Confidence in Dollar-Based Assets Waning, Says Rebecca Patterson

Rebecca Patterson, Senior Fellow at the Council on Foreign Relations & former Chief Investment Strategist at Bridgewater Associates, discusses how policy unpredictability is reshaping global demand for US assets.

President Donald Trump vowed “big retaliation” if European countries sell US assets in response to his tariff threats related to Greenland, adding pressure on them to stick with an emerging deal over the future of the island.
“If they do, they do. But you know, if that would happen, there would be a big retaliation on our part,” Trump said Thursday during a Fox Business interview at the World Economic Forum in Davos. “And we have all the cards.”
The president did not specify what actions the US might take to follow through on that threat. 
Trump’s now-abandoned plan to hike tariffs on goods from eight European nations to pressure them over control of Greenland prompted speculation that Europe could dump trillions of dollars in US bonds and stocks as a countermeasure. Such a move could rattle financial markets that have already been shaken by Trump’s pursuit of the Arctic island.
Under the framework deal that persuaded Trump to defuse the Greenland crisis, the president would agree to stand by his promise to hold off on fresh tariffs on European products. In exchange, the US would station missiles in the semi-autonomous Danish territory, while mineral rights would be arranged to limit Chinese interests and the NATO presence there would be bolstered. 
Before that deal, there were signs that Trump’s aggressive play for Greenland had shaken the confidence of some US asset-holders in Europe.
The cooling of geopolitical tensions, a rally in big tech and solid economic data fueled gains in stocks, with the market remaining higher after an in-line inflation report. Short-dated bonds fell.
Equities rose around the world, with the S&P 500 up almost 1%. Tech megacaps rallied as comments by Nvidia Corp.’s chief Jensen Huang bolstered the artificial-intelligence trade. Small caps beat the US equity benchmark for a 14th straight session. JPMorgan Chase & Co. pared gains as President Donald Trump sued the lender and its head Jamie Dimon over alleged debanking.
Stocks rise amid strong data.
Treasury two-year yields headed toward their highest since early December as strong economic data reinforced the argument for the Federal Reserve to keep rates on hold.
The US economy expanded in the third quarter by slightly more than initially reported, supported by stronger exports and smaller drag from inventories. Initial jobless claims steadied at 200,000 last week. And personal spending rose at a solid pace in November, underscoring consumer resilience.
“US consumers continue to underpin the economy,” said Lale Akoner at eToro. “Resilient spending lowers near-term recession risk and supports corporate revenues, particularly in consumer-facing sectors. However, steady demand also means interest rates are likely to stay higher for longer.”
Meantime, European Union lawmakers are expected to vote on ratifying the bloc’s trade deal with the US, restarting the process after Trump walked back his latest threat to impose tariffs on European allies that opposed his plans to annex Greenland. The island’s prime minister says he’s willing to go further in increasing defense, including agreeing on a permanent NATO mission.
“This episode once again highlights how headline-driven the market remains, and how quickly sentiment can flip when geopolitical risk is dialed back,” said Fawad Razaqzada at Forex.com.
The S&P 500 rose 0.8%. A gauge of the “Magnificent Seven” shares climbed 2.3%. The Russell 2000 index of small firms hit a fresh record. A key measure of stock volatility — the VIX — tumbled to around 15.
The yield on 10-year Treasuries was little changed at 4.25%. The dollar lost 0.3%. Oil sank as Ukrainian President Volodymyr Zelenskiy discussed plans for trilateral meetings with the US and Russia. Gold rose to all-time highs.

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