- European markets fell yesterday following weekend threats from US President, Donald Trump, to implement Greenland-related tariffs
- US markets were closed for Martin Luther King national holiday, but futures are down for the open
- Rhetoric has escalated overnight, with Trump attacking the UK’s foreign policy over Chagos Islands
- Expect further volatility today – and tomorrow as Trump takes the stage at the annual World Economic Forum in Davos
- In the UK, jobs data reveals that pay inflation is running at 4.7%, a marginal fall on previous numbers. Unemployment came in at 5.1%
Emma Wall, Chief Investment Strategist, Hargreaves Lansdown:
“It is difficult to comprehend that we are still in January – news flow and market reaction has made this one long year-to-date, averaging weekly market rotations. Yesterday, European markets universally fell, reacting to the news over the weekend that US President, Donald Trump, intended to implement 10% additional import tariffs by 1st February on the eight countries that had – in his eyes – defied him by sending military support to Greenland. In the event a deal was not reached with these countries by 1st June, the US President indicated this rate would rise to 25%. Across Europe, sectors which export the most to the US saw big stock hits; auto companies including BMW, Mercedes and Volkswagen, luxury goods firms Kering and LVMH and pharmaceutical and medical equipment companies including Novo Nordisk and Roche were amongst the worst hit.
The European Union has dusted off its playbook from last year’s tariff negotiations and threatened to retaliate on a suspected $108bn of US goods. The US stock market was closed for Martin Luther King national holiday, but futures are down. Should the EU enact these tit-for-tat tariffs, it would be energy, chemicals, agriculture, food and pharmaceutical stocks that would be worst hit. Both the S&P 500 and the NASDAQ are expected to fall on open this afternoon UK time. Markets – and investors – will be balancing the likelihood of tariff rhetoric being a negotiating tactic from which Trump will climb down, or the real deal. The so-called Trump always chickens out trade (with the acronym TACO) was popular last year with global investors playing market volatility to their advantage, but the Trump of 2026 seems to act more decisively – take the military action in Venezuela as evidence of the President saying exactly what he then implemented. Gold and silver rose to fresh highs yesterday as investors loaded up on perceived safety. Investors should expect further volatility today, particularly given the escalation in rhetoric overnight, with Trump attacking the UK’s foreign policy over Chagos Islands and publishing what look like private messages from European leaders inviting conversation.
Tomorrow, Trump takes the stage at the annual World Economic Forum in Davos, which we expect to cause additional market turmoil, given the current political stance. Navigating these choppy waters is difficult for investors – as we outlined in our 2026 market outlook, uncertainty and geopolitical domination over markets will be a mainstay of the next 12 months, and beyond. Investors should stick to the boring basics in these environments. Diversify risk across asset classes, geographies and styles, focus on the long term and don’t be tempted to speculate. If you are allocating new money as we approach the final quarter of the tax year, consider companies which have economic resilience – little to no debt, consumer staples, and recurring revenues.
Wage rises means likely no cuts from the Bank of England
In the UK, jobs data reveals that pay inflation is running at 4.7%, a marginal fall on previous numbers. Unemployment came in at 5.1%.
As our head of personal finance, Sarah Coles, writes; “employment is up over the year, jobs vacancies have risen very slightly over the month, and wages are up 4.7% in a year. However, look a bit closer and real weakness emerges. Vacancies are down 8.6% in a year, while unemployment and redundancies are rising. There’s a huge difference between wage inflation in the public sector – at 7.9% – and the private sector – at 3.6%. This owes much to the fact that some public sector pay rises were paid earlier in 2025 than a year earlier, which will even out in the next few months, automatically bringing the rate down. Once that’s worked its way out of the figures, wage rises will look decidedly less robust. Given they’re currently only 1.1% after inflation, this will be one to watch.
While unemployment is higher than in recent history, this won’t be enough to move the Bank of England Monetary Policy Committee to move rates, especially whilst wage inflation remains high. There are potential situational factors too – this data includes the pre-Budget period, when uncertainty about taxes and policies meant businesses held off hiring decisions.”
