US stocks were set to open sharply lower and stocks in Europe fell Tuesday as investors continued to express concern about President Donald Trump’s clash with European leaders over ownership of Greenland. A snap election called in Japan also rattled the Asian markets.

Dow futures futures were down 765 points, or 1.5%. S&P 500 futures fell 1.7%. Futures tied to the Nasdaq 100 slid 2%.

The VIX volatility index, commonly known as the fear gauge, surged 27%, rising above 20 for the first time since November.

Investors resumed the so-called “Sell America” trade, selling off the US dollar and bonds. The dollar index, which measures the dollar’s strength against six major currencies, fell 0.9%. The benchmark 10-year yield, which trades in opposite direction to prices, rose to 4.29%.

Trump on Sunday threatened a new 10% tariff on imports from eight European countries including Denmark, the United Kingdom and France, amid his demands that the United States should acquire the Danish territory.

US stock and bond markets were closed Monday in observance of Martin Luther King, Jr., Day, so Tuesday will be US stock and bond traders’ first full day to react to the extraordinarily newsy weekend — and flaring trade tensions between the United States and Europe.

“The latest developments serve as a reminder that the US economy is not immune to the uncertainty generated by Trump’s policy shifts, while lingering concerns over Fed independence — amplified by the delayed nomination of a new chair and the ongoing probe into Jerome Powell — add another layer of caution around the US currency,” George Vessey, lead FX and macro strategist at Convera, said in a Monday note.

Europe’s benchmark Stoxx 600 index — which tracks stocks across the region — was down 1% Tuesday morning. The Stoxx 600 on Monday fell 1.19% and posted its worst day since November.

Denmark’s OMX Copenhagen 20 — which tracks the 20 most actively traded shares on Copenhagen’s stock exchange — was down 0.1%. The OMX Copenhagen 20 on Monday fell 2.73% and posted its worst day since October.

Trump’s tariff threat tests markets

Investors across the globe are trying to discern how tensions between the United States and Europe might develop.

“This is one of those be-ready-for-anything weeks as wildcards abound for both US and global markets — most of them POTUS-related,” Ed Yardeni, president of Yardeni Research, said in a Monday note.

While investors are on edge, stock market losses so far have been relatively contained compared to the turmoil spurred by Trump’s initial “Liberation Day” tariff announcement in April.

Investors are cautiously watching for a potential off-ramp, including waiting for the US Supreme Court’s ruling on Trump’s use of an emergency powers act to levy tariffs.

The Court is deliberating the legality of the president’s use of the International Emergency Economic Powers Act of 1977 to implement tariffs. That to-be-determined ruling would have direct implications for Trump’s renewed threat of additional tariffs on imports from some European countries.

“Markets will trade risk-off, but bet that either the Supreme Court will take away Trump’s authority to impose tariffs in this manner, or Trump will deliver a TACO reversal anyway,” Krishna Guha, vice chairman at Evercore ISI, said in a Monday note, referring to the Wall Street acronym for “Trump Always Chickens Out”.

But as tensions flare, uncertainty is rife.

“With the EU readying potential retaliation — including not just tariffs but also possible use of the ‘anti-coercion instrument’ that would be extremely punitive towards US companies doing business in Europe — investors should be prepared for the likelihood that we are still on the way up in the ‘escalate to de-escalate’ cycle, and that the headlines could get worse before they get better,” Sarah Bianchi, chief strategist of international political affairs and public policy at Evercore ISI, said in a note.

The anti-coercion instrument is better known as Europe’s “trade bazooka,” a deterrent meant to stave off threats from unfriendly governments.

Elsewhere, metals soared as investors sought safe havens. Gold futures were up 3% and and silver futures gained 7.3%, both surging to record highs.

“Trump’s tariff announcement has escalated trade tensions into an entirely new dimension — one driven less by economic logic and more by political motives,” Carsten Brzeski, global head of macro at ING, a Dutch bank, said in a Monday note.

“It is also pushing the long‑standing transatlantic relationship into a severe crisis, with a clear risk of further escalation and unwarranted negative consequences for both Europe and the US economy,” Brzeski said. (CNN)

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