MW One Wall Street bank wastes no time downgrading Europe over Greenland threat

By Jules Rimmer

Tariff uncertainty forces Citi strategists to cut their rating on European markets to neutral as earnings growth forecasts are pared

President Trump has threatened tariffs of 10%, rising to 25% in June, if Europe fails to yield to his demands on Greenland

The uptick in transatlantic tension surrounding the fate of Greenland already has one Wall Street bank changing its stance on European stocks for the first time in more than a year.

For Citi's global strategy team, this crippling uncertainty undermines the argument for an inflection point upwards in European corporate earnings and so it downgrades its recommendation on continental stocks to neutral.

Citi's European strategist is Beatha Manthey and in response to the mounting crisis in the Arctic she published a note Monday, citing broadening earnings per share risk for corporate Europe as the justification for the downgrade. This is in response to the 10% tariff Trump threatened to impose on eight of the largest European economies in retaliation for their perceived opposition to his annexation of Greenland. He also plans to increase the tariffs to 25% by June 1 if his demands are not accepted.

In return, the European Union is considering a package of EUR93 billion ($109 billion) retaliatory or "anti-coercion" measures on selected U.S. goods and services.

Until the sudden escalation this weekend, European EPS growth had been forecast at around 10% by consensus, with much of the impetus behind that generated by tariff-impacted sectors like autos, technology and consumer products. Last year, that EPS growth figure was only 1% because of the tariff dispute that began when Trump on what he called Liberation Day announced a series of tariffs, as well as a stronger euro (EURUSD).

So, disruption to the expected rebound in earnings growth comes at an inopportune time for European stock markets, just as analysts were predicting the headwinds of forex and tariffs would start to ease. In January of 2025, consensus forecast was for 10% EPS growth over the year. It ended up flat. Investors are worried about an acute case of déja vu.

2026 $(E)$ EPS. Europe was forecast to deliver roughly 10% eps growth in 2025 but forecasts are now slipping

Citi now expects just 8% EPS growth in 2026 while noting risks are skewed to the downside, given the unpredictability of trade policy. Manthey emphasizes that for every 10% rise in the euro vs. the dollar, European EPS forecasts are lowered by 2%. If the euro strengthens and exports are reduced owing to tariffs then the Stoxx Europe 600 XX:SXXP is particularly vulnerable. This is because, as Manthey points out, the 30% of the index with the highest international exposure accounts for 45% of market capitalization.

Citi now sees only 5% upside for the Stoxx 600 to year-end but while it downgrades its recommendation here to neutral, it does reduce the auto XX:SXAP and chemical XX:SX4P sectors to sell, with energy XX:SXEP a notable improvement to neutral.

The Stoxx 600 traded 1.3% lower on Tuesday, after a similar decline on Monday. U.S. stock-market futures (ES00) were weaker after a three-day break.

-Jules Rimmer

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January 20, 2026 04:32 ET (09:32 GMT)

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