed U.S. core inflation and consumption data for November are due Thursday and will refine investor expectations about when the Federal Reserve might cut.