By Mike Dolan
LONDON (Reuters) - What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets
Friday's sharp bounce on Wall Street flattered a rough week, but stock futures were back in the red again early today as investors continue to fret about the impact of all the economic policy upheaval on American households.
I'll review what's moving global markets this morning and then explore how the Trump administration's potential plan to weaken the dollar could take Wall Street down with it.
Today's Market Minute
* Oil prices struck a two-week high on Monday, U.S. stock futures slid while those in Asia charged higher.
* U.S. President Donald Trump said he has no intention of creating exemptions on steel and aluminum tariffs and said reciprocal and sectoral tariffs will be imposed on April 2.
* There are "no guarantees" there will not be a recession in the United States, although there could be an adjustment, Treasury Secretary Scott Bessent said in an interview that aired on Sunday.
* China's State Council unveiled on Sunday what it called a "special action plan" to boost domestic consumption, featuring measures including increasing residents' income and establishing a childcare subsidy scheme.
* The United States will keep attacking Yemen's Houthis until they end attacks on shipping, the U.S. defense secretary said on Sunday, as the Iran-aligned group signaled it could escalate in response to deadly U.S. strikes the day before.
U.S. retail under scrutiny
Monday's U.S. retail sales update for last month will be in sharp focus today, despite consensus forecasts for a brisk rebound in shopping after a weather-related drop in January.
Once that's out, the Atlanta Federal Reserve will update its closely-watched 'GDPNow' model, where the current estimate is for an alarming first-quarter economic contraction of 2.4%.
Meanwhile, Donald Trump's new administration appears to have no intention of slowing the pace of policy disruption, but is instead telling Americans to brace themselves for a bumpy ride.
Treasury Secretary Scott Bessent on Sunday again refused to rule out a recession, adding that stock market corrections like the one the S&P 500 recorded last week were "healthy".
"We are going to have a transition, and we are not going to have a crisis," Bessent told NBC's "Meet the Press".
Otherwise, it's a big week for central banks, with the Fed, Bank of Japan and Bank of England all meeting, However, no major policy moves are expected by any of them.
The Fed is highly unlikely to change interest rates given all the shifting policy sands. But investors will scrutinize the updated economic and policy rate projections and try to assess whether there could be a pause in the rundown of the Fed's balance sheet.
Fed policymakers currently expect two rate cuts this year, with futures markets half priced for a third. Ten-year Treasury yields were firmer to start the week, and the dollar was steady.
Overseas, stocks in Europe and Asia were mostly up on the day.
The latest sweep of Chinese economic updates showed that retail and industry numbers for the first two months of the year were above forecasts, but ongoing deflation in home prices continues. Beijing's latest consumption stimulus plan was also in focus, but mainland Chinese shares bucked the regional trend and ended the day lower.
In Germany, last week saw an agreement among the mainstream political parties to push ahead with the massive fiscal stimulus and defence reboot. Now attention will turn to the actual vote on Tuesday. Although court challenges to the plans are underway, the vote is expected to pass.
Now, I'd like to explore how all of the volatility on Wall Street in recent weeks may be related to the Trump administration's plans for the dollar.
Dollar stops insulating U.S. stocks
Seemingly erratic U.S. policymaking may be weakening the dollar as much as any potential 'Mar-a-Lago accord' could have hoped, but risks taking U.S. asset prices down with it.
As U.S. trade and political alliances are sundered and Americans start to fret about an economic downturn, foreign investors in the United States are having to rethink some basic assumptions.
Deutsche Bank strategist George Saravelos points out that in early 2025, overseas investors, who have for years been happy to hold U.S. dollar assets without hedging the currency, have had a rude awakening.
Even though first-quarter losses for S&P 500 stocks are about 6% in dollar terms, unhedged European investors have suffered almost twice that - as the euro has surged 5% against the dollar amid a defense-related reboot of German and euro fiscal policy.
