Donald Trump Trade Fears Fade, Stocks Jump, Gold Hits Record Highs

Tariff Drama, NATO Talks and a Market Reset in One Volatile Week

Markets entered the week on edge after renewed rhetoric from Donald Trump around potential tariffs on several European countries, initially flagged to begin from February 1. However, those concerns eased meaningfully after his meeting with NATO Secretary General Mark Rutte at Davos. Following the meeting, Trump outlined a framework for future negotiations linked to Greenland and indicated that tariffs would not be imposed, at least for now.

From a market perspective, this shift mattered. The removal of an immediate trade escalation scenario helped stabilise sentiment after what had been a highly volatile week. US equities responded positively, with major indices rising around 1.1% to 1.2% as investors priced out near term trade risks with Europe.

Commentators have begun referring to so-called “TACO trades,” where some investors appear to be profiting from a familiar pattern of escalation followed by pullback in President Trump’s policy messaging.

Markets react sharply to initial threats, pricing in heightened risk, only to rebound when rhetoric softens or reversals follow. Traders positioned for this cycle have been able to take advantage of short-term market dislocations driven by fear rather than fundamentals.

Bond markets also reflected the improved risk backdrop. Yields stabilised as risk premia cooled, signalling a modest unwind of defensive positioning that had built up earlier in the week. That said, broader geopolitical and policy uncertainty remains elevated.

Gold continued to act as the hedge of choice. Prices pushed to new all time highs above A$4,800, reflecting ongoing investor demand for protection amid uncertainty surrounding geopolitics, trade policy, and longer term strategic issues tied to Greenland.

Overall, while the immediate tariff threat has faded, markets remain sensitive to policy signals. This episode highlights how quickly sentiment can shift and why investors continue to balance risk assets with defensive exposures in the current environment.

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Markets Price Out Trade War as Trump Signals Deal Framework

Trump continues to use tariffs as a negotiating tool, often signalling the threat of economic pressure before pivoting toward dialogue. In this case, the rhetoric appeared less about immediate trade action and more about establishing leverage. From an investor’s perspective, it reinforces the view of Trump as a highly transactional dealmaker who is willing to escalate tensions rhetorically in order to shape the terms of a future agreement.

During recent discussions, Trump framed Greenland as strategically important for Arctic defence and linked the issue to broader missile defence concepts, often referred to in reporting as the “Golden Dome”. By tying tariffs to national security and territorial considerations, he effectively broadened the scope of trade policy beyond economics alone.

That approach, however, carries risks. Using tariffs as leverage in security or geopolitical negotiations can be perceived as aggressive by allies and tends to amplify headline risk for markets. While the end goal may be a negotiated outcome, the path there often involves heightened volatility as investors react to shifting signals and policy uncertainty.

For markets, the key takeaway is not the rhetoric itself, but how quickly it can influence sentiment. Even when threats are later softened or walked back, the initial messaging can drive short term risk repricing, reinforcing the need for investors to stay disciplined amid politically driven market noise.