Despite market volatility triggered by US threats of tariffs against some EU nations over the Greenland issue, JPMorgan Chase maintains cautious optimism. The bank believes the current chaotic situation will ultimately be de-escalated and transformed into a "negotiated arrangement," rather than evolving into a full-blown crisis.
JPMorgan's International Market Intelligence team suggests the current market turbulence should be interpreted through the lens of "the art of the deal." The tough stance and noise generated by the US side aim to trigger negotiations and create bargaining chips and a sense of urgency. Although the EU has responded by stating it will consider retaliatory tariffs and utilize anti-coercion instruments, even warning that the US-EU trade agreement reached last year could be jeopardized, this is seen more as a tactical posture in the negotiation game.
JPMorgan analyst Federico Manicardi believes this is not an intractable fundamental problem. He anticipates that a solution could even emerge during the World Economic Forum (WEF) in Davos. Compared to the extreme consequences feared by the market, the bank expects the final outcome to be a negotiated agreement, not an escalation of conflict.
While volatility stemming from "Trumpism" is impacting markets, and indicators such as equity pullback risk and emerging market risk appetite have flashed "orange alerts," JPMorgan is not pessimistic about the market outlook. The bank's analysts stated that a market decline in the mid-single digits would surprise them, implying investors should not overreact to the current tariff threats.
Federico Manicardi elaborated on his outlook for the situation in a report. He sees the most likely result as a "negotiated arrangement." This arrangement would expand US security and economic presence in Greenland, satisfying America's stated objectives—namely, strengthening Arctic security posture, enhancing defensive early-warning capabilities, and gaining access to Greenland's natural resources—while allowing Denmark to retain sovereignty.
Regarding other extreme scenarios worrying the market, JPMorgan systematically ruled them out. The possibility of "selling" Greenland is low, as the US can achieve its strategic goals without formal territorial control, and such a plan would require dual approval from both Denmark and Greenland, making it highly difficult. As for "invasion," this is considered a tail-risk event with an extremely low probability, not only being deeply unpopular with voters but also potentially leading to the rapid disintegration of NATO, "melting faster than Arctic ice."
JPMorgan listed a series of key catalysts for investors to monitor closely. At the upcoming Davos forum, a speech by Donald Trump scheduled for January 21st may focus on potential candidates for Federal Reserve Chair and affordability issues. Additionally, the US Supreme Court will hear oral arguments concerning Federal Reserve Governor Lisa Cook.
On a macro level, JPMorgan observes a strong start to the year, with certain sectors and regions leading, and investors anticipating an economic restart in 2026 for various reasons. JPMorgan's trading desk has been positioned in a long UK rates/short US rates spread trade since September.
Comments