Similarly, year-to-date losses of less than 1% in popular exchange-traded funds in U.S. Treasuries are magnified to more than 5% for euro-based investors.
What's more, unhedged U.S. equity losses for European investors are now on par with the quarterly hit taken after Russia's Ukraine invasion in 2022 and other inflationary forces sparked bruising U.S. interest rate rises.
And, outside the pandemic, these hits haven't been matched since the quarterly loss recorded when Donald Trump's first trade war with China unfolded in 2018. Beyond that, you have to go all the way back to the banking collapse of 2008 for a worst three months for unhedged European investors.
Every equity market has periodic hiccups of course, but they usually happen across markets. Not so this year. European funds soaked in U.S. losses this quarter may wince at the sight of euro equities surging 10% by contrast.
CORRELATION BREAKDOWN
Saravelos's main point is that the positive correlation between U.S. equity declines and dollar weakness is new and alarming, as the greenback's 'haven' status has typically seen it appreciate during times of equity market stress in the past and softened the underlying blow for those overseas.
It has not responded that way this year, a change in behaviour that appears to reflect wider concerns about what's happening stateside.
If that safety factor is now gone - in part due to the policy fog and uncertainties coming from Washington - then some of the 'exceptional' attractions of U.S. investment may go too.
"If this correlation breakdown between U.S. equities and the dollar continues, it will open up a more structural discussion among European - and global - asset managers on the diversification benefits of unhedged risky-asset dollar exposure," the Deutsche analyst told clients.
"By extension, a sizeable net reduction of dollar exposure would be on the cards."
'GIGANTIC RESTRUCTURING'
To what extent that's already underway is now for markets to work out with just over two weeks until the end of the first quarter, after which Trump's 'reciprocal' tariff hikes will kick in and potentially hit Europe hard - likely eliciting even more retaliation.
A key question in many investors' minds is likely whether Trump's reworking of economic and political alliances is less 'chaos' than a deliberate gamble to reduce the value of the dollar and restore competitiveness to U.S. industry.
This has led to speculation about 'grand bargains' that would force domestic demand stimulus and greater consumption in other parts of the world, thereby reducing others' dependence on America as the world's banker and unwinding dollar overvaluation in the process.
Europe's rush to spend and re-arm this month due to weakening U.S. military support for the region may well be viewed as a Trump victory in that respect.
But there may be a big price to pay at home for that 'win', despite the new administration's insistence that short-term market pain is worth enduring to rebalance the American and world economies.
Even if you think that's a desirable direction of travel in the long run, the fact that America's investment deficit to the rest of the world is now in the region of $24 trillion dollars suggests there could be a far more painful repricing of U.S. assets ahead alongside a weaker currency.
What that repricing means for U.S. GDP - which Bank of America points out rose 50% in nominal terms over the past five years - is another question.
And while some think there will simply be short-term market disruptions counted in weeks or months, others are not so sure.
"The administration thinks that high tariffs will lead to massive capital investments in the U.S., thus leading to high-paying jobs and higher revenue for the federal government," Stifel's Chief Washington Policy Strategist Brian Gardner recently said.
"Regardless of what one thinks of the merits of this policy, it would require a gigantic restructuring of the global economy which will take several years to achieve."
Buying market dips in that environment will be very brave.
Chart of the day
Nervy eyes are now trained on the U.S. consumer after a turbulent first few months of Donald Trump's new administration, and the latest surveys reflect this anxiety. The University of Michigan's monthly series showed overall household sentiment index hit a 28-month low in March, with a wide dispersion depending on the political affiliation of the respondents. But perhaps surprisingly, even Republican voters were more downbeat this month.
Today's events to watch
* U.S. February retail sales, New York Federal Reserve's February manufacturing survey, March NAHB housebuilder survey, January retail/business inventories
* Atlanta Fed updates its "GDPNow" model on Q1 growth
* OECD economic outlook update
* European Central Bank President Christine Lagarde speaks
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Mike Dolan; Editing by Anna Szymanski)
