The Dow Jones Industrial Average futures retreated on Monday, continuing a decline that began on Friday, with the index falling over 300 points and slipping below the key $49,000 support level. This represents a nearly 2% drop from its yearly high. The pullback is largely attributed to investor anxiety surrounding a new potential trade conflict between the United States and the European Union.
The trade dispute ignited over the weekend when former President Donald Trump announced plans to impose an additional 10% tariff on goods from certain European countries, specifically targeting Germany and France for their support of Denmark and Greenland. The tariff is scheduled to increase to 10% on February 1, and could escalate to 25% until the U.S. completes a purchase of Greenland, a semi-autonomous Danish territory. In response, the EU is reportedly considering retaliatory tariffs worth €93 billion, a move that could trigger a downward spiral of escalating trade barriers.
Further complicating matters, France has urged the bloc to deploy its never-before-used anti-coercion rules against the U.S., which could include investment restrictions impacting major American corporations like Microsoft and Meta Platforms. A potential de-escalation point is the World Economic Forum in Davos, where Trump is set to meet with senior European leaders and may announce a deal.
Concurrently, the S&P 500 Index has stalled near its all-time high, trading at $6,940 as investors weigh multiple catalysts. A critical event this week is an impending Supreme Court ruling on Trump's tariffs, expected on January 20th. A Polymarket poll indicates most traders expect the court to end the levies, which would provide a short-term boost to American companies, though analysts note Trump retains other tools to implement tariffs.
Other significant factors include the ongoing corporate earnings season, with Netflix's report on Tuesday being a key focus due to its involvement in the Warner Bros. Discovery buyout process. Additionally, the process for nominating the next Federal Reserve Chairman is underway, with candidates including Kevin Hassett, Kevin Warsh, Christopher Waller, and Rick Rieder, whose candidacy is reportedly gaining momentum.
Markets will also react to upcoming U.S. macroeconomic data, including the Personal Consumption Expenditures (PCE) inflation report and flash Purchasing Managers' Index (PMI) figures for manufacturing and services.
