European stocks drop the most in two months on Trump tariff threat over Greenland

European shares ‌logged ​their biggest daily drop in ‌two months on Monday as investors were rattled by President Donald Trump’s ​threat of additional tariffs on eight European countries until the U.S. is allowed to buy Greenland.

The pan-European STOXX ‍600 fell 1.2%, with benchmarks in ​export-heavy economies such as Germany and France down over 1.3% each.

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

The threats triggered a sharp pushback in Europe, with the reaction reminiscent of the volatility seen when Trump imposed tariffs on global economies last ‌April. His remarks also raised questions on the outlook of trade deals struck since then ​with ‌Europe.

Global leaders ⁠and corporate executives are at the World Economic Forum in Davos, comments at which will be scrutinised for tariff cues and geopolitical signals.

“We doubt that (the tariffs) will be implemented as advertised,” said Andrew Kenningham, chief Europe economist at Capital Economics, adding he believed the EU would be cautious with any retaliation “to avoid further escalation.”

Trade uncertainty nearly halved German companies’ investments in the U.S. in the first year of Trump’s second term, according ​to a German Economic Institute (IW) report seen by Reuters.

Luxury, automobile and technology stocks were among the biggest losers, slipping 3%, 2.2% and 2.9%, respectively.

A gauge for euro zone equity volatility jumped 3.75 points to its highest since November.

“Trump’s actions over the weekend have inflamed geopolitical risks while also reintroducing trade uncertainty. After a low-volatility start to the year, equities may experience some downside pressure,” said Kyle Rodda, senior financial market analyst at Capital.com.

Market reaction could also be exaggerated due to thin trading volumes because of the Martin Luther King Jr. Day holiday in the U.S.

Bucking declines, Beazley rocketed ​nearly 43% after Zurich Insurance Group announced a 7.67 billion pound ($10.3 billion) all-cash offer to buy the UK speciality insurer.

Pharmaceuticals and agriculture group Bayer rose 7.1% to its highest since October 2023 after the U.S. Supreme Court agreed to hear its bid to limit ​lawsuits claiming that its Roundup weedkiller caused cancer.

Friday’s monthly options expiration is ‌likely ​to expose U.S. stocks to greater swings in ‌either direction in coming days, potentially boosting market volatility from historically low levels, according to options market ​experts.

Options offer investors the right to buy or sell stock at a fixed price by a fixed date in the future called the expiration date. ‍While large options expirations happen monthly, this month’s ​is being particularly closely watched by market participants as stocks are near highs and have been rangebound.

The S&P 500 is hovering close to ​7,000, a level ⁠which would mark a fresh record high.

Ten-day volatility for the S&P 500 - a gauge of how much stocks have swung in either direction - recently slumped to 8.1% on Thursday, close to the lowest it has been over the last year and about half its average level reading of 17.0% for the last 52 weeks, according to a Reuters analysis of LSEG data.

That’s helped push traders’ expectations for stock ‌volatility to one-year lows.