A Dizzying January for Donald
Earlier this month, a US military operation captured Venezuelan leader Nicolas Maduro and transported him to New York to face trial for narco-terrorism conspiracy. This was followed by the massive protests in Iran, which were bloodily suppressed by the Iranian regime. President Trump strongly hinted at a military response against Tehran and fears of war in the Middle East increased dramatically. Trump now appears to have backed off, saying it is because Iran agreed not to execute hundreds of protestors. Oil prices, which had climbed to multi-week highs during the unrest, eased after Trump moved away from military action.
Board of Peace
Last week, President Trump announced the establishment of a new international organization called the Board of Peace (BOP), with Trump as chairman. Its mandate includes securing lasting peace in conflict-affected regions, starting with Gaza. Trump made headlines this week when he said that the board “might” replace the United Nations. The threat to work around the UN is classic Trump, but investors are not amused with Trump’s erratic foreign policy moves.
This threat against the UN has escalated geopolitical uncertainty and would represent a major shift in US foreign policy. Trump’s unpredictable trade policy, characterized by the used of tariffs throughout his presidency, continues to shape US foreign policy and could well lead to further instability in the financial markets, as we have seen this week.
Greenland Looms Large at Davos
The Davos Summit is an annual meeting for leading political and financial leaders in Davos, Switzerland. There was hyped interest ahead of President Trump’s speech on Wednesday, as the crisis between the US and Europe over Greenland has reached a fever pitch and has become a top global news story.
Greenland, a vast ice-covered island in the North Atlantic, is a semi-autonomous territory ruled by Denmark. Trump has repeatedly stated that the US should annex Greenland and purchase the territory, insisting that the US must acquire Greenland for national security reasons.
Greenland and Denmark have vowed that the island is not for sale, but Trump doesn’t seem to be listening. The US and Denmark are both members of the NATO alliance and the crisis over Greenland has thrown NATO into turmoil. Last week, Trump hinted that he could use military force, and in response, Denmark and several NATO states sent small forces to Greenland for military exercises.
US-EU Trade Deal in Danger
Trump has threatened additional tariffs against European allies who object to his demand to purchase Greenland. This would breach the US-European Union trade deal reached in July. In response to Trump’s tariff threats, the European Parliament announced on Wednesday that it would suspend approval of the US-EU trade deal.
This marks another escalation in the growing tension between the US and Europe. There are growing fears of a trade war between the US and the EU, the two largest economies in the world. This latest diplomatic crisis between America and the European Union has raised economic and trade risks.
Stocks Rebound after Trump Says ‘Won’t Use Force’ Greenland
The Greenland crisis has led to sharp swings in the equity markets this week. On Tuesday, investors on both sides of the Atlantic reacted to Trump’s threats with alarm. The Dow, the S&P and the NASDAQ were all down sharply as Wall Street posted its worst day since October. Markets were also lower in Germany, the UK and France.
On Wednesday, US markets rebounded sharply after Trump announced that he would not use military force in Greenland. This has de-escalated tensions with NATO allies and eased fears of a trade war. Gold, however, continued to move higher and hit a new record high of $4888.
What’s next for the markets? Trump calmed investors by ruling out military action in Greenland and said that he had reached the “framework of a future deal” over US involvement in the territory. Will he make a deal with the Europeans?
If an agreement is reached, the equity markets would likely respond with gains and gold would likely lose ground. Conversely, if the crisis worsens, investors can be expected to dump stocks and seek safe-haven assets such as gold.
Among all of this uncertainty, what is clear is that investors will be looking for further guidance from Trump, who could make some important announcements during the Davos Summit. Trump hasn’t backed away from his plans to acquire Greenland despite fierce resistance out of Europe, and that will likely mean more market instability ahead.
We hope you found our analysis of the latest Trump foreign policy moves and their market impact valuable. If you’d like to trade with one of the best Forex brokers in the world, check out our list.
