After a week of global turmoil and talk, nothing was solved

“We are in the midst of a rupture, not a transition," Mark Carney, Canada’s prime minister, starkly told the World Economic Forum in Davos, Switzerland, this past week. That was from an international rules-based order, under “American hegemony," which he said “helped provide public goods, open sea lanes, a stable financial system, collective security, and support for frameworks for resolving disputes."

This apparent rupture was highlighted by President Donald Trump’s threat to take over Greenland, which roiled financial markets at the beginning of the week. That was backed by his initial non-denial that the U.S. would consider the use of military force to take over the Arctic island and the imposition of additional tariffs on goods from European countries opposing the move.

Then, in what has become a familiar performance, the president pivoted on Wednesday away from his initial extreme positions to emerge with an agreement. After eschewing force, he announced he reached “the framework of a future deal" over Greenland and rescinded the tariffs due, which had been scheduled to hit on Feb. 1.

Global stocks staged a relief rally, recouping most of their earlier losses, just as they have after previous episodes. Notably, last April’s “Liberation Day" swoon became a marvelous entry point for a subsequent stunning run of over 40% from the lows of the S&P 500 index to its recent record just short of the 7000 mark.

While risk markets’ muscle memory is strong, nothing was solved by the events of the past week, observes Carl B. Weinberg, the veteran head of High Frequency Economics. “Break it-fix-it-claim-the-win...that’s the plan," he writes in a client note. “Our only forecast can be for more disruptive events, at unpredictable times," making for continued uncertainty for economists, investors, and traders.

All of which suggests a continued global move away from the dollar, which would have negative implications for U.S. bonds and stocks.

Meanwhile, the breach between the U.S. and its North Atlantic Treaty Organization allies remains after what’s being popularly—and probably improperly—called another TACO move, as in Trump always chickens out. More likely, however, the president’s negotiating ploy all along was to create chaos to force a deal. Market participants have come to assume they will come out of these recurring melodramas intact.

“But the supposed ‘Greenland deal’ doesn’t address the broader issue of the growing mutual distrust and disagreements between the U.S. and Europe over each’s responsibility to the other," according to Macquarie global strategists Thierry Wizman and Gareth Berry. “These responsibilities are written in treaties, formal arrangements, and customs of the past 80 years. That dismissiveness toward Europe was evident in the claims that Trump made at Davos: that the allies ‘owe’ the U.S. for the fortunes of their liberties, and hinting that Europe is on the verge of collapse," they write in a client note.

One sign of this change was the lack of a U.S. dollar rally, which typically has accompanied geopolitical tensions, they add.

The U.S. “was still seen as the safest and most accessible redoubt or haven for global ‘flight capital,’ and because it had a history of being relatively unscathed (territorially) from the conflicts it itself participated in or enjoined. But what is happening now is different." Traders instead are flocking to gold “and its neighbors on the periodic table (e.g., silver, platinum) and defense stocks."

At the same time, Europe has been the U.S.’s largest creditor, wrote George Saravelos, Deutsche Bank’s chief currency strategist, in a widely read note this past week. Europe holds about $8 trillion of U.S. bonds and equities, almost twice as much as the rest of the world combined, he pointed out. At the same time, the U.S. remains dependent on foreign capital to fund its persistent budget deficits, which are running at nearly 6% of gross domestic product—a gap unprecedented other than in wartime or during recessions.

“In an environment where the geoeconomic stability of the Western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part," he continued. Pension funds of Denmark (of which Greenland is a territory) sold $100 million of their Treasury securities. U.S. Treasury Secretary Scott Bessent called the sale and the nation “irrelevant." And he noted that Deutsche Bank’s CEO called him to say Saravelos’ assessment didn’t affect the bank’s official views.

Bessent’s dismissiveness probably reflects the healthy capital inflows into U.S. capital markets, which totaled some $1.569 trillion in the 12 months through November, according to the latest Treasury International Capital Data. That included $481 billion going into Treasury notes and bonds and government agency securities.

But while market watchers tend to concentrate on foreign purchases of Treasuries as an indication of global support for Uncle Sam’s borrowing needs, the biggest international inflows of the past 12 month were into U.S. equities. Not surprisingly, the world was coming to America to participate in the artificial-intelligence boom, buying $689 billion of U.S. equities, or 44% of long-term securities purchases, in the span. Foreign purchases of corporate bonds (an increasing amount of which funds AI buildouts) accounted for a quarter of long-term securities purchases. So, AI is not only an essential factor in the stock market’s advance but also a key component in funding the U.S. current-account deficit.

But more important is the international role of the dollar, which remains central to global commerce and finance. Based on the widely watched U.S. Dollar Index, the greenback has been relatively stable after a steep drop in the first quarter of 2025. More telling has been the dollar’s weakness against emerging market currencies, writes Robin J. Brooks, senior fellow at the Brookings Institution, on Substack. While the greenback is about flat against developed-market currencies since the Fed’s December interest-rate cut, it’s down about 2% against a basket of EM currencies and continues to make new lows, Brooks says. Dollar debasement has begun, he concludes.

This comes amid the tumultuous events of the past week. The dollar’s international status reflects the unrivaled size, liquidity, and opportunities of the U.S. money and capital markets. Beyond those investment attributes, the dollar’s role is the result of, first of all, U.S. institutions. Among those is an independent Federal Reserve, which was implicitly on trial this past week during arguments before the Supreme Court in Fed governor Lisa Cook’s suit to fight her dismissal by the president.

Even more, the U.S. currency’s global status reflects the U.S. role as a reliable defender of the free world. But as one veteran global investor relates privately, Trump has been soft with tough guys like China and Russia, and tough with weak guys like Europe and Canada. The investor sees the new world order as anarchy, with gold the main beneficiary.

I would rather look to Winston Churchill’s aphorism, that America can be counted on doing the right thing—after having done everything else.

Write to Randall W. Forsyth at randall.forsyth@barrons.com