Market update: risk-off sentiment deepens as tariff threats rattle global markets
European and UK stocks tumbled for a second session as Trump's tariff threats and surging Japanese bond yields triggered a global selloff.
FTSE 100 hits worst session since November
The FTSE 100 dropped more than 1% on Tuesday, on track for its steepest decline since November. The selloff wasn't confined to London – European bourses also retreated sharply as investors dumped risk assets.
President Trump's renewed tariff threats against Europe over Greenland have revived concerns about United States (US) trade policy unpredictability. These aren't empty warnings – they're triggering real selling pressure across equity markets.
The VIX volatility index climbed above 20 for the first time since November, signalling a clear pickup in market stress. When the VIX breaks this level, it typically indicates investors are pricing in heightened uncertainty.
This risk-off move has legs. The combination of policy uncertainty and bond market turmoil is forcing traders to reassess positions built during the recent rally. Anyone hoping for a quick bounce may be disappointed.
Japanese bond crisis spills into global markets
A weak 20-year Japanese government bond auction sent yields surging to record highs, creating ripples across global fixed income markets. United Kingdom (UK), European and US yields all pushed higher in sympathy.
The Japanese Government Bond (JGB) selloff reflects mounting concern over fiscal loosening ahead of February's Japanese election. When a major developed market struggles to digest its debt auctions, it raises questions about sovereign bond markets more broadly.
The bond market selloff matters more than many equity investors realise. Higher yields make future earnings less valuable today, which directly impacts equity valuations. This isn't just a fixed income problem.
European equities face renewed pressure
European equity futures pointed lower after the STOXX 600 dropped 1.2% on Monday. Citi downgraded European equities to neutral, citing elevated tariff uncertainty that shows no signs of abating.
Trump's Greenland tariff threats have particular resonance in Europe. The continent already faces weak growth, manufacturing struggles and political fragmentation. Adding US trade disruption to this mix is hardly bullish.
S&P 500 and Nasdaq 100 futures slid more than 1%, suggesting Wall Street will follow Europe lower. The "sell America" theme has resurfaced as investors question whether US exceptionalism can continue amid policy chaos.
Currency markets and safe havens rally
The US dollar index slipped for a second consecutive day as Trump's tariff rhetoric undermined confidence in US policy stability. Sterling and the Swiss franc both gained ground against the greenback.
Gold surged above $4700 an ounce to a fresh record high. When equities, bonds and the dollar all weaken together, precious metals become the default destination for nervous capital.
UK labour market holds steady but offers no relief
UK wage growth held at 4.7% including bonuses while unemployment stayed at 5.1%, the highest since 2021. The data leaves Bank of England (BoE) rate-cut expectations largely unchanged.
Persistent wage growth above 4% keeps pressure on the BoE to maintain restrictive policy. Even with unemployment rising, the labour market isn't cooling fast enough to justify aggressive easing.
The steady data means UK traders can't look to imminent rate cuts for support. The BoE will move cautiously, which leaves equities vulnerable to external shocks like the current tariff uncertainty.
Corporate news provides mixed signals
GlaxoSmithKline (GSK) agreed to acquire RAPT Therapeutics for $2.2 billion, signalling confidence in its pipeline despite broader market weakness. DFS Furniture said earnings should beat expectations, showing resilient consumer demand.
QinetiQ reiterated full-year guidance despite near-term defence spending uncertainty. These pockets of corporate strength contrast sharply with the risk-off market sentiment.
But individual corporate stories won't override macro concerns. When volatility surges and bonds sell off, stock pickers struggle regardless of company fundamentals.
The divergence between corporate news and market action shows how sentiment-driven current trading has become. Facts matter less when fear takes hold.
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