By Jamie McGeever
ORLANDO, Florida (Reuters) - TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
ECB, China GDP, Powell up next
Investors enjoyed another day of much-needed rest and recuperation on Tuesday after the last few bruising weeks, with no further strains in global trade tensions or left-field policy announcements from the White House pushing bond yields and volatility lower, although Wall Street closed slightly down.
The dollar rebounded from three-year lows, but U.S. President Donald Trump's upending of the global economic order suggests the "strong dollar policy" advocated by Washington over the last three decades has never rung more hollow.
More on that and more below, but first, a round-up of the day's main market moves. I'd love to hear from you, so please reach out to me with comments at . You can also follow me at @ReutersJamie and @reutersjamie.bsky.social.
If you have more time to read today, here are a few articles I recommend to help you make sense of what happened in markets.
1. At China's largest trade fair, exporters say US marketsare 'frozen' 2. China says it is 'tearing down walls' to expand tradealliances amid US standoff 3. Europe enjoying some 'exorbitant privilege' : Mike Dolan 4. EXCLUSIVE-Nissan to cut Japanese production oftop-selling US model due to tariffs 5. China orders airlines to suspend Boeing jet deliveriesamid trade war, Bloomberg News reports
Today's Key Market Moves
* Wall Street closes with light losses - the Nasdaq dipsonly 0.05%, the S&P 500 sheds 0.2% and the Dow slips 0.4%. * The best-performing sector on Wall Street is financials,up 0.4% on the back of another strong batch of big bankearnings, this time from Bank of America and Citi. * The best-performing stocks, however, are in tech: PalantirTechnologies +6.2%, Netflix +4.8% and Hewlett Packard +5.1%. * Seven out of 10 sectors on the S&P 500, however, close inthe red, led by a 0.7% fall in consumer cyclicals. * The VIX index declines for a third day but still closesabove 30.0, as it has done every day since April 2, Trump's'Liberation Day'. The index is still roughly 50% higher than its'normal' levels. * European stocks post solid gains, with major German, UKand pan-European benchmarks up around 1.5%. * Asian stocks rise for a fourth session, their best run intwo months, as the MSCI Asia ex-Japan index gains 1%. Japan'sNikkei 225 climbs 0.8%. * The dollar rebounds strongly, especially vs major FX. Thedollar jumps 1% vs the Swiss franc, and the dollar index snaps afive-day losing streak and rises 0.5%. * Stocks in Argentina slide more than 3%, reversing much ofthe previous session's 5% jump after Buenos Aires lifted capitalcontrols and freed up the peso's trading band. After slumping10% on Monday, the peso steadies on Tuesday.
Activity, sentiment and asset price direction across global markets on Tuesday could probably best be summed up by the maxim that "no news is good news".
There was no major flare-up in the global trade war although, much like Monday, lingering tariff worries tempered any sense of relief on Wall Street and U.S. stocks lagged their global peers.
That was despite another dose of unexpectedly strong earnings from major Wall Street banks. Bumper profits and record trading revenues are great, but will have next to no bearing on the rest of the year - the market environment they were racked up in has radically changed.
To be sure, U.S. economic data on Tuesday put a temporary pause on the stagflation narrative that has been growing rapidly and loudly recently - the New York State manufacturing index rose more than expected, and import prices surprisingly fell.
And elsewhere, inflation in India and Canada came in below expectations, giving policymakers there some welcome breathing room.
So as the world awaits the next move on tariffs from Trump or China, and negotiations between the Trump administration and dozens of countries get under way, markets are in a kind of limbo.
That's preferable to the free fall they've sporadically been in since 'Liberation Day' but it's an uneasy, nervous holding pattern. That could get shaken up on Wednesday - China releases first quarter GDP data, the European Central Bank delivers its latest interest rate decision and guidance, and U.S. Federal Reserve Chair Jerome Powell speaks on the economic outlook.
U.S. 'strong dollar' policy rings increasingly hollow
U.S. Treasury Secretary Scott Bessent on Monday repeated the mantra we've heard from his nine predecessors: "We have a strong dollar policy." While the words are familiar, the conviction behind them may have softened.
It was former Treasury Secretary Robert Rubin who, 30 years ago in early 1995, declared that "a strong dollar is in our national interest," articulating what has become one of the fundamental tenets of the modern global financial system.
The 'strong dollar' policy has always been about more than just the exchange rate, although a more expensive currency can help keep inflation and interest rates low. This policy has represented the world's trust in the U.S., and, consequently, the greenback's role as the lynchpin of the global economy.
But times have changed since 1995. A lot. The world today is losing faith in the dollar, losing trust in the government institutions backing it, and losing confidence in America's role as leader of the 'free world'.
Back then, the North American Free Trade Agreement was in its infancy, China was about to emerge as an economic force, globalization was accelerating, trade and regulatory barriers were being torn down, and global capital flows were exploding. The dollar was pivotal to all that and it soared for the next seven years, right up until the dotcom crash.
The dollar slumped around 40% in the following seven years to the Global Financial Crisis and then drifted for several more years after its post-Lehman surge. But this didn't stop central banks from growing their dollar FX reserves to $4.5 trillion in 2015 from around $1 trillion in 2001.
That was a strong dollar, the world's reserve currency in its prime.
PRESSURE AT THE LONG END
The dollar has remained dominant by any measure. Central banks' dollar holdings have largely flat-lined for the past decade, but private sector buyers have increased their exposure significantly. The greenback is still the most dominant currency in FX reserves, global trade and financial market trading.
But as Steven B. Kamin, senior fellow at the American Enterprise Institute, and Mark Sobel, U.S. chairman at the Official Monetary and Financial Institutions Forum, have written, future dollar dominance rests on three factors: "preserving the underpinnings of the dollar's global role; maintaining trust in the U.S. as a reliable partner; and avoiding overuse or abuse of financial sanctions."
Doubt now hangs over all three as the Trump administration's 'America First' agenda has caused foreign investors to look at the dollar in a new light.
Last November, before his confirmation as Chair of the U.S. Council of Economic Advisers, Stephen Miran published a paper, 'A User's Guide to Restructuring the Global Trading System', in which he argued that the dollar, from a trade perspective, is "persistently over-valued in large part because dollar assets function as the world's reserve currency."
Perhaps more importantly, he also noted that while Trump supports the dollar's reserve status, he had floated "substantial changes" to dollar policy. "Sweeping tariffs and a shift away from strong dollar policy can have some of the broadest ramifications of any policies in decades, fundamentally reshaping the global trade and financial systems."
This will be achieved by a range of policies aimed at getting the rest of the world to share more of the "cost" America bears for providing the reserve currency, Miran argues, rather than replacing the dollar. Tariffs are clearly Trump's policy of choice.
The dollar will fluctuate in value and its dominance as the world's sole reserve currency may continue to slowly diminish. The Treasury Secretary will probably always pay lip service to the "strong dollar" policy - they have a duty, after all, to help keep borrowing costs low.
"It can be wheeled out in times of need and when the Treasury Secretary worries about the long end of the curve," says Steve Englander, head of global G10 FX Research at Standard Chartered.
Bessent's reaffirmation this week of Washington's 30-year-old stance, therefore, was perhaps no surprise. But it probably fell on deaf ears.
What could move markets tomorrow?
* China GDP (Q1) * European Central Bank interest rate decision * Bank of Canada interest rate decision * U.S Federal Reserve Chair Jerome Powell 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.
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(By Jamie McGeever, editing by Nia Williams)
